Market Overview

Wintrust Financial Corporation Reports Record Third Quarter 2016 Net Income, an Increase of 38% Over Prior Year, and Year-to-Date 2016 Net Income of $152.3 million, an Increase of 26% Over Prior Year

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ROSEMONT, Ill., Oct. 17, 2016 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation ("Wintrust" or "the Company") (Nasdaq: WTFC) announced net income of $53.1 million or $0.92 per diluted common share for the third quarter of 2016 compared to net income of $50.0 million or $0.90 per diluted common share for the second quarter of 2016 and $38.4 million or $0.69 per diluted common share for the third quarter of 2015. The Company recorded net income of $152.3 million or $2.72 per diluted common share for the first nine months of 2016 compared to net income of $121.2 million or $2.29 per diluted common share for the same period of 2015.

Highlights of the Third Quarter of 2016 *:

  • Total assets increased by 15% on an annualized basis and now exceed $25 billion.
  • Total loans, excluding covered loans and mortgage loans held-for-sale, increased by $927 million, or 20% on an annualized basis, to $19.1 billion. Loan growth included $555 million of select performing loans acquired from an affiliate of GE Capital Franchise Finance, which was completed in mid-August.
  • Total deposits increased by $1.1 billion, or 22% on an annualized basis, to $21.1 billion. Non-interest bearing deposit accounts comprise 27% of total deposits.
  • Mortgage banking revenue remained strong, totaling $34.7 million during the third quarter as origination volumes increased to $1.3 billion in the third quarter compared to $1.2 billion in the second quarter.
  • Net overhead ratio improved to 1.44% from 1.46% remaining below our stated goal of 1.50%.
  • Non-performing loans as a percentage of total loans, excluding covered loans, decreased to 0.44% from 0.48% and the allowance for loan losses as a percentage of total non-performing loans, excluding covered loans, increased to 142% from 130%.
  • Net interest income increased $9.4 million primarily as a result of earning assets growth. Although loan yields increased, net interest margin dropped 3 basis points primarily due to a decrease in yields on liquidity management assets brought about by market conditions.
  • Gains on investment securities totaled $3.3 million.
  • Recorded a $2.5 million negative fair value adjustment related to mortgage servicing rights assets.
  • Recorded a $1.8 million charge related to outstanding legal disputes, including a $1.5 million adverse arbitration award relating to a previously disclosed claim.

* See "Supplemental Financial Measures/Ratios" on pages 10-11 for more information on non-GAAP measures.

Edward J. Wehmer, President and Chief Executive Officer, commented, "The growth engine at Wintrust continued its momentum into the third quarter as we recorded nearly $1 billion of asset growth while controlling operating expenses as evidenced by the improvement of our net overhead ratio to 1.44% for the quarter. All aspects of our business performed solidly in the third quarter as evidenced by our record level of net income. Continued strong loan growth and mortgage banking operations, improved credit quality metrics and an improved net overhead ratio fueled the record results this quarter."

Mr. Wehmer continued, "Excluding covered loans and mortgage loans held-for-sale, our loan portfolio grew by $927 million during the third quarter, which included $555 million of select performing loans and related relationships acquired from an affiliate of GE Capital Franchise Finance. The increased loan volumes offset compression in the net interest margin during the quarter due to a reduction in yield on liquidity management assets, resulting in an increase in net interest income of $9.4 million. Our loan pipelines remain consistently strong and we are well positioned for rising interest rates in the future. Deposit growth continued to be strong in the third quarter of 2016 as deposits increased $1.1 billion and exceeded $21 billion as of the end of the third quarter. Total deposit growth included $343 million of growth from demand deposits, which now totals $5.7 billion and comprises 27% of our overall deposit base."

Commenting on credit quality, Mr. Wehmer noted, "During the third quarter of 2016, the Company has continued its practice of timely addressing and resolving non-performing credits. Total non-performing assets, excluding covered assets, decreased by $8.0 million during the third quarter of 2016 resulting in non-performing assets as a percentage of total assets dropping from 0.52% to 0.47% during the period. Additionally, the allowance for loan losses as a percentage of non-performing loans, excluding covered loans, increased to 142% during the third quarter, exhibiting greater coverage for those non-performing credits. We believe that the Company's reserves remain appropriate."

Mr. Wehmer further commented, "Mortgage banking revenue in the third quarter totaled $34.7 million, a decrease of $2.1 million compared to the second quarter of 2016. Revenue for the third quarter of 2016 was negatively impacted by a $2.5 million valuation adjustment on mortgage servicing rights assets. Our mortgage operations experienced record origination volumes in the third quarter totaling $1.3 billion for the period compared to $1.2 billion during the second quarter of 2016. We expect normal seasonality in the fourth quarter, although our mortgage loan pipelines remain strong."

Turning to the future, Mr. Wehmer stated, "Wintrust is continuing to take a steady and measured approach to achieve our main objectives of growing franchise value, increasing profitability, leveraging our expense infrastructure and increasing shareholder value. We expect continued growth and momentum in all areas of our business. The acquisition of select performing loans from an affiliate of GE Capital Franchise Finance is expected to help expand our franchise lending business. Also, the previously announced acquisition of First Community Financial Corporation located in Elgin, Illinois is expected to be completed in the fourth quarter of 2016. Evaluating strategic acquisitions and organic branch growth will continue to be a part of our overall growth strategy with the goal of becoming Chicago's bank and Wisconsin's bank. Our opportunities for both internal growth and external growth remain consistently strong."

The graphs below illustrate certain highlights of the third quarter of 2016.   

http://www.globenewswire.com/NewsRoom/AttachmentNg/bb0f7074-45ca-4514-885d-01698412ae61

Wintrust's key operating measures and growth rates for the third quarter of 2016, as compared to the sequential and linked quarters, are shown in the table below:

        % or(4)
basis point  (bp)change from
2nd Quarter
2016
 % or
basis point  (bp)
change from
3rd Quarter
2015
  Three Months Ended  
(Dollars in thousands) September 30,
 2016
 June 30,
 2016
 September 30,
 2015
  
Net income $53,115  $50,041  $38,355  6 % 38 %
Net income per common share – diluted $0.92  $0.90  $0.69  2 % 33 %
Net revenue (1) $271,240  $260,069  $230,493  4 % 18 %
Net interest income $184,636  $175,270  $165,540  5 % 12 %
Net interest margin 3.21% 3.24% 3.31% (3)bp (10)bp
Net interest margin - fully taxable equivalent (non-GAAP) (2) 3.24% 3.27% 3.33% (3)bp (9)bp
Net overhead ratio (3) 1.44% 1.46% 1.74% (2)bp (30)bp
Return on average assets 0.85% 0.85% 0.70%  bp 15 bp
Return on average common equity 8.20% 8.43% 6.60% (23)bp 160 bp
Return on average tangible common equity (non-GAAP) (2) 10.55% 11.12% 8.88% (57)bp 167 bp
At end of period            
Total assets $25,321,759  $24,420,616  $22,035,216  15 % 15 %
Total loans, excluding loans held-for-sale, excluding covered loans 19,101,261  18,174,655  16,316,211  20 % 17 %
Total loans, including loans held-for-sale, excluding covered loans 19,660,895  18,728,911  16,663,216  20 % 18 %
Total deposits 21,147,655  20,041,750  18,228,469  22 % 16 %
Total shareholders' equity 2,674,474  2,623,595  2,335,736  8 % 15 %


 (1)Net revenue is net interest income plus non-interest income.
 (2)See "Supplemental Financial Measures/Ratios" for additional information on this performance measure/ratio.
 (3)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.
 (4)Period-end balance sheet percentage changes are annualized.
  

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 web site at www.wintrust.com by choosing "Financial Reports" under the "Investor Relations" heading, and then choosing "Financial Highlights."


WINTRUST FINANCIAL CORPORATION
Selected Financial Highlights

  Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) September 30,
 2016
 June 30,
 2016
 September 30,
 2015
 September 30,
 2016
 September 30,
 2015
Selected Financial Condition Data (at end of period):          
Total assets $25,321,759  $24,420,616  $22,035,216     
Total loans, excluding loans held-for-sale and covered loans 19,101,261  18,174,655  16,316,211     
Total deposits 21,147,655  20,041,750  18,228,469     
Junior subordinated debentures 253,566  253,566  268,566     
Total shareholders' equity 2,674,474  2,623,595  2,335,736     
Selected Statements of Income Data:          
Net interest income $184,636  $175,270  $165,540  $531,415  $474,323 
Net revenue (1) 271,240  260,069  230,493  771,570  680,830 
Net income 53,115  50,041  38,355  152,267  121,238 
Net income per common share – Basic $0.96  $0.94  $0.71  $2.84  $2.39 
Net income per common share – Diluted $0.92  $0.90  $0.69  $2.72  $2.29 
Selected Financial Ratios and Other Data:          
Performance Ratios:          
Net interest margin 3.21% 3.24% 3.31% 3.25% 3.36%
Net interest margin - fully taxable equivalent (non-GAAP) (2) 3.24% 3.27% 3.33% 3.27% 3.39%
Non-interest income to average assets 1.38% 1.44% 1.19% 1.35% 1.34%
Non-interest expense to average assets 2.82% 2.89% 2.93% 2.81% 3.00%
Net overhead ratio (3) 1.44% 1.46% 1.74% 1.46% 1.66%
Return on average assets 0.85% 0.85% 0.70% 0.85% 0.79%
Return on average common equity 8.20% 8.43% 6.60% 8.39% 7.53%
Return on average tangible common equity (non-GAAP) (2) 10.55% 11.12% 8.88% 10.98% 9.90%
Average total assets $24,879,252  $23,754,755  $21,679,062  $23,849,412  $20,586,924 
Average total shareholders' equity 2,651,684  2,465,732  2,310,511  2,502,940  2,194,384 
Average loans to average deposits ratio (excluding loans held-for-sale, excluding covered loans) 89.8% 92.4% 89.7% 91.4% 89.8%
Average loans to average deposits ratio (excluding loans held-for-sale, including covered loans) 90.3% 92.9% 90.6% 92.0% 91.0%
Common Share Data at end of period:          
Market price per common share $55.57  $51.00  $53.43     
Book value per common share (2) $46.86  $45.96  $43.12     
Tangible common book value per share (2) $37.06  $36.12  $32.83     
Common shares outstanding 51,714,683  51,619,155  48,336,870     
Other Data at end of period:(6)          
Leverage Ratio (4) 9.0% 9.2% 9.2%    
Tier 1 capital to risk-weighted assets (4) 9.8% 10.1% 10.3%    
Common equity Tier 1 capital to risk-weighted assets (4) 8.7% 8.9% 8.6%    
Total capital to risk-weighted assets (4) 12.1% 12.4% 12.6%    
Allowance for credit losses (5) $119,341  $115,426  $103,922     
Non-performing loans $83,128  $88,119  $85,976     
Allowance for credit losses to total loans (5) 0.62% 0.64% 0.64%    
Non-performing loans to total loans 0.44% 0.48% 0.53%    
Number of:          
Bank subsidiaries 15  15  15     
Banking offices 152  153  160     


 (1)Net revenue includes net interest income and non-interest income
 (2)See "Supplemental Financial Measures/Ratios" for additional information on this performance measure/ratio.
 (3)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.
 (4)Capital ratios for current quarter-end are estimated.  As of January 1, 2015 capital ratios are calculated under the requirements of Basel III.
 (5)The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments, but excludes the allowance for covered loan losses.
 (6)Asset quality ratios exclude covered loans.


WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

  (Unaudited)   (Unaudited)
(In thousands) September 30,
 2016
 December 31,
2015
 September 30,
 2015
Assets      
Cash and due from banks $242,825  $271,454  $247,341 
Federal funds sold and securities purchased under resale agreements 4,122  4,341  3,314 
Interest bearing deposits with banks 816,104  607,782  701,106 
Available-for-sale securities, at fair value 1,650,096  1,716,388  2,214,281 
Held-to-maturity securities, at amortized cost 932,767  884,826   
Trading account securities 1,092  448  3,312 
Federal Home Loan Bank and Federal Reserve Bank stock 129,630  101,581  90,308 
Brokerage customer receivables 25,511  27,631  28,293 
Mortgage loans held-for-sale 559,634  388,038  347,005 
Loans, net of unearned income, excluding covered loans 19,101,261  17,118,117  16,316,211 
Covered loans 95,940  148,673  168,609 
Total loans 19,197,201  17,266,790  16,484,820 
Allowance for loan losses (117,693) (105,400) (102,996)
Allowance for covered loan losses (1,422) (3,026) (2,918)
Net loans 19,078,086  17,158,364  16,378,906 
Premises and equipment, net 597,263  592,256  587,348 
Lease investments, net 116,355  63,170  29,111 
Accrued interest receivable and other assets 660,923  597,099  629,211 
Trade date securities receivable 677    277,981 
Goodwill 485,938  471,761  472,166 
Other intangible assets 20,736  24,209  25,533 
Total assets $25,321,759  $22,909,348  $22,035,216 
Liabilities and Shareholders' Equity      
Deposits:      
Non-interest bearing $5,711,042  $4,836,420  $4,705,994 
Interest bearing 15,436,613  13,803,214  13,522,475 
Total deposits 21,147,655  18,639,634  18,228,469 
Federal Home Loan Bank advances 419,632  853,431  443,955 
Other borrowings 241,366  265,785  259,805 
Subordinated notes 138,943  138,861  138,834 
Junior subordinated debentures 253,566  268,566  268,566 
Trade date securities payable   538  617 
Accrued interest payable and other liabilities 446,123  390,259  359,234 
Total liabilities 22,647,285  20,557,074  19,699,480 
Shareholders' Equity:      
Preferred stock 251,257  251,287  251,312 
Common stock 51,811  48,469  48,422 
Surplus 1,356,759  1,190,988  1,187,407 
Treasury stock (4,522) (3,973) (3,964)
Retained earnings 1,051,748  928,211  901,652 
Accumulated other comprehensive loss (32,579) (62,708) (49,093)
Total shareholders' equity 2,674,474  2,352,274  2,335,736 
Total liabilities and shareholders' equity $25,321,759  $22,909,348  $22,035,216 


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

 
 Three Months Ended Nine Months Ended
(In thousands, except per share data)September 30,
 2016
 June 30,
 2016
 September 30,
 2015
 September 30,
 2016
 September 30,
 2015
Interest income         
Interest and fees on loans$190,189  $178,530  $167,831  $541,846  $482,330 
Interest bearing deposits with banks1,156  793  372  2,695  993 
Federal funds sold and securities purchased under resale agreements1  1  1  3  4 
Investment securities15,496  16,398  16,130  49,084  44,601 
Trading account securities18  14  19  43  83 
Federal Home Loan Bank and Federal Reserve Bank stock1,094  1,112  821  3,143  2,375 
Brokerage customer receivables195  216  205  630  591 
Total interest income208,149  197,064  185,379  597,444  530,977 
Interest expense         
Interest on deposits15,621  13,594  12,436  41,996  36,246 
Interest on Federal Home Loan Bank advances2,577  2,984  2,458  8,447  6,426 
Interest on other borrowings1,137  1,086  1,045  3,281  2,620 
Interest on subordinated notes1,778  1,777  1,776  5,332  5,328 
Interest on junior subordinated debentures2,400  2,353  2,124  6,973  6,034 
Total interest expense23,513  21,794  19,839  66,029  56,654 
Net interest income184,636  175,270  165,540  531,415  474,323 
Provision for credit losses9,571  9,129  8,322  26,734  23,883 
Net interest income after provision for credit losses175,065  166,141  157,218  504,681  450,440 
Non-interest income         
Wealth management19,334  18,852  18,243  56,506  54,819 
Mortgage banking34,712  36,807  27,887  93,254  91,694 
Service charges on deposit accounts8,024  7,726  7,403  23,156  20,174 
Gains (losses) on investment securities, net3,305  1,440  (98) 6,070  402 
Fees from covered call options3,633  4,649  2,810  9,994  11,735 
Trading losses, net(432) (316) (135) (916) (452)
Operating lease income, net4,459  4,005  613  11,270  755 
Other13,569  11,636  8,230  40,821  27,380 
Total non-interest income86,604  84,799  64,953  240,155  206,507 
Non-interest expense         
Salaries and employee benefits103,718  100,894  97,749  300,423  282,300 
Equipment9,449  9,307  8,456  27,523  24,090 
Operating lease equipment depreciation3,605  3,385  431  9,040  547 
Occupancy, net12,767  11,943  12,066  36,658  35,818 
Data processing7,432  7,138  8,127  21,089  19,656 
Advertising and marketing7,365  6,941  6,237  18,085  16,550 
Professional fees5,508  5,419  4,100  14,986  13,838 
Amortization of other intangible assets1,085  1,248  1,350  3,631  3,297 
FDIC insurance3,686  4,040  3,035  11,339  9,069 
OREO expense, net1,436  1,348  (367) 3,344  1,885 
Other20,564  19,306  18,790  55,196  54,539 
Total non-interest expense176,615  170,969  159,974  501,314  461,589 
Income before taxes85,054  79,971  62,197  243,522  195,358 
Income tax expense31,939  29,930  23,842  91,255  74,120 
Net income$53,115  $50,041  $38,355  $152,267  $121,238 
Preferred stock dividends and discount accretion3,628  3,628  4,079  10,884  7,240 
Net income applicable to common shares$49,487  $46,413  $34,276  $141,383  $113,998 
Net income per common share - Basic$0.96  $0.94  $0.71  $2.84  $2.39 
Net income per common share - Diluted$0.92  $0.90  $0.69  $2.72  $2.29 
Cash dividends declared per common share$0.12  $0.12  $0.11  $0.36  $0.33 
Weighted average common shares outstanding51,679  49,140  48,158  49,763  47,658 
Dilutive potential common shares4,047  3,965  4,049  3,931  4,141 
Average common shares and dilutive common shares55,726  53,105  52,207  53,694  51,799 


EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per share for the periods indicated:

   Three Months Ended Nine Months Ended
(In thousands, except per share data)  September 30,
 2016
 June 30,
 2016
 September 30,
 2015
 September 30,
 2016
 September 30,
 2015
Net income  $53,115  $50,041  $38,355  $152,267  $121,238 
Less: Preferred stock dividends and discount accretion  3,628  3,628  4,079  10,884  7,240 
Net income applicable to common shares—Basic(A) 49,487  46,413  34,276  141,383  113,998 
Add: Dividends on convertible preferred stock, if dilutive  1,578  1,578  1,579  4,735  4,740 
Net income applicable to common shares—Diluted(B) 51,065  47,991  35,855  146,118  118,738 
Weighted average common shares outstanding(C) 51,679  49,140  48,158  49,763  47,658 
Effect of dilutive potential common shares:           
Common stock equivalents  938  856  978  822  1,070 
Convertible preferred stock, if dilutive  3,109  3,109  3,071  3,109  3,071 
Weighted average common shares and effect of dilutive potential common shares(D) 55,726  53,105  52,207  53,694  51,799 
Net income per common share:           
Basic(A/C) $0.96  $0.94  $0.71  $2.84  $2.39 
Diluted(B/D) $0.92  $0.90  $0.69  $2.72  $2.29 

Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants, the Company's convertible preferred stock and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect would reduce the loss per share or increase the income per share. For diluted earnings per share, net income applicable to common shares can be affected by the conversion of the Company's convertible preferred stock. Where the effect of this conversion would reduce the loss per share or increase the income per share, net income applicable to common shares is not adjusted by the associated preferred dividends.

SUPPLEMENTAL FINANCIAL MEASURES/RATIOS

The accounting and reporting policies of Wintrust conform to generally accepted accounting principles ("GAAP") in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company's performance. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity ratio, tangible common book value per share and return on average tangible common equity. Management believes that these measures and ratios provide users of the Company's financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company's operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.

Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent ("FTE") basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company's efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company's equity.  The Company references the return on average tangible common equity as a measurement of profitability.

The following table presents a reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company's performance to the most directly comparable GAAP financial measures for the last five quarters.

 Three Months Ended Nine Months Ended
(Dollars and shares in thousands)September 30,
2016
 June 30,
2016
 March 31,
2016
 December 31,
2015
 September 30,
2015
 September 30,
2016
 September 30,
2015
Calculation of Net Interest Margin and Efficiency Ratio             
(A) Interest Income (GAAP)$208,149  $197,064  $192,231  $187,487  $185,379  $597,444  $530,977 
Taxable-equivalent adjustment:             
- Loans584  523  509  430  346  1,616  1,001 
- Liquidity Management Assets963  932  920  866  841  2,815  2,355 
- Other Earning Assets9  8  6  13  10  23  44 
(B) Interest Income - FTE$209,705  $198,527  $193,666  $188,796  $186,576  $601,898  $534,377 
(C) Interest Expense (GAAP)23,513  21,794  20,722  20,281  19,839  66,029  56,654 
(D) Net Interest Income - FTE (B minus C)$186,192  $176,733  $172,944  $168,515  $166,737  $535,869  $477,723 
(E) Net Interest Income (GAAP) (A minus C)$184,636  $175,270  $171,509  $167,206  $165,540  $531,415  $474,323 
Net interest margin (GAAP-derived)3.21% 3.24% 3.29% 3.26% 3.31% 3.25% 3.36%
Net interest margin - FTE3.24% 3.27% 3.32% 3.29% 3.33% 3.27% 3.39%
(F) Non-interest income$86,604  $84,799  $68,752  $65,090  $64,953  $240,155  $206,507 
(G) Gains (losses) on investment securities, net3,305  1,440  1,325  (79) (98) 6,070  402 
(H) Non-interest expense176,615  170,969  153,730  166,829  159,974  501,314  461,589 
Efficiency ratio (H/(E+F-G))65.92% 66.11% 64.34% 71.79% 69.38% 65.49% 67.84%
Efficiency ratio - FTE (H/(D+F-G))65.54% 65.73% 63.96% 71.39% 69.02% 65.11% 67.50%
Calculation of Tangible Common Equity ratio (at period end)             
Total shareholders' equity$2,674,474  $2,623,595  $2,418,442  $2,352,274  $2,335,736     
(I) Less: Convertible preferred stock(126,257) (126,257) (126,257) (126,287) (126,312)    
Less:  Non-convertible preferred stock(125,000) (125,000) (125,000) (125,000) (125,000)    
Less: Intangible assets(506,674) (507,916) (508,005) (495,970) (497,699)    
(J) Total tangible common shareholders' equity$1,916,543  $1,864,422  $1,659,180  $1,605,017  $1,586,725     
Total assets$25,321,759  $24,420,616  $23,488,168  $22,909,348  $22,035,216     
Less: Intangible assets(506,674) (507,916) (508,005) (495,970) (497,699)    
(K) Total tangible assets$24,815,085  $23,912,700  $22,980,163  $22,413,378  $21,537,517     
Tangible common equity ratio (J/K)7.7% 7.8% 7.2% 7.2% 7.4%    
Tangible common equity ratio, assuming full conversion of convertible preferred stock ((J-I)/K)8.2% 8.3% 7.8% 7.7% 8.0%    
Calculation of book value per share             
Total shareholders' equity$2,674,474  $2,623,595  $2,418,442  $2,352,274  $2,335,736     
Less: Preferred stock(251,257) (251,257) (251,257) (251,287) (251,312)    
(L) Total common equity$2,423,217  $2,372,338  $2,167,185  $2,100,987  $2,084,424     
(M) Actual common shares outstanding51,715  51,619  48,519  48,383  48,337     
Book value per common share (L/M)$46.86  $45.96  $44.67  $43.42  $43.12     
Tangible common book value per share (J/M)$37.06  $36.12  $34.20  $33.17  $32.83     
              
Calculation of return on average common equity             
(N) Net income applicable to common shares49,487  46,413  45,483  31,883  34,276  141,383  113,998 
Add: After-tax intangible asset amortization677  781  812  834  833  2,270  2,046 
(O) Tangible net income applicable to common shares50,164  47,194  46,295  32,717  35,109  143,653  116,044 
Total average shareholders' equity2,651,684  2,465,732  2,389,770  2,347,545  2,310,511  2,502,940  2,194,384 
Less: Average preferred stock(251,257) (251,257) (251,262) (251,293) (251,312) (251,259) (171,238)
(P) Total average common shareholders' equity2,400,427  2,214,475  2,138,508  2,096,252  2,059,199  2,251,681  2,023,146 
Less: Average intangible assets(508,812) (507,439) (495,594) (497,199) (490,583) (503,966) (455,787)
(Q) Total average tangible common shareholders' equity1,891,615  1,707,036  1,642,914  1,599,053  1,568,616  1,747,715  1,567,359 
Return on average common equity, annualized  (N/P)8.20% 8.43% 8.55% 6.03% 6.60% 8.39% 7.53%
Return on average tangible common equity, annualized (O/Q)10.55% 11.12% 11.33% 8.12% 8.88% 10.98% 9.90%
                     

LOANS

Loan Portfolio Mix and Growth Rates

        % Growth
(Dollars in thousands) September 30,
 2016
 December 31,
 2015
 September 30,
 2015
 From (1)
December 31,
2015
 From
September 30,
2015
Balance:          
Commercial $5,951,544  $4,713,909  $4,400,185  35% 35%
Commercial real estate 5,908,684  5,529,289  5,307,566  9  11 
Home equity 742,868  784,675  797,465  (7) (7)
Residential real estate 663,598  607,451  571,743  12  16 
Premium finance receivables - commercial 2,430,233  2,374,921  2,407,075  3  1 
Premium finance receivables - life insurance 3,283,359  2,961,496  2,700,275  15  22 
Consumer and other 120,975  146,376  131,902  (23) (8)
Total loans, net of unearned income, excluding covered loans $19,101,261  $17,118,117  $16,316,211  15% 17%
Covered loans 95,940  148,673  168,609  (47) (43)
Total loans, net of unearned income $19,197,201  $17,266,790  $16,484,820  15% 16%
Mix:          
Commercial 31% 27% 27%    
Commercial real estate 31  32  32     
Home equity 4  5  5     
Residential real estate 3  3  3     
Premium finance receivables - commercial 13  14  15     
Premium finance receivables - life insurance 17  17  16     
Consumer and other 1  1  1     
Total loans, net of unearned income, excluding covered loans 100% 99% 99%    
Covered loans   1  1     
Total loans, net of unearned income 100% 100% 100%    


 (1)Annualized
  


Commercial and Commercial Real Estate Loan Portfolios

           
As of September 30, 2016   % of
Total
Balance
 Nonaccrual > 90 Days
Past Due
and Still
Accruing
 Allowance
For Loan
Losses
Allocation
    
(Dollars in thousands) Balance 
Commercial:          
Commercial, industrial and other $3,605,516  30.4% $15,809  $  $29,087 
Franchise 874,745  7.4      3,357 
Mortgage warehouse lines of credit 309,632  2.6      2,241 
Asset-based lending 845,719  7.2  234    6,728 
Leases 299,953  2.5  375    893 
PCI - commercial loans (1) 15,979  0.1    1,783  732 
Total commercial $5,951,544  50.2% $16,418  $1,783  $43,038 
Commercial Real Estate:          
Construction $451,477  3.8% $400  $  $4,778 
Land 107,701  0.9  1,208    3,577 
Office 884,082  7.5  3,609    6,003 
Industrial 767,504  6.5  9,967    6,353 
Retail 895,341  7.5  909    6,063 
Multi-family 794,955  6.7  90    7,966 
Mixed use and other 1,851,507  15.6  6,442    13,586 
PCI - commercial real estate (1) 156,117  1.3    21,433  22 
Total commercial real estate $5,908,684  49.8% $22,625  $21,433  $48,348 
Total commercial and commercial real estate $11,860,228  100.0% $39,043  $23,216  $91,386 
           
Commercial real estate - collateral location by state:          
Illinois $4,652,758  78.8%      
Wisconsin 646,116  10.9       
Total primary markets $5,298,874  89.7%      
Indiana 111,206  1.9       
Florida 77,836  1.3       
Arizona 45,620  0.8       
California 38,195  0.6       
Other (no individual state greater than 0.7%) 336,953  5.7       
Total $5,908,684  100.0%      


 (1)Purchased credit impaired ("PCI") loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings are based upon contractually required payments.


DEPOSITS

Deposit Portfolio Mix and Growth Rates

        % Growth
(Dollars in thousands) September 30,
 2016
 December 31,
 2015
 September 30,
 2015
 From (1)
December 31,
2015
 From
September 30,
2015
Balance:          
Non-interest bearing $5,711,042  $4,836,420  $4,705,994  24% 21%
NOW and interest bearing demand deposits 2,552,611  2,390,217  2,231,258  9  14 
Wealth management deposits (2) 2,283,233  1,643,653  1,469,920  52  55 
Money market 4,421,631  4,041,300  4,001,518  13  10 
Savings 1,977,661  1,723,367  1,684,007  20  17 
Time certificates of deposit 4,201,477  4,004,677  4,135,772  7  2 
Total deposits $21,147,655  $18,639,634  $18,228,469  18% 16%
Mix:          
Non-interest bearing 27% 26% 26%    
NOW and interest bearing demand deposits 12  13  12     
Wealth management deposits (2) 11  9  8     
Money market 21  22  22     
Savings 9  9  9     
Time certificates of deposit 20  21  23     
Total deposits 100% 100% 100%    


 (1)Annualized
 (2)Represents deposit balances of the Company's subsidiary banks from brokerage customers of Wayne Hummer Investments, trust and asset management customers of the Company and brokerage customers from unaffiliated companies which have been placed into deposit accounts.
  


Time Certificates of Deposit
Maturity/Re-pricing Analysis
As of September 30, 2016

(Dollars in thousands) CDARs &
Brokered
Certificates
  of Deposit (1)
 MaxSafe
Certificates
  of Deposit (1)
 Variable Rate
Certificates
  of Deposit (2)
 Other Fixed
Rate   Certificates
  of Deposit (1)
 Total Time
Certificates of
Deposit
 Weighted-Average
Rate of Maturing
Time Certificates
  of Deposit (3)
1-3 months $  $53,575  $138,228  $697,340  $889,143  0.62%
4-6 months   33,497    655,169  688,666  0.72%
7-9 months 43,570  24,529    503,267  571,366  0.75%
10-12 months 531  21,464    530,905  552,900  0.81%
13-18 months 2,744  16,479    1,016,558  1,035,781  1.10%
19-24 months 3,021  8,259    162,251  173,531  0.91%
24+ months 1,249  13,232    275,609  290,090  1.29%
Total $51,115  $171,035  $138,228  $3,841,099  $4,201,477  0.86%


 (1)This category of certificates of deposit is shown by contractual maturity date.
 (2)This category includes variable rate certificates of deposit and savings certificates with the majority repricing on at least a monthly basis.
 (3)Weighted-average rate excludes the impact of purchase accounting fair value adjustments.


NET INTEREST INCOME

The following table presents a summary of Wintrust's average balances, net interest income and related net interest margins, calculated on a fully tax-equivalent basis, for the third quarter of 2016 compared to the second quarter of 2016 (sequential quarters) and third quarter of 2015 (linked quarters), respectively:

 Average Balance  for three months ended, Interest  for three months ended, Yield/Rate  for three months ended,
(Dollars in thousands)September 30,
 2016
 June 30,
 2016
 September 30,
 2015
 September 30,
 2016
 June 30,
 2016
 September 30,
 2015
 September 30,
 2016
 June 30,
 2016
 September 30,
 2015
Liquidity management assets(1)(2)(7)$3,671,577  $3,413,113  $3,140,782  $18,710  $19,236  $18,165  2.03% 2.27% 2.29%
Other earning assets(2)(3)(7)29,875  29,759  30,990  222  238  234  2.96  3.21  3.00 
Loans, net of unearned income(2)(4)(7)19,071,621  18,204,552  16,509,001  189,637  177,571  165,572  3.96  3.92  3.98 
Covered loans101,570  109,533  174,768  1,136  1,482  2,605  4.45  5.44  5.91 
Total earning assets(7)$22,874,643  $21,756,957  $19,855,541  $209,705  $198,527  $186,576  3.65% 3.67% 3.73%
Allowance for loan and covered loan losses(121,156) (116,984) (106,091)            
Cash and due from banks240,239  272,935  251,289             
Other assets1,885,526  1,841,847  1,678,323             
Total assets$24,879,252  $23,754,755  $21,679,062             
                  
Interest-bearing deposits$15,117,102  $14,065,995  $13,489,651  $15,621  $13,594  $12,436  0.41% 0.39% 0.37%
Federal Home Loan Bank advances459,198  946,081  394,666  2,577  2,984  2,458  2.23  1.27  2.47 
Other borrowings249,307  248,233  272,549  1,137  1,086  1,045  1.81  1.76  1.52 
Subordinated notes138,925  138,898  138,825  1,778  1,777  1,776  5.12  5.12  5.12 
Junior subordinated debentures253,566  253,566  264,974  2,400  2,353  2,124  3.70  3.67  3.14 
Total interest-bearing liabilities$16,218,098  $15,652,773  $14,560,665  $23,513  $21,794  $19,839  0.58% 0.56% 0.54%
Non-interest bearing deposits5,566,983  5,223,384  4,473,632             
Other liabilities442,487  412,866  334,254             
Equity2,651,684  2,465,732  2,310,511             
Total liabilities and shareholders' equity$24,879,252  $23,754,755  $21,679,062             
Interest rate spread(5)(7)            3.07% 3.11% 3.19%
Less:  Fully tax-equivalent adjustment      (1,556) (1,463) (1,197) (0.03) (0.03) (0.02)
Net free funds/contribution(6)$6,656,545  $6,104,184  $5,294,876        0.17  0.16  0.14 
Net interest income/ margin(7)  (GAAP)      $184,636  $175,270  $165,540  3.21% 3.24% 3.31%
Fully tax-equivalent adjustment      1,556  1,463  1,197  0.03  0.03  0.02 
Net interest income/ margin - FTE (7)      $186,192  $176,733  $166,737  3.24% 3.27% 3.33%


 (1)Liquidity management assets include available-for-sale and held-to-maturity securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 (2)Interest income on tax-advantaged loans, trading securities and available-for-sale securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended September 30, 2016, June 30, 2016 and September 30, 2015 were $1.6 million, $1.5 million and $1.2 million, respectively.
 (3)Other earning assets include brokerage customer receivables and trading account securities.
 (4)Loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 (5)Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
 (6)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.
 (7)See "Supplemental Financial Measures/Ratios" for additional information on this performance ratio.
  

For the third quarter of 2016, net interest income totaled $184.6 million, an increase of $9.4 million as compared to the second quarter of 2016 and an increase of $19.1 million as compared to the third quarter of 2015. Net interest margin was 3.21% (3.24% on a fully tax-equivalent basis) during the third quarter of 2016 compared to 3.24% (3.27% on a fully tax-equivalent basis) during the second quarter of 2016 and 3.31% (3.33% on a fully tax-equivalent basis) during the third quarter of 2015. The reduction in net interest margin compared to the second quarter of 2016 is primarily the result of a decline in yields on mortgage-backed securities.

The following table presents a summary of Wintrust's average balances, net interest income and related interest margins, calculated on a fully tax-equivalent basis, for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015:

 Average Balance   for nine months ended, Interest  for nine months ended, Yield/Rate  for nine months ended,
(Dollars in thousands)September 30,
 2016
 September 30,
 2015
 September 30,
 2016
 September 30,
 2015
 September 30,
 2016
 September 30,
 2015
Liquidity management assets(1)(2)(7)$3,462,375  $2,907,284  $57,740  $50,328  2.23% 2.31%
Other earning assets(2)(3)(7)29,457  30,286  696  718  3.16  3.17 
Loans, net of unearned income(2)(4)(7)18,264,545  15,730,009  538,833  473,857  3.94  4.03 
Covered loans117,427  197,069  4,629  9,474  5.27  6.43 
Total earning assets(7)$21,873,804  $18,864,648  $601,898  $534,377  3.68% 3.79%
Allowance for loan and covered loan losses(116,739) (101,440)        
Cash and due from banks257,443  245,745         
Other assets1,834,904  1,577,971         
Total assets$23,849,412  $20,586,924         
            
Interest-bearing deposits$14,303,125  $13,158,498  $41,996  $36,246  0.39% 0.37%
Federal Home Loan Bank advances742,423  360,470  8,447  6,426  1.52  2.38 
Other borrowings251,633  220,478  3,281  2,620  1.74  1.59 
Subordinated notes138,898  138,799  5,332  5,328  5.12  5.12 
Junior subordinated debentures254,935  254,710  6,973  6,034  3.59  3.12 
Total interest-bearing liabilities$15,691,014  $14,132,955  $66,029  $56,654  0.56% 0.54%
Non-interest bearing deposits5,244,552  3,931,194         
Other liabilities410,906  328,391         
Equity2,502,940  2,194,384         
Total liabilities and shareholders' equity$23,849,412  $20,586,924         
Interest rate spread(5)(7)        3.12% 3.25%
Less:  Fully tax-equivalent adjustment    (4,454) (3,400) (0.02) (0.03)
Net free funds/contribution(6)$6,182,790  $4,731,693      0.15  0.14 
Net interest income/ margin(7)  (GAAP)    $531,415  $474,323  3.25% 3.36%
Fully tax-equivalent adjustment    4,454  3,400  0.02  0.03 
Net interest income/ margin - FTE (7)    $535,869  $477,723  3.27% 3.39%


 (1)Liquidity management assets include available-for-sale and held-to-maturity securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 (2)Interest income on tax-advantaged loans, trading securities and available-for-sale securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the nine months ended September 30, 2016 and September 30, 2015 were $4.5 million and $3.4 million respectively.
 (3)Other earning assets include brokerage customer receivables and trading account securities.
 (4)Loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 (5)Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
 (6)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.
 (7)See "Supplemental Financial Measures/Ratios" for additional information on this performance ratio.
  

For the first nine months of 2016, net interest income totaled $531.4 million, an increase of $57.1 million as compared to the first nine months of 2015. Net interest margin was 3.25% (3.27% on a fully tax-equivalent basis) for the  first nine months of 2016 compared to 3.36% (3.39% on a fully tax-equivalent basis) for the same period of 2015. The reduction in net interest margin compared to the first nine months of 2015 is primarily the result of a decline in loan yields, including less accretion recognized on purchased loans, and an increase on the rate of interest bearing liabilities.

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 at September 30, 2016, June 30, 2016 and September 30, 2015 is as follows:

      
Static Shock Scenario +200
Basis 
Points
 +100
 Basis
 Points
 -100
Basis
 Points
September 30, 2016 19.6% 10.1% (10.4)%
June 30, 2016 16.9% 8.9% (8.9)%
September 30, 2015 15.6% 8.0% (11.1)%


Ramp Scenario+200
Basis
Points
 +100
Basis
Points
 -100
Basis
Points
September 30, 20167.8% 3.9% (4.1)%
June 30, 20167.0% 3.5% (3.7)%
September 30, 20156.7% 3.6% (4.0)%
         

These results indicate that the Company has positioned its balance sheet to benefit from a rise in interest rates.  This analysis also indicates that the Company would benefit to a greater magnitude should a rise in interest rates be significant (i.e., 200 basis points) and immediate (Static Shock Scenario).

NON-INTEREST INCOME

The following table presents non-interest income by category for the periods presented:

  Three Months Ended        
(Dollars in thousands)  September 30, June 30, September 30, Q3 2016 compared to
Q2 2016
 Q3 2016 compared to
Q3 2015
  2016 2016 2015 $ Change % Change $ Change % Change
Brokerage $6,752  $6,302  $6,579  $450  7% $173  3%
Trust and asset management 12,582  12,550  11,664  32    918  8 
Total wealth management 19,334  18,852  18,243  482  3  1,091  6 
Mortgage banking 34,712  36,807  27,887  (2,095) (6) 6,825  24 
Service charges on deposit accounts 8,024  7,726  7,403  298  4  621  8 
Gains (losses) on investment securities, net 3,305  1,440  (98) 1,865  NM  3,403  NM 
Fees from covered call options 3,633  4,649  2,810  (1,016) (22) 823  29 
Trading losses, net (432) (316) (135) (116) 37  (297) NM 
Operating lease income, net 4,459  4,005  613  454  11  3,846  NM 
Other:              
Interest rate swap fees 2,881  1,835  2,606  1,046  57  275  11 
BOLI 884  1,257  212  (373) (30) 672  NM 
Administrative services 1,151  1,074  1,072  77  7  79  7 
Gain on extinguishment of debt         NM    NM 
Miscellaneous 8,653  7,470  4,340  1,183  16  4,313  99 
Total Other 13,569  11,636  8,230  1,933  17  5,339  65 
Total Non-Interest Income $86,604  $84,799  $64,953  $1,805  2% $21,651  33%

NM - Not Meaningful

  Nine Months Ended    
  September 30, September 30, $ %
(Dollars in thousands) 2016 2015 Change Change
Brokerage $19,111  $20,181  $(1,070) (5)%
Trust and asset management 37,395  34,638  2,757  8 
Total wealth management 56,506  54,819  1,687  3 
Mortgage banking 93,254  91,694  1,560  2 
Service charges on deposit accounts 23,156  20,174  2,982  15 
Gains on investment securities, net 6,070  402  5,668  NM 
Fees from covered call options 9,994  11,735  (1,741) (15)
Trading losses, net (916) (452) (464) NM 
Operating lease income, net 11,270  755  10,515  NM 
Other:        
Interest rate swap fees 9,154  7,144  2,010  28 
BOLI 2,613  3,158  (545) (17)
Administrative services 3,294  3,151  143  5 
Gain on extinguishment of debt 4,305    4,305  NM 
Miscellaneous 21,455  13,927  7,528  54 
Total Other 40,821  27,380  13,441  49 
Total Non-Interest Income $240,155  $206,507  $33,648  16%

NM - Not Meaningful

Notable contributions to the change in non-interest income are as follows:

The increase in wealth management revenue during the current period as compared to the second quarter of 2016 and third quarter of 2015 is primarily attributable to growth in assets under management due to new customers.  Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors and the brokerage commissions, managed money fees and insurance product commissions at Wayne Hummer Investments.

The decrease in mortgage banking revenue in the current quarter as compared to the most recent quarter resulted primarily from a $2.5 million negative fair value adjustment on mortgage servicing rights assets ("MSRs") during the period as a result of actual prepayments in the third quarter of 2016 and higher projected prepayment speeds. Mortgage loans originated or purchased for sale remained steady during the period totaling $1.3 billion in the current quarter as compared to $1.2 billion in the second quarter of 2016 and $973.7 million in the third quarter of 2015. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. Mortgage revenue is also impacted by changes in the fair value of MSRs as the Company does not hedge this change in fair value. The Company typically originates mortgage loans held-for-sale with associated MSRs either retained or released. The Company records MSRs at fair value on a recurring basis. The table below presents additional selected information regarding mortgage banking revenue for the respective periods.

  Three Months Ended Nine Months Ended
(Dollars in thousands) September 30,
 2016
 June 30,
 2016
 September 30,
 2015
 September 30,
 2016
 September 30,
 2015
Retail originations $1,138,571  1,135,082  $900,302  $2,978,643  $2,906,508 
Correspondent originations 121,007  77,160  73,362  229,825  188,393 
(A) Total originations $1,259,578  1,212,242  $973,664  $3,208,468  $3,094,901 
           
Purchases as a percentage of originations 57% 65% 72% 60% 60%
Refinances as a percentage of originations 43  35  28  40  40 
Total 100% 100% 100% 100% 100%
           
(B) Production revenue (1) $32,889  $32,221  $27,211  $85,040  $90,640 
Production margin (B / A) 2.61% 2.66% 2.79% 2.65% 2.93%
           
Loans serviced for others (C) $1,508,469  $1,250,062  $853,286     
MSRs, at fair value (D) 13,901  13,382  7,875     
Percentage of mortgage servicing rights to loans serviced for others (D/C) 0.92% 1.07% 0.92%    


 (1)Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on loans sold and fees from originations, processing and other related activities, and excludes servicing fees, changes in the fair value of servicing rights and changes to the mortgage recourse obligation.
  

The increase in service charges on deposit accounts in the current quarter is mostly a result of higher account analysis fees on deposit accounts which have increased as a result of the Company's commercial banking initiative as well as additional service charges on deposit accounts from acquired institutions.

The Company has typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its portfolio for liquidity and other purposes. Management has effectively entered into these transactions with the goal of economically hedging security positions and enhancing its overall return on its investment portfolio by using fees generated from these options to compensate for net interest margin compression. These option transactions are designed to mitigate overall interest rate risk and do not qualify as hedges pursuant to accounting guidance. Fees from covered call options decreased in the current quarter compared to the second quarter of 2016 primarily as a result of selling call options against a smaller value of underlying securities resulting in lower premiums received by the Company. There were no outstanding call option contracts at September 30, 2016, June 30, 2016 and September 30, 2015.

The increase in operating lease income in the current quarter compared to the prior period quarters is primarily related to growth in business from the Company's leasing divisions.

The increase in other non-interest income in the current quarter as compared to the second quarter of 2016 is primarily due to higher swap fee revenues resulting from interest rate hedging transactions related to both customer-based trades and the related matched trades with inter-bank dealer counterparties and gains recognized on the purchase and sale of certain assets, partially offset by lower income on bank-owned life insurance.

NON-INTEREST EXPENSE

The following table presents non-interest expense by category for the periods present:

  Three Months Ended        
(Dollars in thousands) September 30, June 30, September 30, Q3 2016 compared to
Q2 2016
 Q3 2016 compared to
Q3 2015
  2016 2016 2015 $ Change % Change $ Change % Change
Salaries and employee benefits:              
Salaries $54,309  $52,924  $53,028  $1,385  3% $1,281  2%
Commissions and incentive compensation 33,740  32,531  30,035  1,209  4  3,705  12 
Benefits 15,669  15,439  14,686  230  1  983  7 
Total salaries and employee benefits 103,718  100,894  97,749  2,824  3  5,969  6 
Equipment 9,449  9,307  8,456  142  2  993  12 
Operating lease equipment depreciation 3,605  3,385  431  220  6  3,174  NM 
Occupancy, net 12,767  11,943  12,066  824  7  701  6 
Data processing 7,432  7,138  8,127  294  4  (695) (9)
Advertising and marketing 7,365  6,941  6,237  424  6  1,128  18 
Professional fees 5,508  5,419  4,100  89  2  1,408  34 
Amortization of other intangible assets 1,085  1,248  1,350  (163) (13) (265) (20)
FDIC insurance 3,686  4,040  3,035  (354) (9) 651  21 
OREO expense, net 1,436  1,348  (367) 88  7  1,803  NM 
Other:              
Commissions - 3rd party brokers 1,362  1,324  1,364  38  3  (2)  
Postage 1,889  2,038  1,927  (149) (7) (38) (2)
Miscellaneous 17,313  15,944  15,499  1,369  9  1,814  12 
Total other 20,564  19,306  18,790  1,258  7  1,774  9 
Total Non-Interest Expense $176,615  $170,969  $159,974  $5,646  3% $16,641  10%

NM - Not Meaningful

  Nine Months Ended    
  September 30, September 30, $ %
(Dollars in thousands) 2016 2015 Change Change
Salaries and employee benefits:        
Salaries $157,515  $146,493  $11,022  8%
Commissions and incentive compensation 92,646  88,916  3,730  4 
Benefits 50,262  46,891  3,371  7 
Total salaries and employee benefits 300,423  282,300  18,123  6 
Equipment 27,523  24,090  3,433  14 
Operating lease equipment depreciation 9,040  547  8,493  NM 
Occupancy, net 36,658  35,818  840  2 
Data processing 21,089  19,656  1,433  7 
Advertising and marketing 18,085  16,550  1,535  9 
Professional fees 14,986  13,838  1,148  8 
Amortization of other intangible assets 3,631  3,297  334  10 
FDIC insurance 11,339  9,069  2,270  25 
OREO expense, net 3,344  1,885  1,459  77 
Other:        
Commissions - 3rd party brokers 3,996  4,153  (157) (4)
Postage 5,229  5,138  91  2 
Miscellaneous 45,971  45,248  723  2 
Total other 55,196  54,539  657  1 
Total Non-Interest Expense $501,314  $461,589  $39,725  9%

NM - Not Meaningful

Notable contributions to the change in non-interest expense are as follows:

Salaries and employee benefits expense increased in the current quarter compared to the second quarter of 2016 primarily as a result of increased staffing as the Company grows and higher commissions and incentive compensation on variable pay based arrangements.  Salaries and employee benefits expense increased in the current quarter compared to the third quarter of 2015 primarily as a result of the addition of employees from acquisitions, increased staffing as the Company grows, higher commissions and incentive compensation on variable pay based arrangements and an increase in employee benefits (primarily payroll tax related).

The increase in advertising and marketing expenses during the current quarter compared to the second quarter of 2016 is primarily related to higher expenses from mass market media promotions.  Marketing costs are incurred to promote the Company's brand, commercial banking capabilities, the Company's 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 type of marketing programs utilized which are determined based on the market area, targeted audience, competition and various other factors.

The increase in miscellaneous expenses in the current quarter as compared to the second quarter of 2016 is primarily a result of a $1.8 million charge related to outstanding legal disputes recognized during the period, including a $1.5 million adverse arbitration award relating to a previously disclosed claim arising out of the hiring of a wealth management financial advisor by Wayne Hummer Investments LLC. Miscellaneous expense includes such items as ATM expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses, operating losses and lending origination costs that are not deferred.

ASSET QUALITY

Allowance for Credit Losses, excluding covered loans

  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30, September 30,
(Dollars in thousands) 2016 2016 2015 2016 2015
Allowance for loan losses at beginning of period $114,356  $110,171  $100,204  $105,400  $91,705 
Provision for credit losses 9,741  9,269  8,665  27,433  24,551 
Other adjustments (112) (134) (153) (324) (494)
Reclassification (to) from allowance for unfunded lending-related commitments (579) (40) (42) (700) (151)
Charge-offs:          
Commercial 3,469  721  964  4,861  2,884 
Commercial real estate 382  502  1,948  1,555  3,809 
Home equity 574  2,046  1,116  3,672  3,547 
Residential real estate 134  693  1,138  1,320  2,692 
Premium finance receivables - commercial 1,959  1,911  1,595  6,350  4,384 
Premium finance receivables - life insurance          
Consumer and other 389  224  116  720  342 
Total charge-offs 6,907  6,097  6,877  18,478  17,658 
Recoveries:          
Commercial 176  121  462  926  1,117 
Commercial real estate 364  296  213  1,029  2,349 
Home equity 65  71  42  184  129 
Residential real estate 61  31  136  204  228 
Premium finance receivables - commercial 456  633  278  1,876  1,065 
Premium finance receivables - life insurance     16    16 
Consumer and other 72  35  52  143  139 
Total recoveries 1,194  1,187  1,199  4,362  5,043 
Net charge-offs (5,713) (4,910) (5,678) (14,116) (12,615)
Allowance for loan losses at period end $117,693  $114,356  $102,996  $117,693  $102,996 
Allowance for unfunded lending-related commitments at period end 1,648  1,070  926  1,648  926 
Allowance for credit losses at period end $119,341  $115,426  $103,922  $119,341  $103,922 
Annualized net charge-offs by category as a percentage of its own respective category's average:          
Commercial 0.24% 0.05% 0.05% 0.10% 0.06%
Commercial real estate 0.00  0.01  0.13  0.01  0.04 
Home equity 0.27  1.03  0.55  0.61  0.62 
Residential real estate 0.03  0.26  0.42  0.14  0.37 
Premium finance receivables - commercial 0.24  0.21  0.21  0.25  0.18 
Premium finance receivables - life insurance 0.00  0.00  0.00  0.00  0.00 
Consumer and other 0.92  0.57  0.17  0.56  0.17 
Total loans, net of unearned income, excluding covered loans 0.12% 0.11% 0.14% 0.10% 0.11%
Net charge-offs as a percentage of the provision for credit losses 58.65% 52.97% 65.53% 51.46% 51.39%
Loans at period-end, excluding covered loans $19,101,261  $18,174,655  $16,316,211     
Allowance for loan losses as a percentage of loans at period end 0.62% 0.63% 0.63%    
Allowance for credit losses as a percentage of loans at period end 0.62% 0.64% 0.64%    
              

The allowance for credit losses, excluding the allowance for covered loan losses, is comprised of the allowance for loan losses and the allowance for unfunded lending-related commitments. The allowance for loan losses is a reserve against loan amounts that are actually funded and outstanding while the allowance for unfunded lending-related commitments (separate liability account) relates to certain amounts that Wintrust is committed to lend but for which funds have not yet been disbursed. The provision for credit losses, excluding the provision for covered loan losses, may contain both a component related to funded loans (provision for loan losses) and a component related to lending-related commitments (provision for unfunded loan commitments and letters of credit).

Net charge-offs as a percentage of loans, excluding covered loans, for the third quarter of 2016 totaled 12 basis points on an annualized basis compared to 11 basis points on an annualized basis in the second quarter of 2016 and 14 basis points on an annualized basis in the third quarter of 2015.  Net charge-offs totaled $5.7 million in the third quarter of 2016, an $803,000 increase from $4.9 million in the second quarter of 2016 and remained steady when compared to the third quarter of 2015.

The provision for credit losses, excluding the provision for covered loan losses, totaled $9.7 million for the third quarter of 2016 compared to $9.3 million for the second quarter of 2016 and $8.7 million for the third quarter of 2015. The higher provision for credit losses in the third quarter of 2016 compared to the second quarter of 2016 was partly due to loan growth, excluding covered loans and mortgage loans held-for-sale, during the third quarter of 2016.

Management believes the allowance for credit losses is appropriate to provide for inherent losses in the portfolio. There can be no assurances however, that future losses will not exceed the amounts provided for, thereby affecting future results of operations. The amount of future additions to the allowance for credit losses will be dependent upon management's assessment of the appropriateness of the allowance based on its evaluation of economic conditions, changes in real estate values, interest rates, the regulatory environment, the level of past-due and non-performing loans, and other factors.

The Company also provides a provision for covered loan losses on covered loans and maintains an allowance for covered loan losses on covered loans. Please see "Covered Assets" later in this document for more detail.

The following table presents the provision for credit losses and allowance for credit losses by component for the periods presented:

  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30, September 30,
(Dollars in thousands) 2016 2016 2015 2016 2015
Provision for loan losses $9,162  $9,229  $8,623  $26,733  $24,400 
Provision for unfunded lending-related commitments 579  40  42  700  151 
Provision for covered loan losses (170) (140) (343) (699) (668)
Provision for credit losses $9,571  $9,129  $8,322  $26,734  $23,883 
           
      Period End
      September 30, June 30, September 30,
      2016 2016 2015
Allowance for loan losses     $117,693  $114,356  $102,996 
Allowance for unfunded lending-related commitments     1,648  1,070  926 
Allowance for covered loan losses     1,422  2,412  2,918 
Allowance for credit losses     $120,763  $117,838  $106,840 
                 

The tables below summarize the calculation of allowance for loan losses for the Company's core loan portfolio and consumer, niche and purchased loan portfolio as of September 30, 2016 and June 30, 2016.

  As of September 30, 2016
  Recorded Calculated As a percentage
of its own respective
(Dollars in thousands) Investment Allowance category's balance
Commercial:(1)      
Commercial and industrial $3,111,891  $26,440  0.85%
Asset-based lending 844,357  6,728  0.80 
Tax exempt 316,343  2,229  0.70 
Leases 299,534  893  0.30 
Commercial real estate:(1)      
Residential construction 64,986  736  1.13 
Commercial construction 386,275  4,042  1.05 
Land 103,109  3,577  3.47 
Office 834,123  6,002  0.72 
Industrial 719,470  6,349  0.88 
Retail 834,507  6,045  0.72 
Multi-family 752,106  7,956  1.06 
Mixed use and other 1,731,583  13,545  0.78 
Home equity(1) 664,811  11,678  1.76 
Residential real estate(1) 615,312  6,027  0.98 
Total core loan portfolio $11,278,407  $102,247  0.91%
Commercial:      
Franchise $334,910  $3,357  1.00%
Mortgage warehouse lines of credit 309,632  2,241  0.72 
Community Advantage - homeowner associations 141,351  353  0.25 
Aircraft 4,498  53  1.18 
Purchased non-covered commercial loans (2) 589,028  744  0.13 
Commercial real estate:      
Purchased non-covered commercial real estate (2) 482,525  96  0.02 
Purchased non-covered home equity (2) 78,057  6  0.01 
Purchased non-covered residential real estate (2) 48,286  76  0.16 
Premium finance receivables      
U.S. commercial insurance loans 2,139,966  5,416  0.25 
Canada commercial insurance loans (2) 290,267  554  0.19 
Life insurance loans (1) 3,020,472  1,305  0.04 
Purchased life insurance loans (2) 262,887     
Consumer and other (1) 117,897  1,244  1.06 
Purchased non-covered consumer and other (2) 3,078  1  0.03 
Total consumer, niche and purchased loan portfolio $7,822,854  $15,446  0.20%
Total loans, net of unearned income, excluding covered loans $19,101,261  $117,693  0.62%
Non-accretable credit discounts on purchased loans reported in accordance with ASC 310-30, excluding covered loans   $20,940   
Total allowance for loan losses and non-accretable credit discounts on purchased loans, excluding covered loans   $138,633  0.72%


 (1)Excludes purchased loans reported in accordance with ASC 310-20 and ASC 310-30.
 (2)Purchased loans represent loans reported in accordance with ASC 310-20 and ASC 310-30.
  


  As of June 30, 2016
  Recorded Calculated As a percentage
of its own respective
(Dollars in thousands) Investment Allowance category's balance
Commercial:(1)      
Commercial and industrial $2,986,178  $26,037  0.87%
Asset-based lending 841,028  6,735  0.80 
Tax exempt 288,091  2,027  0.70 
Leases 267,686  807  0.30 
Commercial real estate:(1)      
Residential construction 67,006  768  1.15 
Commercial construction 336,486  3,551  1.06 
Land 100,187  3,455  3.45 
Office 856,193  6,099  0.71 
Industrial 717,313  6,439  0.90 
Retail 830,284  6,040  0.73 
Multi-family 732,449  7,736  1.06 
Mixed use and other 1,678,829  12,622  0.75 
Home equity(1) 673,741  11,367  1.69 
Residential real estate(1) 599,262  5,333  0.89 
Total core loan portfolio $10,974,733  $99,016  0.90%
Commercial:      
Franchise $289,905  $3,337  1.15%
Mortgage warehouse lines of credit 270,586  1,976  0.73 
Community Advantage - homeowner associations 134,273  3  0.00 
Aircraft 4,597  54  1.17 
Purchased non-covered commercial loans (2) 62,189  678  1.09 
Commercial real estate:      
Purchased non-covered commercial real estate (2) 529,587  114  0.02 
Purchased non-covered home equity (2) 87,163  16  0.02 
Purchased non-covered residential real estate (2) 54,402  72  0.13 
Premium finance receivables      
U.S. commercial insurance loans 2,181,222  5,776  0.26 
Canada commercial insurance loans (2) 297,058  598  0.20 
Life insurance loans (1) 2,869,960  1,440  0.05 
Purchased life insurance loans (2) 291,602     
Consumer and other (1) 123,944  1,275  1.03 
Purchased non-covered consumer and other (2) 3,434  1  0.03 
Total consumer, niche and purchased loan portfolio $7,199,922  $15,340  0.21%
Total loans, net of unearned income, excluding covered loans $18,174,655  $114,356  0.63%
Non-accretable credit discounts on purchased loans reported in accordance with ASC 310-30, excluding covered loans   $27,039   
Total allowance for loan losses and non-accretable credit discounts on purchased loans, excluding covered loans   $141,395  0.78%


 (1)Excludes purchased loans reported in accordance with ASC 310-20 and ASC 310-30.
 (2)Purchased loans represent loans reported in accordance with ASC 310-20 and ASC 310-30.
  

As part of the regular quarterly review performed by management to determine if the Company's allowance for loan losses is appropriate, an analysis is prepared on the loan portfolio based upon a breakout of core loans and consumer, niche and purchased loans. A summary of the allowance for loan losses calculated for the loan components in both the core loan portfolio and the consumer, niche and purchased loan portfolio was shown on the previous pages as of September 30, 2016 and June 30, 2016.

The increase in the allowance for loan losses to core loans in the third quarter of 2016 compared to the second quarter of 2016 was attributable to $303.7 million core loan portfolio growth.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. In accordance with accounting guidance, credit deterioration on purchased loans is recorded as a credit discount at the time of purchase instead of as an increase to the allowance for loan losses. For analysis purposes, the Company has combined the non-accretable credit discounts recorded on purchased loans with the total allowance for loan losses in the previous tables to present the total credit reserves available on its loan portfolio. The total allowance for loan losses and non-accretable credit discounts on purchased loans was 0.72% of the total loan portfolio as of September 30, 2016 and 0.78% of the total loan portfolio as of June 30, 2016.

The tables below show the aging of the Company's loan portfolio at September 30, 2016 and June 30, 2016:

    90+ days 60-89 30-59    
As of September 30, 2016   and still days past days past    
(Dollars in thousands) Nonaccrual accruing due due Current Total Loans
Loan Balances:            
Commercial            
Commercial, industrial and other $15,809  $  $7,324  $8,987  $3,573,396  $3,605,516 
Franchise     458  1,626  872,661  874,745 
Mortgage warehouse lines of credit         309,632  309,632 
Asset-based lending 234    3,772  3,741  837,972  845,719 
Leases 375    239    299,339  299,953 
PCI - commercial (1)   1,783    1,036  13,160  15,979 
Total commercial 16,418  1,783  11,793  15,390  5,906,160  5,951,544 
Commercial real estate            
Construction 400      3,775  447,302  451,477 
Land 1,208    787  300  105,406  107,701 
Office 3,609    6,457  8,062  865,954  884,082 
Industrial 9,967    940  2,961  753,636  767,504 
Retail 909    1,340  8,723  884,369  895,341 
Multi-family 90    3,051  2,169  789,645  794,955 
Mixed use and other 6,442    2,157  5,184  1,837,724  1,851,507 
PCI - commercial real estate (1)   21,433  1,509  4,066  129,109  156,117 
Total commercial real estate 22,625  21,433  16,241  35,240  5,813,145  5,908,684 
Home equity 9,309    1,728  3,842  727,989  742,868 
Residential real estate, including PCI 12,205  1,496  2,232  1,088  646,577  663,598 
Premium finance receivables            
Commercial insurance loans 14,214  7,754  6,968  10,291  2,391,006  2,430,233 
Life insurance loans     9,960  3,717  3,006,795  3,020,472 
PCI - life insurance loans (1)         262,887  262,887 
Consumer and other, including PCI 543  124  204  871  119,233  120,975 
Total loans, net of unearned income, excluding covered loans $75,314  $32,590  $49,126  $70,439  $18,873,792  $19,101,261 
Covered loans 2,331  4,806  1,545  2,456  84,802  95,940 
Total loans, net of unearned income $77,645  $37,396  $50,671  $72,895  $18,958,594  $19,197,201 
                         


As of September 30, 2016
Aging as a % of Loan Balance
 Nonaccrual 90+ days
and still
accruing
 60-89
days past
due
 30-59
days past
due
 Current Total Loans
Commercial            
Commercial, industrial and other 0.4% % 0.2% 0.2% 99.2% 100.0%
Franchise     0.1  0.2  99.7  100.0 
Mortgage warehouse lines of credit         100.0  100.0 
Asset-based lending     0.4  0.4  99.2  100.0 
Leases 0.1    0.1    99.8  100.0 
PCI - commercial(1)   11.2    6.5  82.3  100.0 
Total commercial 0.3    0.2  0.3  99.2  100.0 
Commercial real estate            
Construction 0.1      0.8  99.1  100.0 
Land 1.1    0.7  0.3  97.9  100.0 
Office 0.4    0.7  0.9  98.0  100.0 
Industrial 1.3    0.1  0.4  98.2  100.0 
Retail 0.1    0.1  1.0  98.8  100.0 
Multi-family     0.4  0.3  99.3  100.0 
Mixed use and other 0.3    0.1  0.3  99.3  100.0 
PCI - commercial real estate (1)   13.7  1.0  2.6  82.7  100.0 
Total commercial real estate 0.4  0.4  0.3  0.6  98.3  100.0 
Home equity 1.3    0.2  0.5  98.0  100.0 
Residential real estate, including PCI 1.8  0.2  0.3  0.2  97.5  100.0 
Premium finance receivables            
Commercial insurance loans 0.6  0.3  0.3  0.4  98.4  100.0 
Life insurance loans     0.3  0.1  99.6  100.0 
PCI - life insurance loans (1)         100.0  100.0 
Consumer and other, including PCI 0.4  0.1  0.2  0.7  98.6  100.0 
Total loans, net of unearned income, excluding covered loans 0.4% 0.2% 0.3% 0.4% 98.7% 100.0%
Covered loans 2.4  5.0  1.6  2.6  88.4  100.0 
Total loans, net of unearned income 0.4% 0.2% 0.3% 0.4% 98.7% 100.0%


 (1)PCI loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30.  Loan agings are based upon contractually required payments.
  


    90+ days 60-89 30-59    
As of June 30, 2016   and still days past days past    
(Dollars in thousands) Nonaccrual accruing due due Current Total Loans
Loan Balances:            
Commercial            
Commercial, industrial and other $16,414  $  $1,412  $22,317  $3,416,432  $3,456,575 
Franchise     560  87  289,258  289,905 
Mortgage warehouse lines of credit         270,586  270,586 
Asset-based lending   235  1,899  6,421  834,112  842,667 
Leases 387    48    267,639  268,074 
PCI - commercial(1)   1,956  630  1,426  12,714  16,726 
Total commercial 16,801  2,191  4,549  30,251  5,090,741  5,144,533 
Commercial real estate            
Construction 673    46  7,922  396,264  404,905 
Land 1,725      340  103,816  105,881 
Office 6,274    5,452  4,936  892,791  909,453 
Industrial 10,295    1,108  719  754,647  766,769 
Retail 916    535  6,450  889,945  897,846 
Multi-family 90    2,077  1,275  775,075  778,517 
Mixed use and other 4,442    4,285  8,007  1,795,931  1,812,665 
PCI - commercial real estate (1)   27,228  1,663  2,608  140,799  172,298 
Total commercial real estate 24,415  27,228  15,166  32,257  5,749,268  5,848,334 
Home equity 8,562    380  4,709  747,253  760,904 
Residential real estate, including PCI 12,413  1,479  1,367  299  638,106  653,664 
Premium finance receivables            
Commercial insurance loans 14,497  10,558  6,966  9,456  2,436,803  2,478,280 
Life insurance loans     46,651  11,953  2,811,356  2,869,960 
PCI - life insurance loans (1)         291,602  291,602 
Consumer and other, including PCI 475  226  610  1,451  124,616  127,378 
Total loans, net of unearned income, excluding covered loans $77,163  $41,682  $75,689  $90,376  $17,889,745  $18,174,655 
Covered loans 2,651  6,810  697  1,610  93,480  105,248 
Total loans, net of unearned income $79,814  $48,492  $76,386  $91,986  $17,983,225  $18,279,903 
                         


As of June 30, 2016
Aging as a % of Loan Balance:
 Nonaccrual 90+ days
and still
accruing
 60-89
days past
due
 30-59
days past
due
 Current Total Loans
Commercial            
Commercial, industrial and other 0.5% % % 0.6% 98.9% 100.0%
Franchise     0.2    99.8  100.0 
Mortgage warehouse lines of credit         100.0  100.0 
Asset-based lending     0.2  0.8  99.0  100.0 
Leases 0.1        99.9  100.0 
PCI - commercial(1)   11.7  3.8  8.5  76.0  100.0 
Total commercial 0.3    0.1  0.6  99.0  100.0 
Commercial real estate            
Construction 0.2      2.0  97.8  100.0 
Land 1.6      0.3  98.1  100.0 
Office 0.7    0.6  0.5  98.2  100.0 
Industrial 1.3    0.1  0.1  98.5  100.0 
Retail 0.1    0.1  0.7  99.1  100.0 
Multi-family     0.3  0.2  99.5  100.0 
Mixed use and other 0.2    0.2  0.4  99.2  100.0 
PCI - commercial real estate (1)   15.8  1.0  1.5  81.7  100.0 
Total commercial real estate 0.4  0.5  0.3  0.6  98.2  100.0 
Home equity 1.1      0.6  98.3  100.0 
Residential real estate, including PCI 1.9  0.2  0.2    97.7  100.0 
Premium finance receivables            
Commercial insurance loans 0.6  0.4  0.3  0.4  98.3  100.0 
Life insurance loans     1.6  0.4  98.0  100.0 
PCI - life insurance loans (1)         100.0  100.0 
Consumer and other, including PCI 0.4  0.2  0.5  1.1  97.8  100.0 
Total loans, net of unearned income, excluding covered loans 0.4% 0.2% 0.4% 0.5% 98.5% 100.0%
Covered loans 2.5  6.5  0.7  1.5  88.8  100.0 
Total loans, net of unearned income 0.4% 0.3% 0.4% 0.5% 98.4% 100.0%


 (1)PCI loans represent loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30.  Loan agings are based upon contractually required payments.
  

As of September 30, 2016, $49.1 million of all loans, excluding covered loans, or 0.3%, were 60 to 89 days past due and $70.4 million, or 0.4%, were 30 to 59 days (or one payment) past due. As of June 30, 2016, $75.7 million of all loans, excluding covered loans, or 0.4%, were 60 to 89 days past due and $90.4 million, or 0.5%, were 30 to 59 days (or one payment) past due. The majority 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 loan portfolios continue to exhibit low delinquency ratios. Home equity loans at September 30, 2016 that are current with regard to the contractual terms of the loan agreement represent 98.0% of the total home equity portfolio. Residential real estate loans at September 30, 2016 that are current with regards to the contractual terms of the loan agreements comprise 97.5% of total residential real estate loans outstanding.

Non-performing Assets, excluding covered assets

The following table sets forth Wintrust's non-performing assets and troubled debt restructurings  ("TDRs") performing under the contractual terms of the loan agreement, excluding covered assets and non-covered PCI loans, at the dates indicated.

  September 30, June 30, September 30,
(Dollars in thousands) 2016 2016 2015
Loans past due greater than 90 days and still accruing(1):      
Commercial $  $235  $ 
Commercial real estate      
Home equity      
Residential real estate      
Premium finance receivables - commercial 7,754  10,558  8,231 
Premium finance receivables - life insurance      
Consumer and other 60  163  140 
Total loans past due greater than 90 days and still accruing 7,814  10,956  8,371 
Non-accrual loans(2):      
Commercial 16,418  16,801  12,018 
Commercial real estate 22,625  24,415  28,617 
Home equity 9,309  8,562  8,365 
Residential real estate 12,205  12,413  14,557 
Premium finance receivables - commercial 14,214  14,497  13,751 
Premium finance receivables - life insurance      
Consumer and other 543  475  297 
Total non-accrual loans 75,314  77,163  77,605 
Total non-performing loans:      
Commercial 16,418  17,036  12,018 
Commercial real estate 22,625  24,415  28,617 
Home equity 9,309  8,562  8,365 
Residential real estate 12,205  12,413  14,557 
Premium finance receivables - commercial 21,968  25,055  21,982 
Premium finance receivables - life insurance      
Consumer and other 603  638  437 
Total non-performing loans $83,128  $88,119  $85,976 
Other real estate owned 19,933  22,154  29,053 
Other real estate owned - from acquisitions 15,117  15,909  22,827 
Other repossessed assets 428  420  193 
Total non-performing assets $118,606  $126,602  $138,049 
TDRs performing under the contractual terms of the loan agreement $29,440  $33,310  $49,173 
Total non-performing loans by category as a percent of its own respective category's period-end balance:      
Commercial 0.28% 0.33% 0.27%
Commercial real estate 0.38  0.42  0.54 
Home equity 1.25  1.13  1.05 
Residential real estate 1.84  1.90  2.55 
Premium finance receivables - commercial 0.90  1.01  0.91 
Premium finance receivables - life insurance      
Consumer and other 0.50  0.50  0.33 
Total loans, net of unearned income 0.44% 0.48% 0.53%
Total non-performing assets as a percentage of total assets 0.47% 0.52% 0.63%
Allowance for loan losses as a percentage of total non-performing loans 141.58% 129.78% 119.79%


 (1)As of the dates shown, no TDRs were past due greater than 90 days and still accruing interest.
 (2)Non-accrual loans included TDRs totaling $14.8 million, $16.3 million, and $10.1 million as of September 30, 2016, June 30, 2016, and September 30, 2015, respectively.
  

The ratio of non-performing assets to total assets was 0.47% as of September 30, 2016, compared to 0.52% at June 30, 2016, and 0.63% at September 30, 2015. Non-performing assets, excluding covered assets, totaled $118.6 million at September 30, 2016, compared to $126.6 million at June 30, 2016 and $138.0 million at September 30, 2015. Non-performing loans, excluding covered loans, totaled $83.1 million, or 0.44% of total loans, at September 30, 2016 compared to $88.1 million, or 0.48% of total loans, at June 30, 2016 and $86.0 million, or 0.53% of total loans, at September 30, 2015. The decrease in non-performing loans, excluding covered loans, compared to June 30, 2016 is primarily the result of a $3.1 million decrease in the commercial premium finance receivables portfolio and a $1.8 million decrease in the commercial real estate loan portfolio. OREO, excluding covered OREO, of $35.1 million at September 30, 2016 decreased $3.0 million compared to $38.1 million at June 30, 2016 and decreased $16.8 million compared to $51.9 million at September 30, 2015.

Management is pursuing the resolution of all credits in this category. At this time, management believes reserves are appropriate to absorb inherent losses that are expected upon the ultimate resolution of these credits.

Nonperforming Loans Rollforward

The table below presents a summary of the changes in the balance of non-performing loans, excluding covered loans, for the periods presented:

  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30, September 30,
(Dollars in thousands) 2016 2016 2015 2016 2015
Balance at beginning of period $88,119  $89,499  $76,554  $84,057  $78,677 
Additions, net 9,522  10,351  24,333  32,039  42,141 
Return to performing status (231) (873) (1,028) (3,110) (2,591)
Payments received (5,235) (4,810) (5,468) (13,353) (16,417)
Transfer to OREO and other repossessed assets (2,270) (1,818) (1,773) (6,168) (8,678)
Charge-offs (3,353) (2,943) (4,081) (6,829) (8,637)
Net change for niche loans (1) (3,424) (1,287) (2,561) (3,508) 1,481 
Balance at end of period $83,128  $88,119  $85,976  $83,128  $85,976 


 (1)This includes activity for premium finance receivables and indirect consumer loans.
  

TDRs

The table below presents a summary of TDRs as of the respective date, presented by loan category and accrual status:

  September 30, June 30, September 30,
(Dollars in thousands) 2016 2016 2015
Accruing TDRs:      
Commercial $2,285  $3,931  $5,717 
Commercial real estate 22,261  24,450  39,867 
Residential real estate and other 4,894  4,929  3,589 
Total accrual $29,440  $33,310  $49,173 
Non-accrual TDRs: (1)      
Commercial $2,134  $1,477  $147 
Commercial real estate 10,610  12,240  5,778 
Residential real estate and other 2,092  2,608  4,222 
Total non-accrual $14,836  $16,325  $10,147 
Total TDRs:      
Commercial $4,419  $5,408  $5,864 
Commercial real estate 32,871  36,690  45,645 
Residential real estate and other 6,986  7,537  7,811 
Total TDRs $44,276  $49,635  $59,320 
Weighted-average contractual interest rate of TDRs 4.33% 4.31% 4.04%


 (1)Included in total non-performing loans.
  

At September 30, 2016, the Company had $44.3 million in loans modified in TDRs.  The $44.3 million in TDRs represents 89 credits in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay.  The balance decreased from $49.6 million representing 97 credits at June 30, 2016 and decreased from $59.3 million representing 114 credits at September 30, 2015.

The table below presents a summary of TDRs as of September 30, 2016 and September 30, 2015, and shows the changes in the balance during the periods presented:

Three Months Ended September 30, 2016

(Dollars in thousands) Commercial Commercial
Real Estate
 Residential
Real Estate
and Other
 Total
Balance at beginning of period $5,408  $36,690  $7,537  $49,635 
Additions during the period 28    43  71 
Reductions:        
Charge-offs (761) (204)   (965)
Transferred to OREO and other repossessed assets   (681) (535) (1,216)
Removal of TDR loan status (1)   (1,323)   (1,323)
Payments received, net (256) (1,611) (59) (1,926)
Balance at period end $4,419  $32,871  $6,986  $44,276 


 (1)Loan was previously classified as a troubled debt restructuring and subsequently performed in compliance with the loan's modified terms for a period of six months (including over a calendar year-end) at a modified interest rate which represented a market rate at the time of restructuring. Per our TDR policy, the TDR classification is removed.
  

Three Months Ended September 30, 2015

(Dollars in thousands) Commercial Commercial
Real Estate
 Residential
Real Estate
and Other
 Total
Balance at beginning of period $6,204  $48,450  $8,122  $62,776 
Additions during the period     222  222 
Reductions:        
Charge-offs   (267) (52) (319)
Transferred to OREO and other repossessed assets     (175) (175)
Removal of TDR loan status (1) (234) (1,581) - (1,815)
Payments received, net (106) (957) (306) (1,369)
Balance at period end $5,864  $45,645  $7,811  $59,320 

Nine Months Ended September 30, 2016

(Dollars in thousands) Commercial Commercial
Real Estate
 Residential
Real Estate
and Other
 Total
Balance at beginning of period $5,747  $38,707  $7,399  $51,853 
Additions during the period 345  8,521  583  9,449 
Reductions:        
Charge-offs (781) (1,038) (212) (2,031)
Transferred to OREO and other repossessed assets   (1,365) (535) (1,900)
Removal of TDR loan status (1)   (6,479)   (6,479)
Payments received, net (892) (5,475) (249) (6,616)
Balance at period end $4,419  $32,871  $6,986  $44,276 

Nine Months Ended September 30, 2015

(Dollars in thousands) Commercial Commercial
Real Estate
 Residential
Real Estate
and Other
 Total
Balance at beginning of period $7,576  $67,623  $7,076  $82,275 
Additions during the period   169  1,664  1,833 
Reductions:        
Charge-offs (397) (268) (92) (757)
Transferred to OREO and other repossessed assets (562) (2,290) (279) (3,131)
Removal of TDR loan status (1) (471) (10,151)   (10,622)
Payments received, net (282) (9,438) (558) (10,278)
Balance at period end $5,864  $45,645  $7,811  $59,320 


 (1)Loan was previously classified as a troubled debt restructuring and subsequently performed in compliance with the loan's modified terms for a period of six months (including over a calendar year-end) at a modified interest rate which represented a market rate at the time of restructuring. Per our TDR policy, the TDR classification is removed.
  

Each TDR was reviewed for impairment at September 30, 2016 and approximately $2.8 million of impairment was present and appropriately reserved for through the Company's normal reserving methodology in the Company's allowance for loan losses.  For TDRs in which impairment is calculated by the present value of future cash flows, the Company records interest income representing the decrease in impairment resulting from the passage of time during the respective period, which differs from interest income from contractually required interest on these specific loans. For both the three months ending September 30, 2016 and 2015, the Company recorded $98,000 in interest income representing this decrease in impairment. For the nine months ended September 30, 2016 and 2015, the Company recorded $323,000 and $385,000, respectively, in interest income.  

Other Real Estate Owned

The table below presents a summary of other real estate owned, excluding covered other real estate owned, as of September 30, 2016, June 30, 2016 and September 30, 2015, and shows the activity for the respective period and the balance for each property type:

  Three Months Ended
  September 30, June 30, September 30,
(Dollars in thousands) 2016 2016 2015
Balance at beginning of period $38,063  $41,002  $42,080 
Disposals/resolved (5,967) (6,591) (7,611)
Transfers in at fair value, less costs to sell 3,958  1,309  6,159 
Transfers in from covered OREO subsequent to loss share expiration   3,300  7,316 
Additions from acquisition     4,617 
Fair value adjustments (1,004) (957) (681)
Balance at end of period $35,050  $38,063  $51,880 
       
  Period End
  September 30, June 30, September 30,
Balance by Property Type 2016 2016 2015
Residential real estate $9,602  $9,153  $12,577 
Residential real estate development 2,114  2,133  3,147 
Commercial real estate 23,334  26,777  36,156 
Total $35,050  $38,063  $51,880 
             

Covered Assets

In conjunction with FDIC-assisted transactions, the Company entered into loss share agreements with the FDIC. These agreements cover realized losses on loans, foreclosed real estate and certain other assets and require the Company to record loss share assets and liabilities that are measured separately from the loan portfolios because they are not contractually embedded in the loans and are not transferable with the loans should the Company choose to dispose of them. Fair values at the acquisition dates were estimated based on projected cash flows available for loss-share based on the credit adjustments estimated for each loan pool and the loss share percentages. The loss share assets and liabilities are also separately measured from the related loans and foreclosed real estate and recorded on the Consolidated Statements of Condition. Subsequent to the acquisition date, reimbursements received from the FDIC for actual incurred losses will reduce any loss share assets. Reductions to expected losses, to the extent such reductions to expected losses are the result of an improvement to the actual or expected cash flows from the covered assets, will also reduce any loss share asset and, if necessary, increase any loss share liability when necessary reductions exceed the current value of the loss share asset. The increases in cash flows for the purchased loans are recognized as interest income prospectively. In accordance with clawback provisions included in loss share agreements with the FDIC, the Company may be required to reimburse the FDIC when actual losses are less than certain thresholds established for each loss share agreement. The balance of these estimated reimbursements in accordance with clawback provisions and any related amortization are adjusted periodically for changes in the expected losses on covered assets. Estimated reimbursements from clawback provisions are recorded as a reduction to the loss share asset or, if necessary, an increase to the loss share liability on the Consolidated Statements of Condition. The allowance for loan losses for loans acquired in FDIC-assisted transactions is determined without giving consideration to the amounts recoverable through loss share agreements (since the loss share agreements are separately accounted for and thus presented "gross" on the balance sheet). On the Consolidated Statements of Income, the provision for credit losses is reported net of changes in the amount recoverable under the loss share agreements.

The following table provides a comparative analysis for the period end balances of covered assets and any changes in the allowance for covered loan losses. The Company expects covered assets and the allowance for covered loan losses to continue to decrease in periods without FDIC-assisted acquisitions.

  September 30, June 30, September 30,
(Dollars in thousands) 2016 2016 2015
Period End Balances:      
Loans $95,940  $105,248  $168,609 
Other real estate owned 10,399  12,983  28,644 
Other assets 216  238  686 
FDIC indemnification (liability) asset (17,945) (11,729) (3,033)
Total net covered assets $88,610  $106,740  $194,906 
Allowance for Covered Loan Losses Rollforward:      
Balance at beginning of quarter: $2,412  $2,507  $2,215 
Provision for covered loan losses before benefit attributable to FDIC loss share agreements (847) (702) (1,716)
Benefit attributable to FDIC loss share agreements 677  562  1,373 
Net provision for covered loan losses (170) (140) (343)
Decrease in FDIC indemnification liability/asset (677) (562) (1,373)
Loans charged-off (918) (143) (287)
Recoveries of loans charged-off 775  750  2,706 
Net (charge-offs) recoveries (143) 607  2,419 
Balance at end of quarter $1,422  $2,412  $2,918 
             

Changes in Accretable Yield

The excess of cash flows expected to be collected over the carrying value of loans accounted for under ASC 310-30 is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the pool of loans. The accretable yield is affected by:

  • Changes in interest rate indices for variable rate loans accounted for under ASC 310-30 – Expected future cash flows are based on the variable rates in effect at the time of the regular evaluations of cash flows expected to be collected;
  • Changes in prepayment assumptions – Prepayments affect the estimated life of loans accounted for under ASC 310-30 which may change the amount of interest income, and possibly principal, expected to be collected; and
  • Changes in the expected principal and interest payments over the estimated life – Updates to expected cash flows are driven by the credit outlook and actions taken with borrowers. Changes in expected future cash flows from loan modifications are included in the regular evaluations of cash flows expected to be collected.

The following table provides activity for the accretable yield of loans accounted for under ASC 310-30.

  Three Months Ended
  September 30, September 30,
(Dollars in thousands) 2016 2015
Accretable yield, beginning balance $55,630  $63,643 
Acquisitions   10,407 
Accretable yield amortized to interest income (6,449) (5,939)
Accretable yield amortized to indemnification asset/liability (1) (1,744) (3,280)
Reclassification from non-accretable difference(2) 5,370  2,298 
Increases (decreases) in interest cash flows due to payments and changes in interest rates 170  (610)
Accretable yield, ending balance (3) $52,977  $66,519 
         


  Nine Months Ended
  September 30, September 30,
(Dollars in thousands) 2016 2015
Accretable yield, beginning balance $63,902  $79,102 
Acquisitions 1,266  11,305 
Accretable yield amortized to interest income (17,105) (18,359)
Accretable yield amortized to indemnification asset/liability (1) (5,539) (10,945)
Reclassification from non-accretable difference(2) 12,099  5,154 
(Decreases) increases in interest cash flows due to payments and changes in interest rates (1,646) 262