ROSEMONT, Ill., Jan. 20, 2021 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation (“Wintrust”, “the Company”, "we" or "our") (Nasdaq: WTFC) announced net income of $101.2 million or $1.63 per diluted common share for the fourth quarter of 2020, a decrease in diluted earnings per common share of 2% compared to the third quarter of 2020 and an increase of 13% compared to the fourth quarter of 2019. The Company recorded net income of $293.0 million or $4.68 per diluted common share for the year ended December 31, 2020 compared to net income of $355.7 million or $6.03 per diluted common share for the same period of 2019.

Highlights of the Fourth Quarter of 2020:
Comparative information to the third quarter of 2020

• Total assets increased by $1.3 billion.
• Total loans, excluding Paycheck Protection Program ("PPP") loans, increased by $607 million primarily due to growth in commercial loans and life insurance premium finance receivables. This growth also included a $71 million net increase in residential real estate loans for investment as the Company decided to allocate a portion of its current and future mortgage production for investment.
  • In addition, during the fourth quarter of 2020, the Company exercised its early buy-out option on $248 million of eligible loans previously sold to the Government National Mortgage Association ("GNMA") recorded in mortgage loans held-for-sale. See Table 1 for more information.
  • PPP loans originated in 2020 declined by $663 million in the fourth quarter of 2020 primarily as a result of processing forgiveness payments. As of January 15, 2021, approximately 23% of PPP loan balances originated in 2020 have been forgiven, approximately 45% of balances are in the forgiveness review or submission process, and approximately 32% of balances have yet to apply.
• Total deposits increased by $1.2 billion, notwithstanding the return of approximately $666 million in wholesale deposits during the fourth quarter of 2020.
• Net interest income increased by $3.5 million primarily due to a reduction in the rate on interest-bearing deposits and loan growth.
  • The rate on interest-bearing deposits declined by 10 basis points in the fourth quarter of 2020 as compared to the third quarter of 2020. This improvement more than offset a two basis point decline in the yield on total loans in the fourth quarter of 2020 as compared to the third quarter of 2020.
  • The Company recognized $16.8 million of PPP loan fee accretion in the fourth quarter of 2020 as compared to $17.4 million in the third quarter of 2020 on PPP loans originated in 2020. As of December 31, 2020, the Company had approximately $32.5 million of PPP loan fees that have yet to be recognized in income.
• The loans to deposits ratio ended the fourth quarter of 2020 at 86.5% as compared to 89.7% as of September 30, 2020. Excluding PPP loans, the loans to deposits ratio ended the fourth quarter of 2020 at 79.2%.
• Mortgage banking revenue decreased by $21.7 million to $86.8 million for the fourth quarter of 2020 as compared to $108.5 million in the prior quarter.
• Outstanding COVID-19 related loan modifications for customers totaled approximately $345 million or 1.2% of total loans, excluding PPP loans, as of December 31, 2020 as compared to $413 million or 1.4% as of September 30, 2020.
• Provision for credit losses totaled $1.2 million in the fourth quarter of 2020 as compared to $25.0 million in the third quarter of 2020.
• Recorded net charge-offs of $10.3 million in the fourth quarter of 2020, of which $5.9 million were reserves on individually assessed loans as of the prior quarter end, as compared to net charge-offs of $9.3 million in the third quarter of 2020. Net charge-offs as a percentage of average total loans, totaled 13 basis points in the fourth quarter of 2020 on an annualized basis compared to 12 basis points on an annualized basis in the third quarter of 2020.
• The allowance for credit losses on our core loan portfolio is approximately 1.82% of the outstanding balance as of December 31, 2020, down from 1.88% as of September 30, 2020. See Table 12 for more information.
• Non-performing loans declined by $45.6 million, or 26%, and totaled $127.5 million, or 0.40% of total loans, as of December 31, 2020 as compared to $173.1 million, or 0.54% of total loans, as of September 30, 2020.

Other items of note from the fourth quarter of 2020

• The following items had a $13.2 million unfavorable pre-tax income impact on the fourth quarter of 2020:
  • Recorded a decrease in the value of mortgage servicing rights related to changes in fair value model assumptions of $5.2 million in the fourth quarter of 2020 as compared to a decrease of $3.0 million in the third quarter of 2020.
  • Accrued $6.6 million of contingent consideration expense in the fourth quarter of 2020 related to the previous acquisition of mortgage operations as compared to $6.3 million in the third quarter of 2020, which was recorded in other non-interest expense.
  • Recorded an impairment charge of $1.4 million in occupancy expense related to the planned closure of 10 bank branches.
• Repurchased 974,150 shares of our common stock at a cost of $54.9 million, or an average price of $56.40 per share.

Edward J. Wehmer, Founder and Chief Executive Officer, commented, "Wintrust reported net income of $101.2 million for the fourth quarter of 2020, down from $107.3 million in the third quarter of 2020. The fourth quarter of 2020 was characterized by significant loan growth, increased net interest income, strong mortgage banking revenue, a significant reduction in non-performing loans and a continued focus to increase franchise value in our market area."

Reflecting on the year, Mr. Wehmer stated, "I am very appreciative of our staff's tireless efforts to make the best of a difficult year. The year offered many challenges and I could not be more proud of our results. Pre-tax income, excluding provision for credit losses (non-GAAP), increased by 13% to $604 million in 2020 as compared to $534 million in 2019. We finished 2020 with a lot of momentum and look forward to serving our communities and being responsive to our customers in the new year."

Mr. Wehmer continued, "The Company experienced significant loan growth, excluding PPP loans, in the fourth quarter of 2020, including growth in its commercial, commercial real estate, residential real estate loans for investment and life insurance premium finance receivable portfolios. In addition, the Company supplemented loan growth by exercising its early buy-out option on eligible GNMA loans. The majority of the loan growth was in the latter part of the quarter as total period end loans, excluding PPP loans, were $678 million higher than average total loans, excluding PPP loans, in the fourth quarter of 2020. Our loan pipelines remain strong and we expect to continue to grow loans in 2021 without compromising our credit standards. Total deposits increased by $1.2 billion as compared to the third quarter of 2020 even with the return of approximately $666 million in wholesale deposits. Additionally, the mix of deposit growth during the quarter was favorable evidenced by $1.3 billion of growth in non-interest bearing deposits. We continue to emphasize growing our franchise, including gathering low cost deposits, which we believe will drive value in the long term. Our loans to deposits ratio ended the quarter at 86.5% and we believe that we have sufficient liquidity to meet customer loan demand."

Mr. Wehmer commented, "Net interest income increased in the fourth quarter of 2020 primarily due to lower interest expense on interest-bearing deposits and loan growth. The rate on interest-bearing deposits declined 10 basis points in the fourth quarter of 2020 as compared to the third quarter of 2020. This improvement more than offset a two basis point decline in the yield on total loans in the fourth quarter of 2020 as compared to the third quarter of 2020. PPP loan fee accretion was relatively flat as the Company recognized $16.8 million of PPP loan fee accretion in the fourth quarter of 2020 as compared to $17.4 million in the third quarter of 2020. The three basis point decline in the net interest margin in the fourth quarter of 2020 as compared to the third quarter of 2020 was primarily due to increased levels of liquidity as average interest-bearing cash increased by $1.0 billion. We have accumulated excess liquidity in recent quarters and believe that, if conditions allow for suitable deployment of such excess liquidity, we could potentially increase our net interest margin by 15 to 30 basis points, depending on the mix of earning assets of such reinvestment."

Mr. Wehmer noted, “Our mortgage banking business delivered another strong quarter of mortgage banking revenue in light of the demand associated with historically low long-term interest rates. Loan volumes originated for sale in the fourth quarter of 2020 were $2.4 billion, up from $2.2 billion in the third quarter of 2020. Production revenue decreased during the quarter as the origination pipeline declined as compared to the end of the third quarter of 2020. This decline was partially due to the Company increasing its allocation of pipeline to originations for investment in order to increase earning assets on the balance sheet. Additionally, the Company recorded a $5.2 million decline in the value of mortgage servicing rights related to changes in fair value model assumptions. We are leveraging efficiencies in our delivery channels and staffing strategies to keep pace with unprecedented demand. The strong quarter of mortgage performance contributed to reporting a 1.12% net overhead ratio for the fourth quarter of 2020. We believe the first quarter of 2021 will provide another strong quarter for mortgage banking production."

Commenting on credit quality, Mr. Wehmer stated, "The Company recorded provision for credit losses of $1.2 million reflecting improvement in credit quality in the fourth quarter of 2020. We expended significant effort in the quarter diligently reviewing and addressing our credit portfolio. The Company's population of loans with a rating below "pass" as of December 31, 2020 declined by $273 million, or 14%, as compared to the prior quarter end primarily due to a note sale, pay-offs and risk rating upgrades. The level of non-performing loans decreased by $45.6 million primarily due to non-performing loan pay-offs. Additionally, net charge-offs remained relatively low totaling $10.3 million in the fourth quarter of 2020 as compared to $9.3 million in the third quarter of 2020. The allowance for credit losses on our core loan portfolio as of December 31, 2020 is approximately 1.82% of the outstanding balance. We believe that the Company’s reserves remain appropriate and we remain diligent in our review of credit."

Mr. Wehmer added, "In addition to the previously announced sale of three branches in southwestern Wisconsin, we continue to review our branch footprint and have initiated plans to close an additional 10 branches. These are predominantly smaller locations in close proximity to other Wintrust locations. As such, we do not expect any material attrition or customer disruption. We expect the noted branches to close prior to the end of the second quarter and the branch sale in Wisconsin to close in the second quarter. In the fourth quarter of 2020, we recorded an impairment charge of $1.4 million associated with the closing of the 10 locations. Collectively, the reduction of 13 locations represents approximately 7% of the Wintrust retail banking locations and will result in a reduction in expenses of approximately $5 million annually on an ongoing basis. It is important to note that while we see increased use of electronic services and are investing heavily in digital capabilities to allow clients to choose how they want to be served, Wintrust will continue to selectively open branches in areas where we are not represented."

Mr. Wehmer concluded, "We remain committed to supporting our community, including the well-being and safety of our customers and employees. We are participating in the latest round of PPP having opened our application portal on January 11, 2021. As of January 19, 2021, we have received approximately 5,400 applications aggregating in excess of $1.1 billion of loans with associated fees of approximately $44 million. We are focused on taking advantage of market opportunities to prudently deploy excess liquidity into earning assets. In particular, we expect to grow PPP loans, organic loans, residential real estate loans for investment and investment securities while maintaining an interest rate sensitive asset portfolio. We continue to evaluate our operating expense base to enhance future profitability. We also continue to carefully monitor the COVID-19 pandemic and evaluate the impact that it could have on the economy, our customers and our business. We remain focused on navigating the current environment by actively monitoring and managing our credit portfolio."

Graphs available at the following link: http://ml.globenewswire.com/Resource/Download/0bdf7499-4e66-4b90-bd05-707da79ea7cd

SUMMARY OF RESULTS:

BALANCE SHEET

Total asset growth of $1.3 billion in the fourth quarter of 2020 was primarily comprised of a $977 million increase in interest-bearing deposits with banks, a $312 million increase in mortgage loans held-for-sale, and a $128 million increase in investment securities, partially offset by a $56 million decrease in loans. The Company believes that the $4.8 billion of interest-bearing deposits with banks held as of December 31, 2020 provides more than sufficient liquidity to operate its business plan.

The $56 million decrease in loans was primarily a result of processing forgiveness payments, as PPP loans declined by $663 million in the fourth quarter of 2020. Total loans, excluding PPP loans, increased by $607 million primarily due to growth in commercial loans and life insurance premium finance receivables. This growth also included a $71 million net increase in residential real estate loans for investment as the Company decided to allocate a portion of its current and future mortgage production for investment.

Total liabilities increased $1.3 billion in the fourth quarter of 2020 resulting primarily from a $1.2 billion increase in total deposits, which included the return of approximately $666 million in wholesale deposits. The increase in deposits was primarily due to a $1.3 billion increase in non-interest-bearing deposits. Our loans to deposits ratio ended the quarter at 86.5%. Management believes in substantially funding the Company's balance sheet with core deposits and utilizes brokered or wholesale funding sources as appropriate to manage its liquidity position as well as for interest rate risk management purposes.

For more information regarding changes in the Company’s balance sheet, see Consolidated Statements of Condition and Tables 1 through 3 in this report.

NET INTEREST INCOME

For the fourth quarter of 2020, net interest income totaled $259.4 million, an increase of $3.5 million as compared to the third quarter of 2020 and a decrease of $2.5 million as compared to the fourth quarter of 2019. The $3.5 million increase in net interest income in the fourth quarter of 2020 compared to the third quarter of 2020 was primarily due to a 10 basis point decline in the rate on interest-bearing deposits in the fourth quarter of 2020 and loan growth.

Net interest margin was 2.53% (2.54% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2020 compared to 2.56% (2.57% on a fully taxable-equivalent basis, non-GAAP) during the third quarter of 2020 and 3.17% (3.19% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2019. The three basis point decrease in net interest margin in the fourth quarter of 2020 as compared to the third quarter of 2020 was attributable to a 10 basis point decline in the yield on earning assets and a two basis point decrease in the net free funds contribution partially offset by a nine basis point decrease in the rate paid on interest-bearing liabilities. The 10 basis point decline in the yield on earning assets in the fourth quarter of 2020 as compared to the third quarter of 2020 was primarily due to a $1.0 billion increase in average interest-bearing deposits with banks and cash equivalents. The decrease in the rate paid on interest-bearing liabilities in the fourth quarter of 2020 as compared to the prior quarter is primarily due to a 10 basis point decrease in the rate paid on interest-bearing deposits as management initiated various deposit rate reductions given the low interest rate environment.

For more information regarding net interest income, see Tables 4 through 8 in this report.

ASSET QUALITY

The allowance for credit losses totaled $380.0 million as of December 31, 2020, a decrease of $9.0 million as compared to $389.0 million as of September 30, 2020. The allowance for credit losses decreased primarily due to portfolio changes and was partially offset by changes in the macroeconomic forecasted conditions. The Commercial, Industrial and Other portfolio realized a decrease in the allowance for credit losses as compared to the prior quarter-end, which was primarily driven by improving portfolio credit characteristics.  There was an increase in the allowance for credit losses in the Commercial Real Estate portfolios driven by deterioration in the Commercial Real Estate Price Index forecast, partially offset by improvement in Baa Corporate Credit Spreads. Other key drivers of allowance for credit losses changes in these portfolios include, but are not limited to, decreases in COVID-19 related loan modifications and loan risk rating migration.

The provision for credit losses totaled $1.2 million for the fourth quarter of 2020 compared to $25.0 million for the third quarter of 2020 and $7.8 million for the fourth quarter of 2019. For more information regarding the provision for credit losses, see Table 11 in this report.

Management believes the allowance for credit losses is appropriate to account for expected credit losses. The Current Expected Credit Losses ("CECL") standard requires the Company to estimate expected credit losses over the life of the Company’s financial assets at a certain point in time. There can be no assurances, however, that future losses will not significantly exceed the amounts provided for, thereby affecting future results of operations. A summary of the allowance for credit losses calculated for the loan components in the core loan portfolio, the niche and consumer loan portfolio and the purchased loan portfolio as of December 31, 2020 and September 30, 2020 is shown on Table 12 of this report.

Net charge-offs totaled $10.3 million in the fourth quarter of 2020, a $1.0 million increase from $9.3 million in the third quarter of 2020 and a $2.4 million decrease from $12.7 million in the fourth quarter of 2019. Net charge-offs as a percentage of average total loans, totaled 13 basis points in the fourth quarter of 2020 on an annualized basis compared to 12 basis points on an annualized basis in the third quarter of 2020 and 19 basis points on an annualized basis in the fourth quarter of 2019. For more information regarding net charge-offs, see Table 10 in this report.

As of December 31, 2020, $41.6 million of all loans, or 0.1%, were 60 to 89 days past due and $139.1 million, or 0.4%, were 30 to 59 days (or one payment) past due. As of September 30, 2020, $49.9 million of all loans, or 0.2%, were 60 to 89 days past due and $186.5 million, or 0.6%, were 30 to 59 days (or one payment) past due. Many of the commercial and commercial real-estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis.

The Company’s home equity and residential real estate loan portfolios continue to exhibit low delinquency rates as of December 31, 2020. Home equity loans at December 31, 2020 that are current with regard to the contractual terms of the loan agreement represent 98.3% of the total home equity portfolio. Residential real estate loans at December 31, 2020 that are current with regards to the contractual terms of the loan agreements comprised 96.8% of total residential real estate loans outstanding. For more information regarding past due loans, see Table 13 in this report.

Outstanding COVID-19 related loan modifications for customers totaled approximately $345 million or 1.2% of total loans, excluding PPP loans as of December 31, 2020 as compared to $413 million or 1.4% as of September 30, 2020 and $1.7 billion or 6.2% as of June 30, 2020. The outstanding modifications primarily changed terms to interest-only payments.

The ratio of non-performing assets to total assets was 0.32% as of December 31, 2020, compared to 0.42% at September 30, 2020, and 0.36% at December 31, 2019. Non-performing assets totaled $144.1 million at December 31, 2020, compared to $182.3 million at September 30, 2020 and $132.8 million at December 31, 2019. Non-performing loans totaled $127.5 million, or 0.40% of total loans, at December 31, 2020 compared to $173.1 million, or 0.54% of total loans, at September 30, 2020 and $117.6 million, or 0.44% of total loans, at December 31, 2019. The decrease in non-performing loans as of December 31, 2020 as compared to September 30, 2020 is primarily due to $30.1 million in payments received throughout the quarter. The payment activity was primarily driven by sales of underlying real property collateral, sales of operating businesses, and refinance activity. Other real estate owned ("OREO") of $16.6 million at December 31, 2020 increased by $7.4 million compared to $9.2 million at September 30, 2020 and increased $1.4 million compared to $15.2 million at December 31, 2019. Management is pursuing the resolution of all non-performing assets. At this time, management believes OREO is appropriately valued at the lower of carrying value or fair value less estimated costs to sell. For more information regarding non-performing assets, see Table 14 in this report.

NON-INTEREST INCOME

Wealth management revenue increased by $1.8 million during the fourth quarter of 2020 as compared to the third quarter of 2020 primarily due to increased trust and asset management fees and brokerage commissions. Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors, the brokerage commissions, managed money fees and insurance product commissions at Wintrust Investments and fees from tax-deferred like-kind exchange services provided by the Chicago Deferred Exchange Company.

Mortgage banking revenue decreased by $21.7 million in the fourth quarter of 2020 as compared to the third quarter of 2020, primarily due to a $23.3 million decrease in production revenue. Production revenue decreased as origination pipelines designated for sale declined as compared to the prior quarter, due in part to the Company's intention to retain more loans for investment. Loans originated for sale were $2.4 billion in the fourth quarter of 2020, an increase of $124.7 million as compared to the third quarter of 2020. The percentage of origination volume from refinancing activities was 65% in the fourth quarter of 2020 as compared to 59% in the third quarter of 2020. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market.

During the fourth quarter of 2020, the fair value of the mortgage servicing rights portfolio increased primarily due to the capitalization of $20.3 million of servicing rights during the fourth quarter of 2020. This increase was partially offset by a negative fair value adjustment of $5.2 million as well as a reduction in value of $9.0 million due to payoffs and paydowns of the existing portfolio. No economic hedges were outstanding relative to the mortgage servicing rights portfolio during the third or fourth quarter of 2020.

Other non-interest income increased by $6.4 million in the fourth quarter of 2020 as compared to the third quarter of 2020 primarily due to increased bank owned life insurance ("BOLI") revenue and income on partnership investments.

For more information regarding non-interest income, see Tables 15 and 16 in this report.

NON-INTEREST EXPENSE

Salaries and employee benefits expense increased by $7.1 million in the fourth quarter of 2020 as compared to the third quarter of 2020. The $7.1 million increase is comprised of an increase of $3.9 million in commissions and incentive compensation, an increase of $3.7 million in salaries expense, partially offset by a decrease of $520,000 in employee benefits expense.

The increase in commissions and incentive compensation is primarily due to increased commissions expense from higher levels of mortgage loan originations in the current quarter. The increase in salaries expense is primarily related to increased staffing costs to support mortgage origination and investment in technology related services to satisfy customer demands and create efficiencies in operations.

Occupancy expense totaled $19.7 million in the fourth quarter of 2020, an increase of $3.9 million as compared to the third quarter of 2020. This increase is primarily associated with an impairment charge of $1.4 million related to the planned closure of 10 bank branches, increased real estate tax assessment estimates and a higher level of utility charges.

Equipment expense totaled $20.6 million in the fourth quarter of 2020, an increase of $3.3 million as compared to the third quarter of 2020. This increase is primarily due to increased software licensing expenses.

Advertising and Marketing expense totaled $9.9 million in the fourth quarter of 2020, an increase of $2.0 million as compared to the third quarter of 2020. The increase in the fourth quarter relates primarily to increased digital advertising campaigns and corporate sponsorship costs. Marketing costs are incurred to promote the Company's brand, commercial banking capabilities and various products, to attract loans and deposits and to announce new branch openings as well as the expansion of the Company's non-bank businesses. The level of marketing expenditures depends on the timing of sponsorship programs utilized which are determined based on the market area, targeted audience, competition and various other factors.

Miscellaneous expense in the fourth quarter of 2020 increased by $302,000 as compared to the third quarter of 2020. The fourth quarter of 2020 included $6.6 million of contingent consideration expense related to the previous acquisition of mortgage operations as compared to $6.3 million in the prior quarter. The liability for contingent consideration expense related to the previous acquisition of mortgage operations is based upon forward looking mortgage origination volumes and the estimated profitability of that operation. Should those assumptions change going forward, the liability may need to be increased or decreased. The contractual period covering contingent consideration ends in January 2023 and the final two years of the contract contemplate a lower ratio of contingent consideration relative to financial performance. As a result, the Company does not expect to have material adjustments to the contingent consideration liability in future periods. Miscellaneous expense also includes ATM expenses, correspondent bank charges, directors fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses and lending origination costs that are not deferred.

For more information regarding non-interest expense, see Table 17 in this report.

INCOME TAXES

The Company recorded income tax expense of $33.5 million in the fourth quarter of 2020 compared to $30.0 million in the third quarter of 2020 and $30.7 million in the fourth quarter of 2019. The effective tax rates were 24.87% in the fourth quarter of 2020 compared to 21.83% in the third quarter of 2020 and 26.33% in the fourth quarter of 2019. The effective tax rate in the third quarter of 2020 reflects the impact of a $9.0 million state income tax benefit related to the settlement of an uncertain tax position.

BUSINESS UNIT SUMMARY

Community Banking

Through its community banking unit, the Company provides banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the local areas the Company services. In the fourth quarter of 2020, this unit expanded its loan portfolio, excluding PPP loans, and its deposit portfolio. However, the banking segment also experienced net interest margin compression primarily due to increased levels of liquidity as average interest bearing cash increased by $1.0 billion in the fourth quarter of 2020 as compared to the third quarter of 2020.

Mortgage banking revenue was $86.8 million for the fourth quarter of 2020, a decrease of $21.7 million as compared to the third quarter of 2020 primarily due to a $23.3 million decrease in production revenue as origination pipelines declined as compared to the prior quarter. Service charges on deposit accounts totaled $11.8 million in the fourth quarter of 2020, an increase of $344,000 as compared to the third quarter of 2020 primarily due to higher account analysis and overdraft fees. The Company's gross commercial and commercial real estate loan pipelines remained strong as of December 31, 2020. Before the impact of scheduled payments and prepayments, gross commercial and commercial real estate loan pipelines were estimated to be approximately $1.1 billion to $1.3 billion at December 31, 2020. When adjusted for the probability of closing, the pipelines were estimated to be approximately $650 million to $750 million at December 31, 2020.

Specialty Finance

Through its specialty finance unit, the Company offers financing of insurance premiums for businesses and individuals, equipment financing through structured loans and lease products to customers in a variety of industries, accounts receivable financing and value-added, out-sourced administrative services and other services. Originations within the insurance premium financing receivables portfolio were $2.9 billion during the fourth quarter of 2020 and average balances increased by $49.9 million as compared to the third quarter of 2020. The increase in average balances was more than offset by margin compression in this portfolio resulting in a $3.6 million decrease in interest income attributed to the lower market rates of interest associated with the insurance premium finance receivables portfolio. The Company's leasing business grew during the fourth quarter of 2020, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing by $95.2 million to $2.1 billion at the end of the fourth quarter of 2020. Revenues from the Company's out-sourced administrative services business were $1.3 million in the fourth quarter of 2020, an increase of $186,000 from the third quarter of 2020.

Wealth Management

Through four separate subsidiaries within its wealth management unit, the Company offers a full range of wealth management services, including trust and investment services, tax-deferred like-kind exchange services, asset management, securities brokerage services and 401(k) and retirement plan services. Wealth management revenue totaled $26.8 million in the fourth quarter of 2020, an increase of $1.8 million compared to the third quarter of 2020. Increases in asset management fees were primarily due to favorable equity market performance during the fourth quarter of 2020. At December 31, 2020, the Company’s wealth management subsidiaries had approximately $30.1 billion of assets under administration, which included $3.5 billion of assets owned by the Company and its subsidiary banks, representing a $1.9 billion increase from the $28.2 billion of assets under administration at September 30, 2020.

ITEMS IMPACTING COMPARATIVE FINANCIAL RESULTS

Paycheck Protection Program

On March 27, 2020, the President of the United States signed the CARES Act, which authorized the Small Business Administration ("SBA") to guarantee loans under the PPP for small businesses who met the necessary eligibility requirements in order to keep their workers on the payroll. The Company began accepting applications on April 3, 2020. From such date through the end of 2020, the Company secured authorization from the SBA for and funded over 12,000 PPP loans with a carrying balance of approximately $3.4 billion. As of December 31, 2020, the carrying balance of such loans was reduced to approximately $2.7 billion primarily resulting from forgiveness by the SBA.

Acquisitions

On November 1, 2019, the Company completed its acquisition of SBC, Incorporated (“SBC”).  SBC was the parent company of Countryside Bank. Through this business combination, the Company acquired Countryside Bank's six banking offices located in Countryside, Burbank, Darien, Homer Glen, Oak Brook and Chicago, Illinois. As of the acquisition date, the Company acquired approximately $620 million in assets, including approximately $423 million in loans, and approximately $508 million in deposits. The Company recorded goodwill of approximately $40 million on the acquisition.

On October 7, 2019, the Company completed its acquisition of STC Bancshares Corp. (“STC”).  STC was the parent company of STC Capital Bank. Through this business combination, the Company acquired STC Capital Bank's five banking offices located in the communities of St. Charles, Geneva and South Elgin, Illinois. As of the acquisition date, the Company acquired approximately $250 million in assets, including approximately $174 million in loans, and approximately $201 million in deposits. The Company recorded goodwill of approximately $19 million on the acquisition.

On May 24, 2019, the Company completed its acquisition of Rush-Oak Corporation ("ROC"). ROC was the parent company of Oak Bank. Through this business combination, the Company acquired Oak Bank's one banking location in Chicago, Illinois. As of the acquisition date, the Company acquired approximately $223 million in assets, including approximately $125 million in loans, and approximately $161 million in deposits. The Company recorded goodwill of approximately $12 million on the acquisition.

Adoption of New Credit Losses Accounting Standard

Beginning in 2020, the Company adopted the CECL standard, which impacted the measurement of the Company’s allowance for credit losses (including the allowance for unfunded lending-related commitments). CECL replaced the previous incurred loss methodology, which delayed recognition until such loss was probable, with a methodology that reflects an estimate of lifetime expected credit losses considering current economic condition and forecasts. Though other assets, including investment securities and other receivables, were considered in-scope of the standard and required a measurement of the allowance for credit loss, the most significant impact of CECL remains within the Company’s loan portfolios and related lending commitments. For more information regarding the adoption of CECL, see the "Asset Quality" section and the asset quality Tables 10-14 in this report.

WINTRUST FINANCIAL CORPORATION
Selected Financial Highlights

(1)  Excludes mortgage loans held-for-sale.
(2)  Net revenue includes net interest income and non-interest income.
(3)  See “Supplemental Non-GAAP Financial Measures/Ratios” at Table 18 for additional information on this performance measure/ratio.
(4)  The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency.
(5)  Capital ratios for current quarter-end are estimated.
(6)  The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments. Effective January 1, 2020, the allowance for credit losses also includes the allowance for investment securities as a result of the adoption of Accounting Standard Update ("ASU") 2016-13, Financial Instruments - Credit Losses.

WINTRUST FINANCIAL CORPORATION

Key Operating Measures

Wintrust’s key operating measures and growth rates for the fourth quarter of 2020, as compared to the third quarter of 2020 (sequential quarter) and fourth quarter of 2019 (linked quarter), are shown in the table below:

(1)  Period-end balance sheet percentage changes are annualized.
(2)  See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information on this performance measure/ratio.
(3)  Net revenue is net interest income plus non-interest income.
(4)  The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period's average total assets. A lower ratio indicates a higher degree of efficiency.
(5)  Excludes mortgage loans held-for-sale.

Certain returns, yields, performance ratios, or quarterly growth rates are “annualized” in this presentation to represent an annual time period. This is done for analytical purposes to better discern, for decision-making purposes, underlying performance trends when compared to full-year or year-over-year amounts. For example, a 5% growth rate for a quarter would represent an annualized 20% growth rate. Additional supplemental financial information showing quarterly trends can be found on the Company’s website at www.wintrust.com by choosing “Financial Reports” under the “Investor Relations” heading, and then choosing “Financial Highlights.”

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

TABLE 1: LOAN PORTFOLIO MIX AND GROWTH RATES AND COMMERCIAL REAL ESTATE BY STATE

(1)  Annualized.

TABLE 2: DEPOSIT PORTFOLIO MIX AND GROWTH RATES

(1)  Annualized.
(2)  Represents deposit balances of the Company’s subsidiary banks from brokerage customers of Wintrust Investments, Chicago Deferred Exchange Company, LLC ("CDEC"), trust and asset management customers of the Company and brokerage customers from unaffiliated companies which have been placed into deposit accounts.

TABLE 3: TIME CERTIFICATES OF DEPOSIT MATURITY/RE-PRICING ANALYSIS
As of December 31, 2020

(1)  Weighted-average rate excludes the impact of purchase accounting fair value adjustments.

TABLE 4: QUARTERLY AVERAGE BALANCES

(1)  Includes interest-bearing deposits from banks, federal funds sold and securities purchased under resale agreements.
(2)  Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets.
(3)  See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information on this performance measure/ratio.
(4)  Other earning assets include brokerage customer receivables and trading account securities.
(5)  Loans, net of unearned income, include non-accrual loans.
(6)  Effective January 1, 2020 this includes the allowance for investment security losses as a result of the adoption of ASU 2016-13, Financial Instruments - Credit Losses.
(7)  Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.


TABLE 5: QUARTERLY NET INTEREST INCOME

(1)  Interest income on tax-advantaged loans, trading securities and investment securities reflects a taxable-equivalent adjustment based on the marginal federal corporate tax rate in effect as of the applicable period.
(2)  See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information on this performance measure/ratio.

TABLE 6: QUARTERLY NET INTEREST MARGIN

(1)  Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
(2)  See "Supplemental Non-GAAP Financial Measures/Ratios" at Table 18 for additional information on this performance measure/ratio.
(3)  Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.

TABLE 7: YEAR-TO-DATE AVERAGE BALANCES, AND NET INTEREST INCOME AND MARGIN

(1)  Includes interest-bearing deposits from banks, federal funds sold and securities purchased under resale agreements.
(2)  Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets.
(3)  Interest income on tax-advantaged loans, trading securities and investment securities reflects a taxable-equivalent adjustment based on a marginal federal corporate tax rate in effect as of the applicable period.
(4)  See “Supplemental Non-GAAP Financial Measures/Ratios” at Table 18 for additional information on this performance ratio.
(5)  Other earning assets include brokerage customer receivables and trading account securities.
(6)  Loans, net of unearned income, include non-accrual loans.
(7)  Effective January 1, 2020 this includes the allowance for investment security losses as a result of the adoption of ASU 2016-13, Financial Instruments - Credit Losses.
(8)  Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
(9)  Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.

TABLE 8: INTEREST RATE SENSITIVITY

As an ongoing part of its financial strategy, the Company attempts to manage the impact of fluctuations in market interest rates on net interest income. Management measures its exposure to changes in interest rates by modeling many different interest rate scenarios.

The following interest rate scenarios display the percentage change in net interest income over a one-year time horizon assuming increases of 100 and 200 basis points and a decrease of 100 basis points. The Static Shock Scenario results incorporate actual cash flows and repricing characteristics for balance sheet instruments following an instantaneous, parallel change in market rates based upon a static (i.e. no growth or constant) balance sheet. Conversely, the Ramp Scenario results incorporate management’s projections of future volume and pricing of each of the product lines following a gradual, parallel change in market rates over twelve months. Actual results may differ from these simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The interest rate sensitivity for both the Static Shock and Ramp Scenario is as follows:

TABLE 9: MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES