Wintrust(US:WTFC)2023-02-28 22:27PART I ITEM 1. BUSINESS Wintrust Financial Corporation is a financial holding company providing community-oriented banking, specialty finance, and wealth management services primarily in the Chicago metropolitan area, southern Wisconsin, and northwest Indiana - Wintrust Financial Corporation, incorporated in 1992, is a financial holding company with approximately $52.9 billion in total assets as of December 31, 202212 - The company provides community-oriented, personal and commercial banking services, residential mortgage origination, specialty finance services (insurance premium finance, lease financing, accounts receivable financing), and wealth management services12 - Operations are divided into three primary segments: community banking, specialty finance, and wealth management, managed separately due to differing products, services, marketing strategies, customer bases, and regulatory environments13 Community Banking Segment Financials | Metric | 2022 (Millions) | 2021 (Millions) | 2020 (Millions) | | :----- | :-------------- | :-------------- | :-------------- | | Net Revenues | $1,500 | $1,300 | $1,300 | | Net Income | $349 | $319 | $164 | | Total Assets | $41,400 | $40,300 | $36,800 | Specialty Finance Segment Financials | Metric | 2022 (Millions) | 2021 (Millions) | 2020 (Millions) | | :----- | :-------------- | :-------------- | :-------------- | | Net Revenues | $344 | $294 | $263 | | Net Income | $121 | $109 | $100 | | Total Assets | $9,800 | $8,400 | $7,000 | Wealth Management Segment Financials | Metric | 2022 (Millions) | 2021 (Millions) | 2020 (Millions) | | :----- | :-------------- | :-------------- | :-------------- | | Net Revenues | $163 | $161 | $134 | | Net Income | $39 | $38 | $29 | | Total Assets | $1,800 | $1,500 | $1,300 | | Assets Under Administration | $34,400 | N/A | N/A | - The company's strategy includes leveraging its loan pipeline, diversifying its loan portfolio, managing interest costs, using call option contracts for hedging, completing strategic acquisitions, focusing on cost control, and expanding Wintrust Asset Finance3844 - Wintrust is heavily regulated by federal and state agencies, including the Federal Reserve, OCC, SEC, FINRA, and FDIC, with increasing scrutiny on capital requirements, consumer protection, AML, and data privacy495051 Company Regulatory Capital Ratios (as of December 31, 2022) | Ratio | Minimum Regulatory Capital Ratio (%) | Minimum Ratio + Capital Conservation Buffer (%) | Well-Capitalized Minimum for the Company (%) | The Company (Actual) (%) | | :-------------------------------- | :------------------------------- | :---------------------------------------- | :--------------------------------------- | :------------------- | | Common Equity Tier 1 Capital Ratio | 4.50 | 7.00 | N/A | 9.1 | | Tier 1 Capital Ratio | 6.00 | 8.50 | 6.00 | 10.0 | | Total Capital Ratio | 8.00 | 10.50 | 10.00 | 11.9 | | Tier 1 Leverage Ratio | 4.00 | N/A | N/A | 8.8 | - As of December 31, 2022, Wintrust employed 5,275 full-time equivalent employees; in 2022, 53% of new hires were female and 42% were racial or ethnic minorities, with turnover approximately 25%123124 - The company is committed to diversity and inclusion, with women representing 57% of the workforce and racially/ethnically diverse individuals representing 32%, implementing advocate-protégé partnerships, Business Resource Groups (BRGs), and a 360° Inclusivity Model126 - Wintrust focuses on mitigating environmental impact, assessing climate-related risks, and supporting climate solutions, managing $157 million in climate-focused portfolios as of December 31, 2022132133134 ITEM 1A. Risk Factors Wintrust faces principal risks from economic downturns, intense competition, regulatory changes, potential loan losses, and operational vulnerabilities - Economic risks include deterioration in general business conditions, interest rate volatility, inflation, and specific economic declines in the Chicago metropolitan and southern Wisconsin market areas where the business is concentrated137147151 - Competition risks stem from a highly competitive financial services industry, including larger institutions and FinTech companies, and potential damage to reputation from various sources, including ESG concerns138157159161 - Growth and acquisition risks involve challenges in identifying and integrating acquisitions, potential dilution of shareholder value, and significant expenses and delayed returns from de novo operations139165167171 - Legal and regulatory risks include failure to meet capital ratios, changes in monetary policy, increased compliance costs from legislative and regulatory actions (e.g., Dodd-Frank Act, CFPB rules), data privacy and cybersecurity laws, and potential fines for non-compliance with AML programs140172174178182189 - Lending operation risks include the sufficiency of the allowance for credit losses, litigation related to the SBA Paycheck Protection Program (PPP), dependence on commercial loan repayment, and a substantial portion of the loan portfolio being secured by real estate141196200202204 - Niche business risks, particularly in premium finance, involve higher delinquency/collection risks, susceptibility to third-party fraud, and vulnerability to financial difficulties or credit downgrades among insurance providers142209210215 - Financial strength and liquidity risks include adverse effects from changes in interest rates, potential negative impacts on liquidity from economic conditions, and increased financing costs if credit ratings are lowered143217222224 - General operational risks encompass failures or breaches of internal controls and security systems (including cyber-attacks), reliance on third-party vendors, accuracy of customer information, ability to attract and retain qualified personnel, and extraordinary events like natural disasters or acts of war144239243252253254256 ITEM 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments260 ITEM 2. Properties Wintrust Financial Corporation's executive offices are located in Rosemont, Illinois, with additional corporate and retail spaces in downtown Chicago and Milwaukee - The Company's executive offices are located in Rosemont, Illinois, with additional corporate offices in downtown Chicago and Milwaukee262 - Wintrust operates 174 banking facilities, predominantly owned, in the Chicago metropolitan area, southern Wisconsin, northwest Indiana, and one in Naples, Florida262 - Wintrust Mortgage has 42 leased retail mortgage offices in 10 states, concentrated in Chicago, Minneapolis, Salt Lake City, and Los Angeles metropolitan areas262 - Wealth management subsidiaries have leased locations in downtown Chicago, Appleton (Wisconsin), and Tampa (Florida), plus offices at several banks263 - Specialty finance entities (FIRST Insurance Funding, Wintrust Life Finance, FIFC Canada, Wintrust Asset Finance, Tricom) operate from owned and leased locations in Illinois, New Jersey, New York, California, Wisconsin, and Canada263 ITEM 3. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note (20) 'Commitments and Contingencies' in Item 8 of this Annual Report on Form 10-K - Information on legal proceedings is set forth in Part II, Item 8, Financial Statements and Supplementary Data, under Note (20) 'Commitments and Contingencies'264 ITEM 4. Mine Safety Disclosures This item is not applicable to Wintrust Financial Corporation - This item is not applicable265 PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Wintrust's common stock trades on NASDAQ (WTFC), with 1,678 shareholders as of February 2023, and the Board approved a $0.40 quarterly cash dividend - Wintrust Financial Corporation's common stock is traded on The NASDAQ Global Select Market under the symbol WTFC267 Cumulative Shareholder Return (2017-2022) | Year | Wintrust Financial Corporation | NASDAQ — Total US | NASDAQ — Bank Index | | :--- | :----------------------------- | :---------------- | :------------------ | | 2017 | 100.00 | 100.00 | 100.00 | | 2018 | 81.44 | 94.56 | 83.60 | | 2019 | 88.09 | 124.03 | 114.68 | | 2020 | 77.73 | 150.41 | 100.00 | | 2021 | 117.45 | 189.36 | 137.32 | | 2022 | 110.94 | 152.00 | 113.60 | - As of February 9, 2023, there were approximately 1,678 shareholders of record of the Company's common stock271 Cash Dividends Paid per Common Share | Record Date | Payable Date | Dividend per Share ($) | | :-------------- | :-------------- | :--------------------- | | November 10, 2022 | November 25, 2022 | $0.34 | | August 11, 2022 | August 25, 2022 | $0.34 | | May 12, 2022 | May 26, 2022 | $0.34 | | February 10, 2022 | February 24, 2022 | $0.34 | | November 11, 2021 | November 26, 2021 | $0.31 | | August 5, 2021 | August 19, 2021 | $0.31 | | May 6, 2021 | May 20, 2021 | $0.31 | | February 11, 2021 | February 25, 2021 | $0.31 | - On January 26, 2023, the Board approved a quarterly cash dividend of $0.40 per share, paid on February 23, 2023273 - The company's ability to pay dividends depends on dividends received from its subsidiaries, which totaled $52.0 million in 2022, $145.0 million in 2021, and $253.0 million in 2020274 - No purchases of the Company's common shares were made under the authorized repurchase program during the twelve months ended December 31, 2022276 ITEM 6. [Reserved] This item is reserved and contains no information ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Wintrust's financial performance, showing increased net income from earning asset growth and net interest margin expansion, offset by higher credit loss provisions Key Profitability and Balance Sheet Measures | Metric | 2022 (Thousands) | 2021 (Thousands) | 2020 (Thousands) | 2021 to 2022 Change (%) | 2020 to 2021 Change (%) | | :------------------------------------------ | :--------------- | :--------------- | :--------------- | :---------------------- | :---------------------- | | Net income | $509,682 | $466,151 | $292,990 | 9 | 59 | | Net income per common share — Diluted | $8.02 | $7.58 | $4.68 | 6 | 62 | | Net revenue | $1,956,415 | $1,711,077 | $1,644,096 | 14 | 4 | | Net interest income | $1,495,362 | $1,124,957 | $1,039,907 | 33 | 8 | | Net interest margin | 3.15 % | 2.57 % | 2.72 % | 58 bp | (15) bp | | Return on average assets | 1.01 | 1.00 | 0.71 | 1 | 29 | | Total assets | $52,949,649 | $50,142,143 | $45,080,768 | 6 | 11 | | Total loans, excluding loans held-for-sale | $39,196,485 | $34,789,104 | $32,079,073 | 13 | 8 | | Total deposits | $42,902,544 | $42,095,585 | $37,092,651 | 2 | 13 | | Allowance for loan and unfunded lending-related commitment losses to total loans | 0.91 % | 0.86 % | 1.18 % | 5 bp | (32) bp | | Non-performing loans to total loans | 0.26 | 0.21 | 0.40 | 5 | (19) | - Net income increased by $43.5 million in 2022, primarily due to a $370.4 million (33%) increase in net interest income, driven by growth in earning assets and a 58 basis point increase in net interest margin285287342345346 - The loan portfolio grew from $34.8 billion at December 31, 2021, to $39.2 billion at December 31, 2022, with significant growth in commercial, industrial, commercial real estate, and premium finance receivables286 - Non-interest income decreased by $125.1 million (21%) in 2022, mainly due to lower mortgage banking revenues from reduced originations and production margins, and net losses on investment securities288343360 - Non-interest expense increased by $44.7 million (4%) in 2022, driven by higher software and equipment expenses and increased advertising and marketing costs289373374375 - The provision for credit losses increased to $78.6 million in 2022 (from a negative provision of $59.3 million in 2021), primarily due to deteriorating macroeconomic forecasts and loan portfolio growth285301342 - The allowance for loan and unfunded lending-related commitment losses increased by $57.8 million (19%) to $357.4 million at December 31, 2022301 - Total non-performing loans increased to $100.7 million (0.26% of total loans) at December 31, 2022, from $74.4 million (0.21%) at December 31, 2021148306426 - The company's liquidity position is supported by a strong deposit base, liquid short-term investments, and access to external funding sources, with $2.5 billion in overnight liquid funds at December 31, 2022290 - The company's critical accounting estimates include the allowance for credit losses, estimations of fair value, impairment testing of goodwill, valuation and accounting for derivative instruments, and income taxes326 Sensitivity Analysis for Allowance for Credit Losses (Baa Credit Spread) | Baa Credit Spread | Commercial (Impact to estimate) | Commercial Real Estate: Construction (Impact to estimate) | Commercial Real Estate: Non-Construction (Impact to estimate) | | :---------------- | :------------------------------ | :-------------------------------------------------------- | :------------------------------------------------------------ | | Narrows | Decreases by 10%-15% | Decreases by 15%-20% | Decreases by 4%-5% | | Widens | Increases by 15%-20% | Increases by 15%-20% | Increases by 4%-5% | Sensitivity Analysis for Allowance for Credit Losses (CRE Price Index) | CRE Price Index | Commercial Real Estate: Construction (Impact to estimate) | Commercial Real Estate: Non-Construction (Impact to estimate) | | :-------------- | :-------------------------------------------------------- | :------------------------------------------------------------ | | Increases | Decreases by 30%-35% | Decreases by 25%-30% | | Decreases | Increases by 130%-135% | Increases by 40%-45% | Operating Summary Wintrust's operating summary shows net income increased by 9% in 2022, driven by a 33% rise in net interest income and a 58 basis point net interest margin expansion Key Profitability and Balance Sheet Measures | Metric | 2022 (Thousands) | 2021 (Thousands) | 2020 (Thousands) | 2021 to 2022 Change (%) | 2020 to 2021 Change (%) | | :------------------------------------------ | :--------------- | :--------------- | :--------------- | :---------------------- | :---------------------- | | Net income | $509,682 | $466,151 | $292,990 | 9 | 59 | | Pre-tax income, excluding provision for credit losses (non-GAAP) | $779,144 | $578,533 | $604,001 | 35 | (4) | | Net income per common share — Diluted | $8.02 | $7.58 | $4.68 | 6 | 62 | | Net revenue | $1,956,415 | $1,711,077 | $1,644,096 | 14 | 4 | | Net interest income | $1,495,362 | $1,124,957 | $1,039,907 | 33 | 8 | | Net interest margin | 3.15 % | 2.57 % | 2.72 % | 58 bp | (15) bp | | Return on average assets | 1.01 | 1.00 | 0.71 | 1 | 29 | | Total assets | $52,949,649 | $50,142,143 | $45,080,768 | 6 | 11 | | Total loans, excluding loans held-for-sale | $39,196,485 | $34,789,104 | $32,079,073 | 13 | 8 | | Total deposits | $42,902,544 | $42,095,585 | $37,092,651 | 2 | 13 | | Allowance for loan and unfunded lending-related commitment losses to total loans | 0.91 % | 0.86 % | 1.18 % | 5 bp | (32) bp | | Non-performing loans to total loans | 0.26 | 0.21 | 0.40 | 5 | (19) | Non-GAAP Financial Measures/Ratios This section explains Wintrust's non-GAAP financial measures, including taxable-equivalent net interest income and efficiency ratio, used to evaluate performance and operating efficiency - Wintrust uses non-GAAP measures like taxable-equivalent net interest income, efficiency ratio, tangible common equity ratio, and return on average tangible common equity to evaluate performance282 - Taxable-equivalent net interest income adjusts for tax-exempt interest income to ensure comparability across taxable and tax-exempt sources283 - The efficiency ratio measures how much it costs to produce one dollar of revenue, calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses)283 Reconciliation of Non-GAAP Performance Measures | Metric | 2022 (Thousands) | 2021 (Thousands) | 2020 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | :--------------- | | Net Interest Income, fully taxable-equivalent (non-GAAP) | $1,500,963 | $1,128,558 | $1,044,322 | | Net interest margin, fully taxable-equivalent (non-GAAP) | 3.17 % | 2.58 % | 2.73 % | | Efficiency ratio (non-GAAP) | 59.38 % | 66.01 % | 63.02 % | | Total tangible common shareholders' equity (non-GAAP) | $3,708,628 | $3,402,732 | $3,021,748 | | Tangible common equity ratio (non-GAAP) | 7.1 % | 6.9 % | 6.8 % | | Tangible book value per common share (non-GAAP) | $61.00 | $59.64 | $53.23 | | Return on average tangible common equity (non-GAAP) | 13.73 % | 13.83 % | 9.54 % | | Pre-tax income, excluding provision for credit losses (non-GAAP) | $779,144 | $578,533 | $604,001 | Overview and Strategy Wintrust's 2022 net income rose to $509.7 million, driven by increased net interest income and margin, despite higher credit loss provisions and reduced mortgage banking revenue - Net income for 2022 was $509.7 million, up from $466.2 million in 2021, primarily due to increased net interest income and margin, partially offset by higher provision for credit losses and lower mortgage banking revenue285 - The loan portfolio increased from $34.8 billion to $39.2 billion in 2022, driven by growth in commercial, industrial, commercial real estate, and premium finance receivables286 - Net interest income rose to $1.5 billion in 2022 (from $1.1 billion in 2021), with net interest margin increasing to 3.15% (3.17% FTE) due to higher earning asset yields and a shift in asset mix287293 - Non-interest income decreased by 21% in 2022, mainly due to a decline in mortgage banking revenues (originations for sale fell from $6.8 billion in 2021 to $2.8 billion in 2022) and net losses on investment securities288297 - The provision for credit losses increased to $78.6 million in 2022, primarily due to a deterioration in forecasted macroeconomic conditions and loan portfolio growth301 - Wintrust maintains adequate liquidity through its strong deposit base, liquid short-term investments, and access to external funding sources290 - The company utilizes strategies such as writing call options on investment securities ($14.1 million in fees in 2022) and 'back to back' interest rate derivative transactions to manage interest rate risk and enhance returns295296 - In June 2022, the Company completed a public offering of 3,450,000 shares of common stock, generating approximately $285.7 million in net proceeds323 - In November 2021, Wintrust acquired certain assets from The Allstate Corporation, including approximately $581.6 million in loans to Allstate agents, and became the national preferred provider of loans to Allstate agents, recording $9.3 million in goodwill324 Summary of Critical Accounting Estimates Wintrust's financial statements rely on critical accounting estimates, including the allowance for credit losses (ACL), fair value estimations, goodwill impairment, derivative valuations, and income taxes - Critical accounting estimates include the allowance for credit losses, estimations of fair value, impairment testing of goodwill, valuation and accounting for derivative instruments, and income taxes326 - The allowance for credit losses (ACL) is a critical estimate, requiring significant judgment on expected credit losses over the life of financial assets, considering historical losses, current economic conditions, and reasonable and supportable macroeconomic forecasts327 Impact to Estimated ACL from Changes in Key Macroeconomic Variables | Macroeconomic Variable | Impact to estimated allowance for credit losses from an increased or higher input value | | :--------------------- | :---------------------------------------------------------------------------------- | | Baa Credit Spread | Increases | | CRE Price Index | Decreases | - Fair value estimations for assets like trading securities, available-for-sale debt securities, and mortgage servicing rights (MSRs) are crucial, with significant judgment required for unobservable market data inputs331332 - Goodwill impairment testing is performed annually, using qualitative or quantitative approaches, and involves subjective judgments about future cash flows, discount rates, stock price, and business climate333335 - Accounting for derivative instruments depends on their designation as accounting hedges, requiring assumptions about effectiveness and timing of forecasted transactions338 - Income tax estimates involve complex judgments about applying tax laws, regulations, and case law, with potential for adjustments upon audit or reinterpretation339 Consolidated Results of Operations Wintrust's 2022 net income increased to $509.7 million, driven by a 33% rise in net interest income and a 58 basis point net interest margin expansion Net Income and EPS (2020-2022) | Metric | 2022 (Millions) | 2021 (Millions) | 2020 (Millions) | | :----- | :-------------- | :-------------- | :-------------- | | Net Income | $509.7 | $466.2 | $293.0 | | Diluted EPS | $8.02 | $7.58 | $4.68 | Net Interest Income (2020-2022) | Metric | 2022 (Millions) | 2021 (Millions) | 2020 (Millions) | Change YoY (%) | | :----- | :-------------- | :-------------- | :-------------- | :------------- | | Net Interest Income | $1,500 | $1,120 | $1,040 | 33 | - Average earning assets increased by $3.6 billion (8%) in 2022, with average loans increasing by $3.6 billion (11%)346 Average Yields and Rates (2020-2022) | Metric | 2022 (%) | 2021 (%) | 2020 (%) | 2022 Change (bp) | 2021 Change (bp) | | :----- | :------- | :------- | :------- | :--------------- | :--------------- | | Average yield on loans | 4.12 | 3.43 | 3.84 | 69 | (41) | | Average yield on liquidity management assets | 2.15 | 1.14 | 1.60 | 101 | (46) | | Average rate paid on interest-bearing deposits | 0.62 | 0.33 | 0.77 | 29 | (44) | | Net interest margin | 3.15 | 2.57 | 2.72 | 58 | (15) | Non-Interest Income by Category (2020-2022) | Category | 2022 (Thousands) | 2021 (Thousands) | 2020 (Thousands) | 2022 vs 2021 Change (%) | | :-------------------------- | :--------------- | :--------------- | :--------------- | :---------------------- | | Total wealth management | $126,614 | $124,019 | $100,336 | 2 | | Mortgage banking | $155,173 | $273,010 | $346,013 | (43) | | Service charges on deposit accounts | $58,574 | $54,168 | $45,023 | 8 | | Losses on investment securities, net | $(20,427) | $(1,059) | $(1,926) | NM | | Fees from covered call options | $14,133 | $3,673 | $2,292 | NM | | Total Non-Interest Income | $461,053 | $586,120 | $604,189 | (21) | - Mortgage originations for sale decreased from $6.8 billion in 2021 to $2.8 billion in 2022, with refinancing activity dropping from 55% to 29% of originations due to rising interest rates297360 Non-Interest Expense by Category (2020-2022) | Category | 2022 (Thousands) | 2021 (Thousands) | 2020 (Thousands) | 2022 vs 2021 Change (%) | | :-------------------------- | :--------------- | :--------------- | :--------------- | :---------------------- | | Total salaries and employee benefits | $696,107 | $691,669 | $626,076 | 1 | | Software and equipment | $95,885 | $87,515 | $68,496 | 10 | | Advertising and marketing | $59,418 | $47,275 | $36,296 | 26 | | Total Non-Interest Expense | $1,177,271 | $1,132,544 | $1,040,095 | 4 | - Income tax expense was $190.9 million in 2022, with an effective tax rate of 27.2%, slightly higher than 26.9% in 2021 due to reduced federal tax credits376 Operating Segment Results In 2022, Community Banking's net interest income rose 36% to $1.2 billion, Specialty Finance's increased 25%, and Wealth Management reported $38.3 million in net interest income Operating Segment Net Income (2020-2022) | Segment | 2022 (Millions) | 2021 (Millions) | 2020 (Millions) | | :---------------- | :-------------- | :-------------- | :-------------- | | Community Banking | $349.3 | $319.1 | $163.6 | | Specialty Finance | $120.9 | $109.2 | $100.3 | | Wealth Management | $39.4 | $37.9 | $29.0 | | Consolidated | $509.7 | $466.2 | $293.0 | - Community Banking net interest income increased by $311.7 million (36%) in 2022, but provision for credit losses rose to $74.2 million (from a negative $60.3 million in 2021) due to macroeconomic forecast deterioration and loan growth378 - Specialty Finance net interest income increased by $48.7 million (25%) in 2022, driven by loan growth and increased interest rates on premium finance receivables379 - In 2022, commercial premium finance, life insurance premium finance, leasing, and accounts receivable finance operations accounted for 42%, 30%, 24%, and 4% of specialty finance total revenues, respectively379 - Wealth Management net interest income is primarily an allocation from community banking on customer deposit balances, which averaged $2.8 billion in 2022380 Analysis of Financial Condition Wintrust's total assets grew 6% to $52.9 billion at year-end 2022, with average earning assets increasing 8%, and the investment securities portfolio experiencing significant unrealized losses - Total assets increased by $2.8 billion (6%) to $52.9 billion at December 31, 2022381 - Average total earning assets increased by $3.6 billion (8%) in 2022, comprising 94% of average total assets383 Composition of Average Earning Assets (2020-2022) | Category | 2022 Balance (Thousands) | 2022 Percent (%) | 2021 Balance (Thousands) | 2021 Percent (%) | 2020 Balance (Thousands) | 2020 Percent (%) | | :-------------------------- | :----------------------- | :--------------- | :----------------------- | :--------------- | :----------------------- | :--------------- | | Mortgage loans held-for-sale | $496,088 | 1 | $959,457 | 2 | $707,147 | 2 | | Total loans, net of unearned income | $36,684,528 | 77 | $33,051,043 | 75 | $30,181,204 | 79 | | Liquidity management assets | $10,209,151 | 22 | $9,755,234 | 23 | $7,348,571 | 19 | | Total average earning assets | $47,412,158 | 100 | $43,790,830 | 100 | $38,254,785 | 100 | - Average mortgage loans held-for-sale decreased to $496.1 million in 2022 from $959.5 million in 2021, due to lower originations and reclassification of certain loans384 - Average total loans, net of unearned income, increased by $3.6 billion (11%) to $36.7 billion in 2022, with significant growth in commercial and commercial real estate loans385386 - Average premium finance receivables increased by $2.3 billion (21%) to $13.0 billion in 2022, accounting for 35% of average total loans389 Investment Securities Portfolio (Fair Value, December 31, 2022 vs 2021) | Category | 2022 Fair Value (Thousands) | 2021 Fair Value (Thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Available-for-sale securities | $3,243,017 | $2,327,793 | | Held-to-maturity securities | $2,949,821 | $2,900,694 | | Equity securities with readily determinable fair value | $110,365 | $90,511 | - Available-for-sale securities had gross unrealized losses of $527.1 million at December 31, 2022, primarily in mortgage-backed securities, due to increased market interest rates599605 Loan Portfolio and Asset Quality Wintrust's total loan portfolio reached $39.2 billion at year-end 2022, with the allowance for credit losses increasing to $357.4 million and non-performing loans rising Loan Portfolio Composition (December 31, 2022 vs 2021) | Category | 2022 Amount (Thousands) | 2022 % of Total | 2021 Amount (Thousands) | 2021 % of Total | | :-------------------------------- | :---------------------- | :-------------- | :---------------------- | :-------------- | | Commercial | $12,549,164 | 32 | $11,904,068 | 34 | | Commercial real estate | $9,950,947 | 25 | $8,990,286 | 26 | | Residential real estate | $2,372,383 | 6 | $1,637,099 | 5 | | Premium finance receivables—property & casualty | $5,849,459 | 15 | $4,855,487 | 14 | | Premium finance receivables—life insurance | $8,090,998 | 21 | $7,042,810 | 20 | | Total loans, net of unearned income | $39,196,485 | 100 | $34,789,104 | 100 | - Commercial and commercial real estate loans combined represent 57% of the total loan portfolio at December 31, 2022400 - The allowance for credit losses for the commercial loan portfolio increased to $142.8 million at December 31, 2022, from $119.3 million in 2021, driven by portfolio growth and deteriorating macroeconomic conditions (Baa credit spread)400 - The allowance for credit losses for the commercial real estate portfolio increased to $184.4 million at December 31, 2022, from $144.6 million in 2021, due to portfolio growth and the impact of the Commercial Real Estate Price Index402 Non-Performing Loans and Assets (2018-2022) | Metric | 2022 (Thousands) | 2021 (Thousands) | 2020 (Thousands) | 2019 (Thousands) | 2018 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | :--------------- | :--------------- | :--------------- | | Total non-performing loans | $100,697 | $74,438 | $127,513 | $117,588 | $113,234 | | Total non-performing assets | $110,597 | $78,709 | $144,071 | $132,763 | $138,334 | | Accruing TDRs not included within non-performing assets | $36,620 | $37,486 | $47,023 | $36,725 | $33,281 | | Total non-performing loans as a percentage of total loans | 0.26 % | 0.21 % | 0.40 % | 0.44 % | 0.48 % | | Total non-performing assets as a percentage of total assets | 0.21 % | 0.16 % | 0.32 % | 0.36 % | 0.44 % | - Troubled Debt Restructurings (TDRs) totaled $41.1 million (191 credits) at December 31, 2022, down from $49.3 million (247 credits) in 2021, with concessions including interest rate reductions and maturity extensions458459462 Allowance for Credit Losses by Loan Portfolio (December 31, 2022 vs 2021) | Loan Portfolio | 2022 Amount (Thousands) | 2022 % of Total Loans | 2021 Amount (Thousands) | 2021 % of Total Loans | | :-------------------------------- | :---------------------- | :-------------------- | :---------------------- | :-------------------- | | Commercial | $142,769 | 32 | $119,307 | 34 | | Commercial real-estate | $184,352 | 25 | $144,583 | 26 | | Home equity | $7,573 | 1 | $10,699 | 1 | | Residential real-estate | $11,585 | 6 | $8,782 | 5 | | Premium finance receivables—property & casualty | $9,967 | 15 | $15,246 | 14 | | Premium finance receivables—life insurance | $704 | 21 | $613 | 20 | | Consumer and other | $498 | 0 | $423 | 0 | | Total allowance for credit losses | $357,448 | 100 | $299,653 | 100 | - Total deposits increased by $807.0 million (2%) to $42.9 billion at December 31, 2022, with average non-interest-bearing deposits increasing by $1.0 billion (8%)467468 Average Deposits by Product Category (2020-2022) | Category | 2022 Balance (Thousands) | 2022 Percent (%) | 2021 Balance (Thousands) | 2021 Percent (%) | 2020 Balance (Thousands) | 2020 Percent (%) | | :-------------------------- | :----------------------- | :--------------- | :----------------------- | :--------------- | :----------------------- | :--------------- | | Non-interest bearing deposits | $13,667,879 | 32 | $12,638,518 | 33 | $9,432,090 | 27 | | NOW and interest-bearing demand deposits | $5,355,077 | 13 | $4,029,662 | 10 | $3,662,772 | 11 | | Wealth management deposits | $2,827,497 | 7 | $2,361,412 | 6 | $2,001,716 | 6 | | Money market accounts | $12,254,159 | 29 | $11,801,788 | 30 | $10,391,529 | 31 | | Savings accounts | $4,014,166 | 10 | $3,734,162 | 10 | $3,354,662 | 10 | | Time certificates of deposit | $3,812,148 | 9 | $4,447,871 | 11 | $5,142,938 | 15 | | Total average deposits | $41,930,926 | 100 | $39,013,413 | 100 | $33,985,707 | 100 | - FHLB advances increased to $2.3 billion at December 31, 2022, from $1.2 billion in 2021, serving as a source of fixed-rate funds472614 - Total shareholders' equity increased by $298.2 million to $4.8 billion at December 31, 2022, primarily due to net income and a common stock offering, partially offset by net unrealized losses on investment securities480 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk Wintrust manages market risks, primarily interest rate risk, through asset-liability strategies and derivative instruments, monitoring net interest income via simulation analyses - Wintrust manages interest rate risk, which arises from differences in maturity or re-pricing periods of interest-earning assets, interest-bearing liabilities, and derivative financial instruments511 - The company monitors net interest margin and performs simulation analyses (Static Shock and Ramp Scenarios) to identify potential adverse changes in net interest income due to interest rate fluctuations511514 Interest Rate Sensitivity Scenarios (Percentage Change in Net Interest Income) | Scenario | +200 Basis Points (%) | +100 Basis Points (%) | -100 Basis Points (%) | -200 Basis Points (%) | | :------------------ | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Static Shock (Dec 31, 2022) | 7.2 | 3.8 | (5.0) | (12.1) | | Static Shock (Dec 31, 2021) | 25.3 | 12.4 | (8.5) | (15.8) | | Ramp (Dec 31, 2022) | 5.6 | 3.0 | (2.9) | (6.8) | | Ramp (Dec 31, 2021) | 13.9 | 6.9 | (5.6) | (10.8) | - Derivative financial instruments, such as interest rate swaps and covered call options, are used to manage interest rate risk and enhance returns on the investment portfolio514515 - Changes in the rate of inflation are not expected to have a material impact on the financial condition of the bank, as its assets and liabilities are primarily monetary509 ITEM 8. Financial Statements and Supplementary Data This section presents Wintrust's audited consolidated financial statements for 2020-2022, with an unqualified auditor's opinion, highlighting $509.7 million net income and $52.9 billion total assets - Ernst & Young LLP issued an unqualified opinion on Wintrust's consolidated financial statements for the period ended December 31, 2022, and on the effectiveness of internal control over financial reporting517518856857 - A critical audit matter identified was the Allowance for Credit Losses (ACL) due to the complexity of models and significant judgment in economic forecasts, which the auditor addressed by evaluating controls, testing models with specialists, and assessing economic forecast factors521522523524525 Consolidated Statements of Condition (December 31, 2022 vs 2021) | Metric | 2022 (Thousands) | 2021 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | | Total Assets | $52,949,649 | $50,142,143 | | Net Loans | $38,926,312 | $34,541,269 | | Total Deposits | $42,902,544 | $42,095,585 | | Total Liabilities | $48,152,811 | $45,643,455 | | Total Shareholders' Equity | $4,796,838 | $4,498,688 | Consolidated Statements of Income (Years Ended December 31, 2022, 2021, 2020) | Metric | 2022 (Thousands) | 2021 (Thousands) | 2020 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | :--------------- | | Total Interest Income | $1,747,443 | $1,275,484 | $1,293,020 | | Total Interest Expense | $252,081 | $150,527 | $253,113 | | Net Interest Income | $1,495,362 | $1,124,957 | $1,039,907 | | Provision for Credit Losses | $78,589 | $(59,263) | $214,220 | | Total Non-Interest Income | $461,053 | $586,120 | $604,189 | | Total Non-Interest Expense | $1,177,271 | $1,132,544 | $1,040,095 | | Income Before Taxes | $700,555 | $637,796 | $389,781 | | Net Income | $509,682 | $466,151 | $292,990 | | Net Income per Common Share—Diluted | $8.02 | $7.58 | $4.68 | Consolidated Statements of Cash Flows (Years Ended December 31, 2022, 2021, 2020) | Activity | 2022 (Thousands) | 2021 (Thousands) | 2020 (Thousands) | | :------------------------------------------ | :--------------- | :--------------- | :--------------- | | Net Cash Provided by (Used for) Operating Activities | $1,375,000 | $1,130,872 | $(518,465) | | Net Cash Used for Investing Activities | $(3,490,769) | $(5,928,859) | $(7,182,424) | | Net Cash Provided by Financing Activities | $2,195,530 | $4,886,718 | $7,736,887 | | Net Increase in Cash and Cash Equivalents | $79,761 | $88,731 | $35,998 | - The company adopted ASU No. 2020-06 (Convertible Instruments), ASU No. 2021-04 (Equity-Classified Written Call Options), ASU No. 2021-05 (Leases with Variable Lease Payments), and ASU No. 2021-10 (Government Assistance) as of January 1, 2022, with no material impact on financial statements587588589590 - The company continues to monitor the impact of Reference Rate Reform (LIBOR transition) and has discontinued the use of USD LIBOR in new contracts, with remaining USD LIBOR tenors ceasing publication after June 30, 2023591592 - New accounting pronouncements for future adoption include ASU No. 2021-08 (Business Combinations), ASU No. 2022-01 (Fair Value Hedging - Portfolio Layer Method), ASU No. 2022-02 (Troubled Debt Restructurings and Vintage Disclosures), and ASU No. 2022-03 (Fair Value Measurement - Equity Securities with Contractual Sale Restrictions), none of which are expected to have a material impact594595596597 - The Inflation Reduction Act of 2022 imposes a new 1% excise tax on stock repurchases after December 31, 2022, which is not expected to have a material impact on the company's financial statements598 Investment Securities Gross Unrealized Losses (December 31, 2022) | Category | Fair Value (Thousands) | Unrealized Losses (Thousands) | | :-------------------------- | :--------------------- | :---------------------------- | | Available-for-sale securities | $3,102,599 | $(527,128) | | Held-to-maturity securities | $2,949,821 | $(691,711) | - The company does not consider available-for-sale securities with unrealized losses at December 31, 2022, to be experiencing credit losses, as it does not intend to sell them and expects recovery of amortized cost605 - The allowance for credit losses (ACL) for loans and unfunded commitments increased to $357.4 million at December 31, 2022, from $299.7 million in 2021, primarily due to changes in macroeconomic forecasts and loan growth646651 - TDRs totaled $41.1 million (191 credits) at December 31, 2022, down from $49.3 million (247 credits) in 2021, with concessions including interest rate reductions and maturity extensions653662 - Total deposits were $42.9 billion at December 31, 2022, with non-interest-bearing deposits comprising 30% of the total677 - FHLB advances increased to $2.3 billion at December 31, 2022, from $1.2 billion in 2021, collateralized by qualifying loans and securities679 - The company's $200.0 million term loan facility and $100.0 million revolving credit facility (Amended and Restated Credit Agreement) are secured by pledges of equity interest in bank subsidiaries686688 - Junior subordinated debentures totaled $253.6 million at December 31, 2022, with variable interest rates based on three-month LIBOR, transitioning to CME Term SOFR after June 30, 2023699701 Company Regulatory Capital Ratios (December 31, 2022 vs 2021) | Ratio | 2022 (%) | 2021 (%) | | :-------------------------------- | :------- | :------- | | Total capital to risk weighted assets | 11.9 | 11.6 | | Tier 1 capital to risk weighted assets | 10.0 | 9.6 | | Common Equity Tier 1 capital to risk weighted assets | 9.1 | 8.6 | | Tier 1 Leverage Ratio | 8.8 | 8.0 | - All of Wintrust's banks were categorized as 'well-capitalized' at December 31, 2022, exceeding minimum regulatory capital requirements753754755 - The company had $344.4 million in standby and commercial letters of credit and $181.0 million in commitments to fund residential mortgage loans at December 31, 2022758759 - The liability for estimated losses on mortgage loan repurchase and indemnification claims was $624,000 at December 31, 2022, down from $675,000 in 2021762 - Wintrust is involved in several legal matters, including a California PAGA suit, a Fair Lending matter, and an ERISA class action, all of which management believes are legally and factually meritless or lack sufficient information to estimate potential liability767768769771 Fair Value of Derivative Financial Instruments (December 31, 2022 vs 2021) | Category | 2022 Derivative Assets (Thousands) | 2022 Derivative Liabilities (Thousands) | 2021 Derivative Assets (Thousands) | 2021 Derivative Liabilities (Thousands) | | :------------------------------------------ | :------------------------------- | :------------------------------------ | :------------------------------- | :------------------------------------ | | Derivatives designated as hedging instruments | $16,768 | $58,198 | $48,783 | $16,242 | | Derivatives not designated as hedging instruments | $280,080 | $279,880 | $116,225 | $106,758 | | Total Derivatives | $296,848 | $338,078 | $165,008 | $123,000 | - The company uses interest rate collars as cash flow hedges for variable rate loans, with $3.0 billion in notional amount outstanding at December 31, 2022778779 - Wintrust uses Level 3 fair value measurements for municipal securities, certain mortgage loans held-for-sale, loans held-for-investment, MSRs, and certain derivative assets, relying on unobservable inputs like equivalent ratings, discount rates, credit discounts, prepayment rates, and pull-through rates804806807808810821 Earnings Per Share (2020-2022) | Metric | 2022 ($) | 2021 ($) | 2020 ($) | | :------------------------------------------ | :------- | :------- | :------- | | Net income applicable to common shares (Thousands) | $481,718 | $438,187 | $271,613 | | Weighted average common shares outstanding (Thousands) | 59,205 | 56,994 | 57,523 | | Net income per common share—Basic | $8.14 | $7.69 | $4.72 | | Net income per common share—Diluted | $8.02 | $7.58 | $4.68 | ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Wintrust Financial Corporation reported no changes in or disagreements with its independent accountants during the two most recent fiscal years or any subsequent interim period - The Company made no changes in and had no disagreements with its independent accountants during the two most recent fiscal years or any subsequent interim period848 ITEM 9A. Controls and Procedures Wintrust's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes - As of December 31, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective849 - There were no changes in the Company's internal control over financial reporting during the quarter ended December 31, 2022, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting850 - Management assessed the Company's internal control over financial reporting as effective as of December 31, 2022, based on the COSO Criteria853 - Ernst & Young LLP issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2022853856 ITEM 9B. Other Information This item states that there is no other information to report - There is no other information to report864 ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Wintrust Financial Corporation - This item is not applicable865 PART III ITEM 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement, with a Corporate Code of Ethics in place - Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement for the Annual Meeting of Shareholders on May 25, 2023866 - The Company has a Corporate Code of Ethics, compliant with SEC rules and NASDAQ standards, applicable to all directors, officers, and employees, and available on its website867 ITEM 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on May 25, 2023 - Information on executive compensation is incorporated by reference from the Proxy Statement868 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the Proxy Statement, detailing securities authorized for issuance - Information on security ownership of certain beneficial owners and management is incorporated by reference from the Proxy Statement870 Equity Compensation Plan Information (December 31, 2022) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) ($) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :------------------------------------------ | :------------------------------------------------------------------------------ | :---------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 1,464,594 | $1.51 | 2,256,438 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 1,464,594 | $1.51 | 2,256,438 | ITEM 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Company's Proxy Statement - Information on certain relationships and related transactions, and director independence is incorporated by reference from the Proxy Statement873 ITEM 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the Company's Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the Proxy Statement874 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section lists the financial statements and schedules filed as part of the Annual Report on Form 10-K, including consolidated statements and a comprehensive list of exhibits - The Annual Report includes Consolidated Statements of Condition, Income, Comprehensive Income, Changes in Shareholders' Equity, and Cash Flows, along with Notes to Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm877 - Financial statement schedules have been omitted as they are not applicable or the required information is shown in the Consolidated Financial Statements or notes877 - A comprehensive list of exhibits is provided, including organizational documents (Articles of Incorporation, By-laws), debt instruments (Subordinated Indentures, Depositary Agreement), credit agreements (Amended and Restated Credit Agreement, Receivables Purchase Agreement), and various stock incentive and employee benefit plans878879880881[8