Wintrust Experiences Q2/20 Growth in Leasing Despite Significant Income Decline

Wintrust Financial reported Q2/20 net income of $21.7 million, or $0.34 per diluted common share, a decrease in diluted earnings per common share of 67.3% compared with the prior quarter and a decrease of 75.4% compared with Q2/19. The company recorded net income of $84.5 million, or $1.38 per diluted common share, for the first six months of 2020 compared with net income of $170.6 million or $2.91 per diluted common share for the same period of 2019.

Compared with Q1/20, total assets increased by $4.7 billion, including $3.3 billion of Paycheck Protection Program loans, net of fees, and total loans increased by $3.6 billion, including $3.3 billion of PPP loans, net of fees. In addition, lines of credit utilization declined to approximately 49% at June 30, 2020 compared with approximately 56% at March 31, 2020.

Total deposits increased by $4.2 billion between Q1/20 and Q2/20, primarily related to both PPP lending and organic growth of retail deposits. In addition, net interest income increased by $1.7 million as the impact of a $5.1 billion increase in average earning assets was partially offset by a 39 basis point decline in net interest margin. The decline in net interest margin was largely due to declining interest rates and excess short–term liquidity on the balance sheet. The loans to deposits ratio ended Q2/20 at 88.1% as compared with 88.4% at the prior quarter’s end. Excluding PPP loans, the loans to deposits ratio ended Q2/20 at 78.7%.

The provision for credit losses was $135.1 million in Q2/20, marking an increase of $82.1 million from $53 million Q1/20. The increased provision for credit losses expense in Q2/20 was primarily related to generally deteriorating forecasted economic conditions impacted by the COVID-19 pandemic which are an input in the company’s current expected credit loss (CECL) models.

Wintrust reported recorded net charge-offs of $15.4 million in Q2/20, of which $9.5 million were previously reserved for, compared with net charge-offs of $5.3 million in Q1/20. Non-performing assets totaled $198.5 million as of June 30, 2020, or 0.46% of total assets, as compared with $190.4 million, or 0.49% of total assets, as of the prior quarter end. The allowance for credit losses of Wintrust’s core loan portfolio is approximately 1.85% of the outstanding balance as of June 30, 2020, up from 1.26% at the prior quarter’s end. Wintrust further reported incurred acquisition related costs of $4.9 million in Q2/20 compared with $1.7 million in Q1/20.

Wintrust also shared results from its specialty finance unit, through which the company offers several services, including equipment financing through structured loans and lease products. The company’s leasing business grew during Q2/20, with its portfolio of assets, including capital leases, loans and equipment on operating leases, increasing by $231.2 million to $2 billion at the end of Q2/20.

During the quarter, Wintrust paid $2.6 million of COVID-19 related salary incentives to non-executive personnel and originated $3.4 billion of PPP loans, which generated net fees of $91 million to be recognized over the estimated life of the PPP loans. Fees are recognized on a level yield basis, which incorporates estimates of the timing of customer requested forgiveness, Small Business Administration (SBA) approval of forgiveness and the repayment timing from the SBA.

Wintrust also recorded COVID-19 related loan modifications for customers with aggregate outstanding balances of approximately $1.7 billion, or 9% of total loans, excluding PPP loans and premium finance receivables. The modifications primarily changed terms to interest-only payments or full payment deferrals.

“I am very proud of the extraordinary effort put forth by our employees to support our customers and our communities amid the challenges of COVID-19,” Edward J. Wehmer, founder and CEO of Wintrust, said. “We leverage robust capital and liquidity management frameworks, which include stress testing processes, to assess and monitor risk and inform decision making. In the second quarter of 2020, we completed a preferred stock issuance to bolster our capital position. We believe the company has adequate liquidity and capital to effectively manage through the COVID-19 pandemic.

“We remain committed to supporting our community, including the well-being and safety of our customers and employees. We believe that our opportunities for both internal and external growth remain consistently strong and were particularly enhanced as a result of our successful participation in PPP lending. However, we 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.”

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