Market Overview

Wintrust Financial Corporation Reports Record Fourth Quarter 2016 Net Income, an Increase of 54% Over Prior Year, and Record Full-Year 2016 Net Income of $206.9 million, an Increase of 32% Over Prior Year

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ROSEMONT, Ill., Jan. 18, 2017 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation ("Wintrust" or "the Company") (Nasdaq: WTFC) announced net income of $54.6 million or $0.94 per diluted common share for the fourth quarter of 2016 compared to net income of $53.1 million or $0.92 per diluted common share for the third quarter of 2016 and $35.5 million or $0.64 per diluted common share for the fourth quarter of 2015. The Company recorded net income of $206.9 million or $3.66 per diluted common share for the year ended 2016 compared to net income of $156.7 million or $2.93 per diluted common share for the same period of 2015.

Highlights of the Fourth Quarter of 2016 *:

  • Total loans, excluding covered loans and mortgage loans held-for-sale, increased by $602 million, or 13% on an annualized basis, to $19.7 billion. Loan growth included $79 million of loans acquired in relation to the acquisition of First Community Financial Corporation ("FCFC"), which was completed in mid-November.
  • Total assets increased by $347 million and now total $25.7 billion.
  • Total deposits increased by $511 million to $21.7 billion. Non-interest bearing deposit accounts comprise 27% of total deposits.
  • Mortgage banking revenue remained strong, totaling $35.5 million during the fourth quarter, which included a $1.2 million positive fair value adjustment related to mortgage servicing rights assets. Origination volumes totaled $1.2 billion in that period. 
  • Net charge-offs, excluding covered loans, decreased to $2.8 million. Net charge-offs as a percentage of average total loans, excluding covered loans, decreased to 6 bps compared to 12 bps during the third quarter.
  • Net interest income increased $6.1 million primarily as a result of earning assets growth.
  • Acquisition and non-operating compensation charges totaled $1.0 million during the quarter.
  • Recorded a $717,000 loss on extinguishment of debt as a result of the prepayment of $262 million of Federal Home Loan Bank advances.

* 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, "Wintrust reported record net income of $54.6 million for the fourth quarter 2016 and record annual net income of $206.9 million for the full year of 2016. These results were driven by our continued strong asset growth throughout 2016 while maintaining our commitment to controlling operating expenses with our net overhead ratio ending 2016 at 1.47%, which is below our previously stated goal of 1.50%. The fourth quarter of 2016 was also characterized by continued deposit growth, strong performance from our mortgage banking activities, stable credit quality metrics and the acquisition of First Community Financial Corporation."

Mr. Wehmer continued, "Excluding covered loans and mortgage loans held-for-sale, we grew our loan portfolio by $602 million during the fourth quarter, which included $79 million of loans acquired in relation to the acquisition of First Community Financial Corporation. The increased loan volumes and stable net interest margin during the quarter resulted in an increase in net interest income of $6.1 million. Our loan pipelines remain consistently strong and we are well positioned for rising interest rates in the future. Strong deposit growth continued in the fourth quarter of 2016 as deposits increased $511 million over the third quarter of 2016, which included $150 million from the acquisition of First Community Financial Corporation, with total deposits reaching $21.7 billion as of the end of the fourth quarter. Demand deposits increased $216 million in the fourth quarter, now totaling $5.9 billion and comprising 27% of our overall deposit base."

Commenting on credit quality, Mr. Wehmer noted, "During the fourth quarter of 2016, the Company has continued its practice of timely addressing and resolving non-performing credits. Excluding covered loans, net charge-offs totaled $2.8 million in the current quarter, decreasing $2.9 million from the third quarter of 2016. Additionally, net charge-offs as a percentage of average total loans decreased to 0.06% from 0.12% in the third quarter. Total non-performing loans as a percentage of total loans, excluding covered loans, remained steady at 0.44% at the end of the year.  Additionally, the allowance for loan losses as a percentage of non-performing loans, excluding covered loans, remained strong at 140%. We believe that the Company's reserves remain appropriate."

Mr. Wehmer further commented, "Mortgage banking revenue in the fourth quarter totaled $35.5 million, a slight increase of $777,000 compared to the third quarter of 2016. Revenue for the fourth quarter of 2016 was impacted by a $1.2 million positive fair value adjustment on mortgage servicing rights assets. Despite typical seasonality, our mortgage operations experienced strong origination volumes in the fourth quarter totaling $1.2 billion for the period compared to $1.3 billion during the third quarter of 2016 and $808.9 million during the fourth quarter of 2015. Given the recent rise in interest rates and typical seasonality, we expect originations to decrease in the first quarter of 2017. However, we continue to look for opportunities to further enhance the mortgage banking business both organically and through acquisitions."

Turning to the future, Mr. Wehmer stated, "The past year marked the 25th anniversary of the founding of Wintrust's first bank. Since our beginning in 1991, we have focused on serving our customers, communities, employees and shareholders, and will continue 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 our growth engine to continue its momentum into 2017 in all areas of our business. Loan growth at the end of the current quarter should add to this momentum as period-end loan balances, excluding loans held-for-sale and covered loans, exceeded the fourth quarter average balances by approximately $472 million. Additionally, investing excess liquidity held at year-end and the benefit from anticipated interest rate increases should have a positive impact on net interest margin and net interest income. 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 fourth quarter of 2016.

http://www.globenewswire.com/NewsRoom/AttachmentNg/820c4ce1-6da8-4a78-bd15-19f2cc4c06d5 

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

        % or(4)
basis point  (bp) change from
3rd Quarter
2016
 % or
basis point  (bp)
change from
4th Quarter
2015
  Three Months Ended  
(Dollars in thousands) December 31,
 2016
 September 30,
 2016
 December 31,
 2015
  
Net income $54,608  $53,115  $35,512  3 % 54 %
Net income per common share – diluted $0.94  $0.92  $0.64  2 % 47 %
Net revenue (1) $276,053  $271,240  $232,296  2 % 19 %
Net interest income $190,778  $184,636  $167,206  3 % 14 %
Net interest margin 3.21% 3.21% 3.26%  bp (5)bp
Net interest margin - fully taxable equivalent (non-GAAP) (2) 3.23% 3.24% 3.29% (1)bp (6)bp
Net overhead ratio (3) 1.48% 1.44% 1.82% 4 bp (34)bp
Return on average assets 0.85% 0.85% 0.63%  bp 22 bp
Return on average common equity 8.32% 8.20% 6.03% 12 bp 229 bp
Return on average tangible common equity (non-GAAP) (2) 10.68% 10.55% 8.12% 13 bp 256 bp
At end of period            
Total assets $25,668,553  $25,321,759  $22,909,348  5 % 12 %
Total loans, excluding loans held-for-sale, excluding covered loans 19,703,172  19,101,261  17,118,117  13 % 15 %
Total loans, including loans held-for-sale, excluding covered loans 20,121,546  19,660,895  17,506,155  9 % 15 %
Total deposits 21,658,632  21,147,655  18,639,634  10 % 16 %
Total shareholders' equity 2,695,617  2,674,474  2,352,274  3 % 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 website 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 Years Ended
(Dollars in thousands, except per share data) December 31,
 2016
 September 30,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Selected Financial Condition Data (at end of period):          
Total assets $25,668,553  $25,321,759  $22,909,348     
Total loans, excluding loans held-for-sale and covered loans 19,703,172  19,101,261  17,118,117     
Total deposits 21,658,632  21,147,655  18,639,634     
Junior subordinated debentures 253,566  253,566  268,566     
Total shareholders' equity 2,695,617  2,674,474  2,352,274     
Selected Statements of Income Data:          
Net interest income $190,778  $184,636  $167,206  $722,193  $641,529 
Net revenue (1) 276,053  271,240  232,296  1,047,623  913,126 
Net income 54,608  53,115  35,512  206,875  156,749 
Net income per common share – Basic $0.98  $0.96  $0.66  $3.83  $3.05 
Net income per common share – Diluted $0.94  $0.92  $0.64  $3.66  $2.93 
Selected Financial Ratios and Other Data:          
Performance Ratios:          
Net interest margin 3.21% 3.21% 3.26% 3.24% 3.34%
Net interest margin - fully taxable equivalent (non-GAAP) (2) 3.23% 3.24% 3.29% 3.26% 3.36%
Non-interest income to average assets 1.32% 1.38% 1.16% 1.34% 1.29%
Non-interest expense to average assets 2.80% 2.82% 2.98% 2.81% 2.99%
Net overhead ratio (3) 1.48% 1.44% 1.82% 1.47% 1.70%
Return on average assets 0.85% 0.85% 0.63% 0.85% 0.75%
Return on average common equity 8.32% 8.20% 6.03% 8.37% 7.15%
Return on average tangible common equity (non-GAAP) (2) 10.68% 10.55% 8.12% 10.90% 9.44%
Average total assets $25,611,060  $24,879,252  $22,225,112  $24,292,231  $20,999,837 
Average total shareholders' equity 2,689,876  2,651,684  2,347,545  2,549,929  2,232,989 
Average loans to average deposits ratio (excluding loans held-for-sale, excluding covered loans) 89.6% 89.8% 90.2% 90.9% 89.9%
Average loans to average deposits ratio (excluding loans held-for-sale, including covered loans) 89.9% 90.3% 91.0% 91.4% 91.0%
Common Share Data at end of period:          
Market price per common share $72.57  $55.57  $48.52     
Book value per common share (2) $47.12  $46.86  $43.42     
Tangible common book value per share (2) $37.08  $37.06  $33.17     
Common shares outstanding 51,880,540  51,714,683  48,383,279     
Other Data at end of period:(6)          
Leverage Ratio (4) 8.9% 9.0% 9.1%    
Tier 1 capital to risk-weighted assets (4) 9.7% 9.8% 10.0%    
Common equity Tier 1 capital to risk-weighted assets (4) 8.6% 8.7% 8.4%    
Total capital to risk-weighted assets (4) 11.9% 12.1% 12.2%    
Allowance for credit losses (5) $123,964  $119,341  $106,349     
Non-performing loans 87,454  83,128  84,057     
Allowance for credit losses to total loans (5) 0.63% 0.62% 0.62%    
Non-performing loans to total loans 0.44% 0.44% 0.49%    
Number of:          
Bank subsidiaries 15  15  15     
Banking offices 155  152  152     
 
(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) December 31,
 2016
 September 30,
 2016
 December 31,
 2015
Assets      
Cash and due from banks $267,194  $242,825  $271,454 
Federal funds sold and securities purchased under resale agreements 2,851  4,122  4,341 
Interest bearing deposits with banks 980,457  816,104  607,782 
Available-for-sale securities, at fair value 1,724,667  1,650,096  1,716,388 
Held-to-maturity securities, at amortized cost 635,705  932,767  884,826 
Trading account securities 1,989  1,092  448 
Federal Home Loan Bank and Federal Reserve Bank stock 133,494  129,630  101,581 
Brokerage customer receivables 25,181  25,511  27,631 
Mortgage loans held-for-sale 418,374  559,634  388,038 
Loans, net of unearned income, excluding covered loans 19,703,172  19,101,261  17,118,117 
Covered loans 58,145  95,940  148,673 
Total loans 19,761,317  19,197,201  17,266,790 
Allowance for loan losses (122,291) (117,693) (105,400)
Allowance for covered loan losses (1,322) (1,422) (3,026)
Net loans 19,637,704  19,078,086  17,158,364 
Premises and equipment, net 597,301  597,263  592,256 
Lease investments, net 129,402  116,355  63,170 
Accrued interest receivable and other assets 593,796  660,923  597,099 
Trade date securities receivable   677   
Goodwill 498,587  485,938  471,761 
Other intangible assets 21,851  20,736  24,209 
Total assets $25,668,553  $25,321,759  $22,909,348 
Liabilities and Shareholders' Equity      
Deposits:      
Non-interest bearing $5,927,377  $5,711,042  $4,836,420 
Interest bearing 15,731,255  15,436,613  13,803,214 
 Total deposits 21,658,632  21,147,655  18,639,634 
Federal Home Loan Bank advances 153,831  419,632  853,431 
Other borrowings 262,486  241,366  265,785 
Subordinated notes 138,971  138,943  138,861 
Junior subordinated debentures 253,566  253,566  268,566 
Trade date securities payable     538 
Accrued interest payable and other liabilities 505,450  446,123  390,259 
Total liabilities 22,972,936  22,647,285  20,557,074 
Shareholders' Equity:      
Preferred stock 251,257  251,257  251,287 
Common stock 51,978  51,811  48,469 
Surplus 1,365,781  1,356,759  1,190,988 
Treasury stock (4,589) (4,522) (3,973)
Retained earnings 1,096,518  1,051,748  928,211 
Accumulated other comprehensive loss (65,328) (32,579) (62,708)
Total shareholders' equity 2,695,617  2,674,474  2,352,274 
Total liabilities and shareholders' equity $25,668,553  $25,321,759  $22,909,348 


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

 
 Three Months Ended Years Ended
(In thousands, except per share data)December 31,
 2016
 September 30,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Interest income         
Interest and fees on loans$199,155  $190,189  $169,501  $741,001  $651,831 
Interest bearing deposits with banks1,541  1,156  493  4,236  1,486 
Federal funds sold and securities purchased under resale agreements1  1    4  4 
Investment securities12,954  15,496  16,405  62,038  61,006 
Trading account securities32  18  25  75  108 
Federal Home Loan Bank and Federal Reserve Bank stock1,144  1,094  857  4,287  3,232 
Brokerage customer receivables186  195  206  816  797 
Total interest income215,013  208,149  187,487  812,457  718,464 
Interest expense         
Interest on deposits16,413  15,621  12,617  58,409  48,863 
Interest on Federal Home Loan Bank advances2,439  2,577  2,684  10,886  9,110 
Interest on other borrowings1,074  1,137  1,007  4,355  3,627 
Interest on subordinated notes1,779  1,778  1,777  7,111  7,105 
Interest on junior subordinated debentures2,530  2,400  2,196  9,503  8,230 
Total interest expense24,235  23,513  20,281  90,264  76,935 
Net interest income190,778  184,636  167,206  722,193  641,529 
Provision for credit losses7,350  9,571  9,059  34,084  32,942 
Net interest income after provision for credit losses183,428  175,065  158,147  688,109  608,587 
Non-interest income         
Wealth management19,512  19,334  18,634  76,018  73,452 
Mortgage banking35,489  34,712  23,317  128,743  115,011 
Service charges on deposit accounts8,054  8,024  7,210  31,210  27,384 
Gains (losses) on investment securities, net1,575  3,305  (79) 7,645  323 
Fees from covered call options1,476  3,633  3,629  11,470  15,364 
Trading gains (losses), net1,007  (432) 205  91  (247)
Operating lease income, net5,171  4,459  1,973  16,441  2,728 
Other12,991  13,569  10,201  53,812  37,582 
Total non-interest income85,275  86,604  65,090  325,430  271,597 
Non-interest expense         
Salaries and employee benefits104,735  103,718  99,780  405,158  382,080 
Equipment9,532  9,449  8,799  37,055  32,889 
Operating lease equipment depreciation4,219  3,605  1,202  13,259  1,749 
Occupancy, net14,254  12,767  13,062  50,912  48,880 
Data processing7,687  7,432  7,284  28,776  26,940 
Advertising and marketing6,691  7,365  5,373  24,776  21,924 
Professional fees5,425  5,508  4,387  20,411  18,225 
Amortization of other intangible assets1,158  1,085  1,324  4,789  4,621 
FDIC insurance4,726  3,686  3,317  16,065  12,386 
OREO expense, net1,843  1,436  2,598  5,187  4,483 
Other20,101  20,564  19,703  75,297  74,242 
Total non-interest expense180,371  176,615  166,829  681,685  628,419 
Income before taxes88,332  85,054  56,408  331,854  251,765 
Income tax expense33,724  31,939  20,896  124,979  95,016 
Net income$54,608  $53,115  $35,512  $206,875  $156,749 
Preferred stock dividends and discount accretion3,629  3,628  3,629  14,513  10,869 
Net income applicable to common shares$50,979  $49,487  $31,883  $192,362  $145,880 
Net income per common share - Basic$0.98  $0.96  $0.66  $3.83  $3.05 
Net income per common share - Diluted$0.94  $0.92  $0.64  $3.66  $2.93 
Cash dividends declared per common share$0.12  $0.12  $0.11  $0.48  $0.44 
Weighted average common shares outstanding51,812  51,679  48,371  50,278  47,838 
Dilutive potential common shares4,152  4,047  4,005  3,994  4,099 
Average common shares and dilutive common shares55,964  55,726  52,376  54,272  51,937 


EARNINGS PER SHARE

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

   Three Months Ended Years Ended
(In thousands, except per share data)  December 31,
 2016
 September 30,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Net income  $54,608  $53,115  $35,512  $206,875  $156,749 
Less: Preferred stock dividends and discount accretion  3,629  3,628  3,629  14,513  10,869 
Net income applicable to common shares—Basic(A) 50,979  49,487  31,883  192,362  145,880 
Add: Dividends on convertible preferred stock, if dilutive  1,578  1,578  1,579  6,313  6,314 
Net income applicable to common shares—Diluted(B) 52,557  51,065  33,462  198,675  152,194 
Weighted average common shares outstanding(C) 51,812  51,679  48,371  50,278  47,838 
Effect of dilutive potential common shares:           
Common stock equivalents  1,052  938  935  894  1,029 
Convertible preferred stock, if dilutive  3,100  3,109  3,070  3,100  3,070 
Weighted average common shares and effect of dilutive potential common shares(D) 55,964  55,726  52,376  54,272  51,937 
Net income per common share:           
Basic(A/C) $0.98  $0.96  $0.66  $3.83  $3.05 
Diluted(B/D) $0.94  $0.92  $0.64  $3.66  $2.93 

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), taxable-equivalent net interest margin (including its individual components), the taxable-equivalent 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 Company's 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 Years Ended
 December 31, September 30, June 30, March 31, December 31, December 31, December 31,
(Dollars and shares in thousands)2016 2016 2016 2016 2015 2016 2015
Calculation of Net Interest Margin and Efficiency Ratio             
(A) Interest Income (GAAP)$215,013  $208,149  $197,064  $192,231  $187,487  $812,457  $718,464 
Taxable-equivalent adjustment:             
 - Loans666  584  523  509  430  2,282  1,431 
 - Liquidity Management Assets815  963  932  920  866  3,630  3,221 
 - Other Earning Assets17  9  8  6  13  40  57 
(B) Interest Income - FTE$216,511  $209,705  $198,527  $193,666  $188,796  $818,409  $723,173 
(C) Interest Expense (GAAP)24,235  23,513  21,794  20,722  20,281  90,264  76,935 
(D) Net Interest Income - FTE (B minus C)$192,276  $186,192  $176,733  $172,944  $168,515  $728,145  $646,238 
(E) Net Interest Income (GAAP) (A minus C)$190,778  $184,636  $175,270  $171,509  $167,206  $722,193  $641,529 
Net interest margin (GAAP-derived)3.21% 3.21% 3.24% 3.29% 3.26% 3.24% 3.34%
Net interest margin - FTE3.23% 3.24% 3.27% 3.32% 3.29% 3.26% 3.36%
(F) Non-interest income$85,275  $86,604  $84,799  $68,752  $65,090  $325,430  $271,597 
(G) Gains (losses) on investment securities, net1,575  3,305  1,440  1,325  (79) 7,645  323 
(H) Non-interest expense180,371  176,615  170,969  153,730  166,829  681,685  628,419 
Efficiency ratio (H/(E+F-G))65.71% 65.92% 66.11% 64.34% 71.79% 65.55% 68.84%
Efficiency ratio - FTE (H/(D+F-G))65.36% 65.54% 65.73% 63.96% 71.39% 65.18% 68.49%
Calculation of Tangible Common Equity ratio (at period end)             
Total shareholders' equity$2,695,617  $2,674,474  $2,623,595  $2,418,442  $2,352,274     
(I) Less: Convertible preferred stock(126,257) (126,257) (126,257) (126,257) (126,287)    
Less:  Non-convertible preferred stock(125,000) (125,000) (125,000) (125,000) (125,000)    
Less: Intangible assets(520,438) (506,674) (507,916) (508,005) (495,970)    
(J) Total tangible common shareholders' equity$1,923,922  $1,916,543  $1,864,422  $1,659,180  $1,605,017     
Total assets$25,668,553  $25,321,759  $24,420,616  $23,488,168  $22,909,348     
Less: Intangible assets(520,438) (506,674) (507,916) (508,005) (495,970)    
(K) Total tangible assets$25,148,115  $24,815,085  $23,912,700  $22,980,163  $22,413,378     
Tangible common equity ratio (J/K)7.7% 7.7% 7.8% 7.2% 7.2%    
Tangible common equity ratio, assuming full conversion of convertible preferred stock ((J-I)/K)8.2% 8.2% 8.3% 7.8% 7.7%    
Calculation of book value per share             
Total shareholders' equity$2,695,617  $2,674,474  $2,623,595  $2,418,442  $2,352,274     
Less: Preferred stock(251,257) (251,257) (251,257) (251,257) (251,287)    
(L) Total common equity$2,444,360  $2,423,217  $2,372,338  $2,167,185  $2,100,987     
(M) Actual common shares outstanding51,881  51,715  51,619  48,519  48,383     
Book value per common share (L/M)$47.12  $46.86  $45.96  $44.67  $43.42     
Tangible common book value per share (J/M)$37.08  $37.06  $36.12  $34.20  $33.17     
              
Calculation of return on average common equity             
(N) Net income applicable to common shares50,979  49,487  46,413  45,483  31,883  192,362  145,880 
Add: After-tax intangible asset amortization716  677  781  812  834  2,986  2,879 
(O) Tangible net income applicable to common shares51,695  50,164  47,194  46,295  32,717  195,348  148,759 
Total average shareholders' equity2,689,876  2,651,684  2,465,732  2,389,770  2,347,545  2,549,929  2,232,989 
Less: Average preferred stock(251,257) (251,257) (251,257) (251,262) (251,293) (251,258) (191,416)
(P) Total average common shareholders' equity2,438,619  2,400,427  2,214,475  2,138,508  2,096,252  2,298,671  2,041,573 
Less: Average intangible assets(513,017) (508,812) (507,439) (495,594) (497,199) (506,241) (466,225)
(Q) Total average tangible common shareholders' equity1,925,602  1,891,615  1,707,036  1,642,914  1,599,053  1,792,430  1,575,348 
Return on average common equity, annualized  (N/P)8.32% 8.20% 8.43% 8.55% 6.03% 8.37% 7.15%
Return on average tangible common equity, annualized (O/Q)10.68% 10.55% 11.12% 11.33% 8.12% 10.90% 9.44%

 

LOANS

Loan Portfolio Mix and Growth Rates

        % Growth
(Dollars in thousands) December 31,
 2016
 September 30,
 2016
 December 31,
 2015
 From (1)
September 30,
2016
 From
December 31,
2015
Balance:          
Commercial $6,005,422  $5,951,544  $4,713,909  4% 27%
Commercial real estate 6,196,087  5,908,684  5,529,289  19  12 
Home equity 725,793  742,868  784,675  (9) (8)
Residential real estate 705,221  663,598  607,451  25  16 
Premium finance receivables - commercial 2,478,581  2,430,233  2,374,921  8  4 
Premium finance receivables - life insurance 3,470,027  3,283,359  2,961,496  23  17 
Consumer and other 122,041  120,975  146,376  4  (17)
Total loans, net of unearned income, excluding covered loans $19,703,172  $19,101,261  $17,118,117  13% 15%
Covered loans 58,145  95,940  148,673  (157) (61)
Total loans, net of unearned income $19,761,317  $19,197,201  $17,266,790  12% 14%
Mix:          
Commercial 30% 31% 27%    
Commercial real estate 31  31  32     
Home equity 4  4  5     
Residential real estate 4  3  3     
Premium finance receivables - commercial 12  13  14     
Premium finance receivables - life insurance 18  17  17     
Consumer and other 1  1  1     
Total loans, net of unearned income, excluding covered loans 100% 100% 99%    
Covered loans     1     
Total loans, net of unearned income 100% 100% 100%    
              
(1)  Annualized             


Commercial and Commercial Real Estate Loan Portfolios

           
As of December 31, 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 $3,744,712  30.7% $13,441  $174  $29,831 
Franchise 869,721  7.1      4,744 
Mortgage warehouse lines of credit 204,225  1.7      1,548 
Asset-based lending 875,070  7.2  1,924    6,860 
Leases 294,914  2.4  510    858 
PCI - commercial loans (1) 16,780  0.1    1,689  652 
Total commercial $6,005,422  49.2% $15,875  $1,863  $44,493 
Commercial Real Estate:          
Construction $610,239  5.0% $2,408  $  $7,304 
Land 104,801  0.9  394    3,679 
Office 867,674  7.1  4,337    5,769 
Industrial 770,601  6.3  7,047    6,660 
Retail 912,593  7.5  597    5,948 
Multi-family 807,624  6.6  643    8,070 
Mixed use and other 1,952,175  16.0  6,498    13,953 
PCI - commercial real estate (1) 170,380  1.4    16,188  39 
Total commercial real estate $6,196,087  50.8% $21,924  $16,188  $51,422 
Total commercial and commercial real estate $12,201,509  100.0% $37,799  $18,051  $95,915 
           
Commercial real estate - collateral location by state:          
Illinois $4,927,270  79.4%      
Wisconsin 646,429  10.4       
Total primary markets $5,573,699  89.8%      
Indiana 120,999  2.0       
Florida 77,528  1.3       
Arizona 53,512  0.9       
California 42,590  0.7       
Other (no individual state greater than 0.7%) 327,759  5.3       
Total $6,196,087  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) December 31,
 2016
 September 30,
 2016
 December 31,
 2015
 From (1)
September 30,
2016
 From
December 31,
2015
Balance:          
Non-interest bearing $5,927,377  $5,711,042  $4,836,420  15% 23%
NOW and interest bearing demand deposits 2,624,442  2,552,611  2,390,217  11  10 
Wealth management deposits (2) 2,209,617  2,283,233  1,643,653  (13) 34 
Money market 4,441,811  4,421,631  4,041,300  2  10 
Savings 2,180,482  1,977,661  1,723,367  41  27 
Time certificates of deposit 4,274,903  4,201,477  4,004,677  7  7 
Total deposits $21,658,632  $21,147,655  $18,639,634  10% 16%
Mix:          
Non-interest bearing 27% 27% 26%    
NOW and interest bearing demand deposits 12  12  13     
Wealth management deposits (2) 10  11  9     
Money market 21  21  22     
Savings 10  9  9     
Time certificates of deposit 20  20  21     
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 December 31, 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 $  $47,173  $135,859  $704,448  $887,480  0.62%
4-6 months 43,576  35,674    567,313  646,563  0.70%
7-9 months 533  23,503    535,359  559,395  0.81%
10-12 months 1,252  18,696    690,123  710,071  0.94%
13-18 months 4,524  12,826    1,006,160  1,023,510  1.11%
19-24 months   8,814    141,364  150,178  0.96%
24+ months 1,249  19,797    276,660  297,706  1.30%
Total $51,134  $166,483  $135,859  $3,921,427  $4,274,903  0.89%
 
(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 fourth quarter of 2016 compared to the third quarter of 2016 (sequential quarters) and fourth 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)December 31,
 2016
 September 30,
 2016
 December 31,
 2015
 December 31,
 2016
 September 30,
 2016
 December 31,
 2015
 December 31,
 2016
 September 30,
 2016
 December 31,
 2015
Liquidity management assets(1)(2)(7)$3,860,616  $3,671,577  $3,245,393  $16,455  $18,710  $18,621  1.70% 2.03% 2.28%
Other earning assets(2)(3)(7)27,608  29,875  29,792  235  222  244  3.37  2.96  3.26 
Loans, net of unearned income(2)(4)(7)19,711,504  19,071,621  16,889,922  198,861  189,637  168,060  4.01  3.96  3.95 
Covered loans59,827  101,570  154,846  960  1,136  1,871  6.38  4.45  4.79 
Total earning assets(7)$23,659,555  $22,874,643  $20,319,953  $216,511  $209,705  $188,796  3.64% 3.65% 3.69%
Allowance for loan and covered loan losses(122,665) (121,156) (109,448)            
Cash and due from banks221,892  240,239  260,593             
Other assets1,852,278  1,885,526  1,754,014             
Total assets$25,611,060  $24,879,252  $22,225,112             
                  
Interest-bearing deposits$15,567,263  $15,117,102  $13,606,046  $16,413  $15,621  $12,617  0.42% 0.41% 0.37%
Federal Home Loan Bank advances388,780  459,198  441,669  2,439  2,577  2,684  2.50  2.23  2.41 
Other borrowings240,174  249,307  269,738  1,074  1,137  1,007  1.78  1.81  1.48 
Subordinated notes138,953  138,925  138,852  1,779  1,778  1,777  5.12  5.12  5.12 
Junior subordinated debentures253,566  253,566  268,566  2,530  2,400  2,196  3.90  3.70  3.20 
Total interest-bearing liabilities$16,588,736  $16,218,098  $14,724,871  $24,235  $23,513  $20,281  0.58% 0.58% 0.55%
Non-interest bearing deposits5,902,439  5,566,983  4,776,977             
Other liabilities430,009  442,487  375,719             
Equity2,689,876  2,651,684  2,347,545             
Total liabilities and shareholders' equity$25,611,060  $24,879,252  $22,225,112             
Interest rate spread(5)(7)            3.06% 3.07% 3.14%
Less:  Fully tax-equivalent adjustment      (1,498) (1,556) (1,309) (0.02) (0.03) (0.03)
Net free funds/ contribution(6)$7,070,819  $6,656,545  $5,595,082        0.17  0.17  0.15 
Net interest income/ margin(7)  (GAAP)      $190,778  $184,636  $167,206  3.21% 3.21% 3.26%
Fully tax-equivalent adjustment      1,498  1,556  1,309  0.02  0.03  0.03 
Net interest income/ margin - FTE (7)      $192,276  $186,192  $168,515  3.23% 3.24% 3.29%
                           
(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 investment securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended December 31, 2016, September 30, 2016 and December 31, 2015 were $1.5 million, $1.6 million and $1.3 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 fourth quarter of 2016, net interest income totaled $190.8 million, an increase of $6.1 million as compared to the third quarter of 2016 and an increase of $23.6 million as compared to the fourth quarter of 2015. Net interest margin was 3.21% (3.23% on a fully tax-equivalent basis) during the fourth quarter of 2016 compared to 3.21% (3.24% on a fully tax-equivalent basis) during the third quarter of 2016 and 3.26% (3.29% on a fully tax-equivalent basis) during the fourth quarter of 2015.

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 year ended December 31, 2016 compared to the year ended December 31, 2015:

 Average Balance 
for Year Ended,
 Interest 
for Year Ended,
 Yield/Rate
for Year Ended,
(Dollars in thousands)December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Liquidity management assets(1)(2)(7)$3,562,480  $2,992,506  $74,195  $68,949  2.08% 2.30%
Other earning assets(2)(3)(7)28,992  30,161  931  962  3.21  3.19 
Loans, net of unearned income(2)(4)(7)18,628,261  16,022,371  737,694  641,917  3.96  4.01 
Covered loans102,948  186,427  5,589  11,345  5.43  6.09 
Total earning assets(7)$22,322,681  $19,231,465  $818,409  $723,173  3.67% 3.76%
Allowance for loan and covered loan losses(118,229) (103,459)        
Cash and due from banks248,507  249,488         
Other assets1,839,272  1,622,343         
Total assets$24,292,231  $20,999,837         
            
Interest-bearing deposits$14,620,886  $13,271,304  $58,409  $48,863  0.40% 0.37%
Federal Home Loan Bank advances653,529  380,936  10,886  9,110  1.67  2.39 
Other borrowings248,753  232,895  4,355  3,627  1.75  1.56 
Subordinated notes138,912  138,812  7,111  7,105  5.12  5.12 
Junior subordinated debentures254,591  258,203  9,503  8,230  3.67  3.14 
Total interest-bearing liabilities$15,916,671  $14,282,150  $90,264  $76,935  0.57% 0.54%
Non-interest bearing deposits5,409,923  4,144,378         
Other liabilities415,708  340,321         
Equity2,549,929  2,232,989         
Total liabilities and shareholders' equity$24,292,231  $20,999,837         
Interest rate spread(5)(7)        3.10% 3.22%
Less:  Fully tax-equivalent adjustment    (5,952) (4,709) (0.02) (0.02)
Net free funds/contribution(6)$6,406,010  $4,949,315      0.16  0.14 
Net interest income/ margin(7)  (GAAP)    $722,193  $641,529  3.24% 3.34%
Fully tax-equivalent adjustment    5,952  4,709  0.02  0.02 
Net interest income/ margin - FTE (7)    $728,145  $646,238  3.26% 3.36%
 
(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 investment securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the years ended December 31, 2016 and 2015 were $6.0 million and $4.7 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 year ended 2016, net interest income totaled $722.2 million, an increase of $80.7 million as compared to the year ended 2015. Net interest margin was 3.24% (3.26% on a fully tax-equivalent basis) for the year ended 2016 compared to 3.34% (3.36% on a fully tax-equivalent basis) for the year ended 2015. The reduction in net interest margin compared to the year ended 2015  is primarily the result of a decline in yields on liquidity management assets and 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 December 31, 2016, September 30, 2016 and December 31, 2015 is as follows:

      
Static Shock Scenario +200
Basis 
Points
 +100
 Basis
 Points
 -100
Basis
 Points
December 31, 2016 18.5% 9.6% (13.2)%
September 30, 2016 19.6% 10.1% (10.4)%
December 31, 2015 16.1% 8.7% (10.6)%


Ramp Scenario+200
Basis
Points
 +100
Basis
Points
 -100
Basis
Points
December 31, 2016    7.6% 4.0% (5.0)%
September 30, 20167.8% 3.9% (4.1)%
December 31, 20157.3% 3.9% (4.4)%

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        
  December 31, September 30, December 31, Q4 2016 compared to
Q3 2016
 Q4 2016 compared to
Q4 2015
(Dollars in thousands) 2016 2016 2015 $ Change % Change $ Change % Change
Brokerage $6,408  $6,752  $6,850  $(344) (5)% $(442) (6)%
Trust and asset management 13,104  12,582  11,784  522  4  1,320  11 
Total wealth management 19,512  19,334  18,634  178  1  878  5 
Mortgage banking 35,489  34,712  23,317  777  2  12,172  52 
Service charges on deposit accounts 8,054  8,024  7,210  30    844  12 
Gains (losses) on investment securities, net 1,575  3,305  (79) (1,730) NM  1,654  NM 
Fees from covered call options 1,476  3,633  3,629  (2,157) (59) (2,153) (59)
Trading gains (losses), net 1,007  (432) 205  1,439  NM  802  NM 
Operating lease income, net 5,171  4,459  1,973  712  16  3,198  NM 
Other:              
Interest rate swap fees 2,870  2,881  2,343  (11)   527  22 
BOLI 981  884  1,463  97  11  (482) (33)
Administrative services 1,115  1,151  1,101  (36) (3) 14  1 
Loss on extinguishment of debt (717)     (717) NM  (717) NM 
Miscellaneous 8,742  8,653  5,294  89  1  3,448  65 
Total Other 12,991  13,569  10,201  (578) (4) 2,790  27 
Total Non-Interest Income $85,275  $86,604  $65,090  $(1,329) (2)% $20,185  31%

NM - Not Meaningful

       
  Years Ended    
  December 31, December 31, $ %
(Dollars in thousands) 2016 2015 Change Change
Brokerage $25,519  $27,030  $(1,511) (6)%
Trust and asset management 50,499  46,422  4,077  9 
Total wealth management 76,018  73,452  2,566  3 
Mortgage banking 128,743  115,011  13,732  12 
Service charges on deposit accounts 31,210  27,384  3,826  14 
Gains on investment securities, net 7,645  323  7,322  NM 
Fees from covered call options 11,470  15,364  (3,894) (25)
Trading gains (losses), net 91  (247) 338  NM 
Operating lease income, net 16,441  2,728  13,713  NM 
Other:        
Interest rate swap fees 12,024  9,487  2,537  27 
BOLI 3,594  4,622  (1,028) (22)
Administrative services 4,409  4,252  157  4 
Gain on extinguishment of debt 3,588    3,588  NM 
Miscellaneous 30,197   19,221  10,976  57 
Total Other 53,812  37,582  16,230  43 
Total Non-Interest Income $325,430  $271,597  $53,833  20%

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 third quarter of 2016 and fourth 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 increase in mortgage banking revenue in the current quarter as compared to the most recent quarter resulted from a $1.2 million positive fair value adjustment on mortgage servicing rights assets ("MSRs") during the period as a result of lower projected prepayment speeds due to rising market interest rates, partially offset by lower origination volumes. Mortgage loans originated or purchased for sale decreased during the current quarter, totaling $1.2 billion in the fourth quarter of 2016 as compared to $1.3 billion in the third quarter of 2016 and $808.9 million in the fourth 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 Years Ended
(Dollars in thousands) December 31,
 2016
 September 30,
 2016
 December 31,
 2015
 December 31,
 2016
 December 31,
 2015
Retail originations $1,042,145  1,138,571  $740,510  $4,020,788  $3,647,018 
Correspondent originations 135,726  121,007  68,366  365,551  256,759 
(A) Total originations $1,177,871  1,259,578  $808,876  $4,386,339  $3,903,777 
           
Purchases as a percentage of originations 52% 57% 68% 58% 61%
Refinances as a percentage of originations 48  43  32  42  39 
Total 100% 100% 100% 100% 100%
           
(B) Production revenue (1) $28,320  $32,889  $22,043  $113,360  $112,683 
Production margin (B / A) 2.40% 2.61% 2.73% 2.58% 2.89%
           
Loans serviced for others (C) $1,784,760  $1,508,469  $939,819     
MSRs, at fair value (D) 19,103  13,901  9,092     
Percentage of mortgage servicing rights to loans serviced for others (D/C) 1.07% 0.92% 0.97%    

(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 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 third 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 December 31, 2016, September 30, 2016 and December 31, 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 during the fourth quarter of 2016.

The decrease in other non-interest income in the current quarter as compared to the third quarter of 2016 is primarily due to a loss on extinguishment of debt as a result of the prepayment of $262 million of Federal Home Loan Bank advances with a weighted-average interest rate of approximately 1.38%.

NON-INTEREST EXPENSE

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

  Three Months Ended        
  December 31, September 30, December 31, Q4 2016 compared to
Q3 2016
 Q4 2016 compared to
Q4 2015
(Dollars in thousands) 2016 2016 2015 $ Change % Change $ Change % Change
Salaries and employee benefits:              
Salaries $53,108  $54,309  $50,982  $(1,201) (2)% $2,126  4%
Commissions and incentive compensation 35,744  33,740  31,222  2,004  6  4,522  14 
Benefits 15,883  15,669  17,576  214  1  (1,693) (10)
Total salaries and employee benefits 104,735  103,718  99,780  1,017  1  4,955  5 
Equipment 9,532  9,449  8,799  83  1  733  8 
Operating lease equipment depreciation 4,219  3,605  1,202  614  17  3,017  NM 
Occupancy, net 14,254  12,767  13,062  1,487  12  1,192  9 
Data processing 7,687  7,432  7,284  255  3  403  6 
Advertising and marketing 6,691  7,365  5,373  (674) (9) 1,318  25 
Professional fees 5,425  5,508  4,387  (83) (2) 1,038  24 
Amortization of other intangible assets 1,158  1,085  1,324  73  7  (166) (13)
FDIC insurance 4,726  3,686  3,317  1,040  28  1,409  42 
OREO expense, net 1,843  1,436  2,598  407  28  (755) (29)
Other:              
Commissions - 3rd party brokers 1,165  1,362  1,321  (197) (14) (156) (12)
Postage 1,955  1,889  1,892  66  3  63  3 
Miscellaneous 16,981  17,313  16,490  (332) (2) 491  3 
Total other 20,101  20,564  19,703  (463) (2) 398  2 
Total Non-Interest Expense $180,371  $176,615  $166,829  $3,756  2% $13,542  8%

NM - Not Meaningful

  Years Ended    
  December 31, December 31, $ %
(Dollars in thousands) 2016 2015 Change Change
Salaries and employee benefits:        
Salaries $210,623  $197,475  $13,148  7%
Commissions and incentive compensation 128,390  120,138  8,252  7 
Benefits 66,145  64,467  1,678  3 
Total salaries and employee benefits 405,158  382,080  23,078  6 
Equipment 37,055  32,889  4,166  13 
Operating lease equipment depreciation 13,259  1,749  11,510  NM 
Occupancy, net 50,912  48,880  2,032  4 
Data processing 28,776  26,940  1,836  7 
Advertising and marketing 24,776  21,924  2,852  13 
Professional fees 20,411  18,225  2,186  12 
Amortization of other intangible assets 4,789  4,621  168  4 
FDIC insurance 16,065  12,386  3,679  30 
OREO expense, net 5,187  4,483  704  16 
Other:        
Commissions - 3rd party brokers 5,161  5,474  (313) (6)
Postage 7,184  7,030  154  2 
Miscellaneous 62,952  61,738  1,214  2 
Total other 75,297  74,242  1,055  1 
Total Non-Interest Expense $681,685  $628,419  $53,266  8%

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 third quarter of 2016 primarily as a result of higher incentive compensation on variable pay based arrangements, partially offset by lower salaries. Additionally salaries and employee benefits expense included $832,000 of acquisition and non-operating compensation charges consisting primarily of a $492,000 adjustment of pension obligations assumed in previous acquisitions and $329,000 of severance charges.

Occupancy expense increased in the current quarter compared to the third quarter of 2016 due to increased net rent expense on leased properties as well as higher maintenance and repair costs. Occupancy expense includes depreciation on premises, real estate taxes, utilities and maintenance of premises, as well as net rent expense for lease premises.

Data processing expenses increased in the current quarter compared to the third quarter of 2016 primarily due to a $155,000 increase in acquisition-related charges related to recent bank acquisitions.

FDIC insurance increased in the current quarter compared to the third quarter of 2016 and fourth quarter of 2015 primarily as a result of increased assessment rates during the fourth quarter of 2016 and the change in FDIC assessment methodology.

ASSET QUALITY

Allowance for Credit Losses, excluding covered loans

  Three Months Ended Years Ended
  December 31, September 30, December 31, December 31, December 31,
(Dollars in thousands) 2016 2016 2015 2016 2015
Allowance for loan losses at beginning of period $117,693  $114,356  $102,996  $105,400  $91,705 
Provision for credit losses 7,357  9,741  9,196  34,790  33,747 
Other adjustments 33  (112) (243) (291) (737)
Reclassification (to) from allowance for unfunded lending-related commitments (25) (579) 13  (725) (138)
Charge-offs:          
Commercial 3,054  3,469  1,369  7,915  4,253 
Commercial real estate 375  382  2,734  1,930  6,543 
Home equity 326  574  680  3,998  4,227 
Residential real estate 410  134  211  1,730  2,903 
Premium finance receivables - commercial 1,843  1,959  2,676  8,193  7,060 
Premium finance receivables - life insurance          
Consumer and other 205  389  179  925  521 
Total charge-offs 6,213  6,907  7,849  24,691  25,507 
Recoveries:          
Commercial 668  176  315  1,594  1,432 
Commercial real estate 1,916  364  491  2,945  2,840 
Home equity 300  65  183  484  312 
Residential real estate 21  61  55  225  283 
Premium finance receivables - commercial 498  456  223  2,374  1,288 
Premium finance receivables - life insurance         16 
Consumer and other 43  72  20  186  159 
Total recoveries 3,446  1,194  1,287  7,808  6,330 
Net charge-offs (2,767) (5,713) (6,562) (16,883) (19,177)
Allowance for loan losses at period end $122,291  $117,693  $105,400  $122,291  $105,400 
Allowance for unfunded lending-related commitments at period end 1,673  1,648  949  1,673  949 
Allowance for credit losses at period end $123,964  $119,341  $106,349  $123,964  $106,349 
Annualized net charge-offs by category as a percentage of its own respective category's average:          
Commercial 0.16% 0.24% 0.09% 0.12% 0.07%
Commercial real estate (0.10) 0.00  0.16  (0.02) 0.07 
Home equity 0.01  0.27  0.25  0.46  0.52 
Residential real estate 0.13  0.03  0.07  0.14  0.29 
Premium finance receivables - commercial 0.22  0.24  0.41  0.24  0.24 
Premium finance receivables - life insurance 0.00  0.00  0.00  0.00  0.00 
Consumer and other 0.47  0.92  0.37  0.54  0.23 
Total loans, net of unearned income, excluding covered loans 0.06% 0.12% 0.15% 0.09% 0.12%
Net charge-offs as a percentage of the provision for credit losses 37.61% 58.65% 71.35% 48.53% 56.83%
Loans at period-end, excluding covered loans $19,703,172  $19,101,261  $17,118,117     
Allowance for loan losses as a percentage of loans at period end 0.62% 0.62% 0.62%    
Allowance for credit losses as a percentage of loans at period end 0.63% 0.62% 0.62%    

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 fourth quarter of 2016 totaled 6 basis points on an annualized basis compared to 12 basis points on an annualized basis in the third quarter of 2016 and 15 basis points on an annualized basis in the fourth quarter of 2015.  Net charge-offs totaled $2.8 million in the fourth quarter of 2016, a $2.9 million decrease from $5.7 million in the third quarter of 2016 and a $3.8 million decrease from $6.6 million in the fourth quarter of 2015. The provision for credit losses, excluding the provision for covered loan losses, totaled $7.4 million for the fourth quarter of 2016 compared to $9.7 million for the third quarter of 2016 and $9.2 million for the fourth quarter of 2015.

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 Years Ended
  December 31, September 30, December 31, December 31, December 31,
(Dollars in thousands) 2016 2016 2015 2016 2015
Provision for loan losses $7,332  $9,162  $9,209  $34,065  $33,609 
Provision for unfunded lending-related commitments 25  579  (13) 725  138 
Provision for covered loan losses (7) (170) (137) (706) (805)
Provision for credit losses $7,350  $9,571  $9,059  $34,084  $32,942 
           
      Period End
      December 31, September 30, December 31,
      2016 2016 2015
Allowance for loan losses     $122,291  $117,693  $105,400 
Allowance for unfunded lending-related commitments     1,673  1,648  949 
Allowance for covered loan losses     1,322  1,422  3,026 
Allowance for credit losses     $125,286  $120,763  $109,375 

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 December 31, 2016 and September 30, 2016.

  As of December 31, 2016
  Recorded Calculated As a percentage
of its own respective
(Dollars in thousands) Investment Allowance category's balance
Commercial:(1)      
Commercial and industrial $3,234,629  $27,112  0.84%
Asset-based lending 867,697  6,859  0.79 
Tax exempt 327,694  2,299  0.70 
Leases 294,124  858  0.29 
Commercial real estate:(1)      
Residential construction 46,235  1,045  2.26 
Commercial construction 563,001  6,259  1.11 
Land 99,194  3,677  3.71 
Office 808,322  5,757  0.71 
Industrial 716,480  6,643  0.93 
Retail 855,787  5,928  0.69 
Multi-family 766,146  8,052  1.05 
Mixed use and other 1,815,573  13,867  0.76 
Home equity(1) 649,129  11,767  1.81 
Residential real estate(1) 658,487  5,634  0.86 
Total core loan portfolio $11,702,498  $105,757  0.90%
Commercial:      
Franchise $565,588  $4,744  0.84%
Mortgage warehouse lines of credit 204,225  1,548  0.76 
Community Advantage - homeowner associations 145,717  365  0.25 
Aircraft 3,356  42  1.25 
Purchased non-covered commercial loans (2) 362,392  666  0.18 
Commercial real estate:      
Purchased non-covered commercial real estate (2) 525,349  194  0.04 
Purchased non-covered home equity (2) 76,664  7  0.01 
Purchased non-covered residential real estate (2) 46,734  80  0.17 
Premium finance receivables      
U.S. commercial insurance loans 2,170,844  5,521  0.25 
Canada commercial insurance loans (2) 307,737  604  0.20 
Life insurance loans (1) 3,220,370  1,500  0.05 
Purchased life insurance loans (2) 249,657     
Consumer and other (1) 119,073  1,261  1.06 
Purchased non-covered consumer and other (2) 2,968  2  0.07 
Total consumer, niche and purchased loan portfolio $8,000,674  $16,534  0.21%
Total loans, net of unearned income, excluding covered loans $19,703,172  $122,291  0.62%
Non-accretable credit discounts on purchased loans reported in accordance with ASC 310-30, excluding covered loans   $12,324   
Total allowance for loan losses and non-accretable credit discounts on purchased loans, excluding covered loans   $134,615  0.68%

(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 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 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 preceding tables as of December 31, 2016 and September 30, 2016.

The increase in the allowance for loan losses to core loans in the fourth quarter of 2016 compared to the third quarter of 2016 was primarily attributable to $424.1 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 0.68% of the total loan portfolio as of December 31, 2016 and 0.72% of the total loan portfolio as of September 30, 2016.

The tables below show the aging of the Company's loan portfolio at December 31, 2016 and September 30, 2016:

    90+ days 60-89 30-59    
As of December 31, 2016   and still days past days past    
(Dollars in thousands) Nonaccrual accruing due due Current Total Loans
Loan Balances:            
Commercial            
Commercial, industrial and other $13,441  $174  $2,341  $11,779  $3,716,977  $3,744,712 
Franchise       493  869,228  869,721 
Mortgage warehouse lines of credit         204,225  204,225 
Asset-based lending 1,924    135  1,609  871,402  875,070 
Leases 510      1,331  293,073  294,914 
PCI - commercial (1)   1,689  100  2,428  12,563  16,780 
Total commercial 15,875  1,863  2,576  17,640  5,967,468  6,005,422 
Commercial real estate            
Construction 2,408      1,824  606,007  610,239 
Land 394    188    104,219  104,801 
Office 4,337    4,506  1,232  857,599  867,674 
Industrial 7,047    4,516  2,436  756,602  770,601 
Retail 597    760  3,364  907,872  912,593 
Multi-family 643    322  1,347  805,312  807,624 
Mixed use and other 6,498    1,186  12,632  1,931,859  1,952,175 
PCI - commercial real estate (1)   16,188  3,775  8,888  141,529  170,380 
Total commercial real estate 21,924  16,188  15,253  31,723  6,110,999  6,196,087 
Home equity 9,761    1,630  6,515  707,887  725,793 
Residential real estate, including PCI 12,749  1,309  936  8,271  681,956  705,221 
Premium finance receivables            
Commercial insurance loans 14,709  7,962  5,646  14,580  2,435,684  2,478,581 
Life insurance loans   3,717  17,514  16,204  3,182,935  3,220,370 
PCI - life insurance loans (1)         249,657  249,657 
Consumer and other, including PCI 439  207  100  887  120,408  122,041 
Total loans, net of unearned income, excluding covered loans $75,457  $31,246  $43,655  $95,820  $19,456,994  $19,703,172 
Covered loans 2,121  2,492  225  1,553  51,754  58,145 
Total loans, net of unearned income $77,578  $33,738  $43,880  $97,373  $19,508,748  $19,761,317 


As of December 31, 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% % 0.1% 0.3% 99.2% 100.0%
Franchise       0.1  99.9  100.0 
Mortgage warehouse lines of credit         100.0  100.0 
Asset-based lending 0.2      0.2  99.6  100.0 
Leases 0.2      0.5  99.3  100.0 
PCI - commercial(1)   10.1  0.6  14.5  74.8  100.0 
Total commercial 0.3      0.3  99.4  100.0 
Commercial real estate            
Construction 0.4      0.3  99.3  100.0 
Land 0.4    0.2    99.4  100.0 
Office 0.5    0.5  0.1  98.9  100.0 
Industrial 0.9    0.6  0.3  98.2  100.0 
Retail 0.1    0.1  0.4  99.4  100.0 
Multi-family 0.1      0.2  99.7  100.0 
Mixed use and other 0.3    0.1  0.6  99.0  100.0 
PCI - commercial real estate (1)   9.5  2.2  5.2  83.1  100.0 
Total commercial real estate 0.4  0.3  0.2  0.5  98.6  100.0 
Home equity 1.3    0.2  0.9  97.6  100.0 
Residential real estate, including PCI 1.8  0.2  0.1  1.2  96.7  100.0 
Premium finance receivables            
Commercial insurance loans 0.6  0.3  0.2  0.6  98.3  100.0 
Life insurance loans   0.1  0.5  0.5  98.9  100.0 
PCI - life insurance loans (1)         100.0  100.0 
Consumer and other, including PCI 0.4  0.2  0.1  0.7  98.6  100.0 
Total loans, net of unearned income, excluding covered loans 0.4% 0.2% 0.2% 0.5% 98.7% 100.0%
Covered loans 3.6  4.3  0.4  2.7  89.0  100.0 
Total loans, net of unearned income 0.4% 0.2% 0.2% 0.5% 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 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.

As of December 31, 2016, $43.7 million of all loans, excluding covered loans, or 0.2%, were 60 to 89 days past due and $95.8 million, or 0.5%, were 30 to 59 days (or one payment) past due. 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. 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 December 31, 2016 that are current with regard to the contractual terms of the loan agreement represent 97.6% of the total home equity portfolio. Residential real estate loans at December 31, 2016 that are current with regards to the contractual terms of the loan agreements comprise 96.7% 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.

  December 31, September 30, December 31,
(Dollars in thousands) 2016 2016 2015
Loans past due greater than 90 days and still accruing(1):      
Commercial $174  $  $541 
Commercial real estate      
Home equity      
Residential real estate      
Premium finance receivables - commercial 7,962  7,754  10,294 
Premium finance receivables - life insurance 3,717     
Consumer and other 144  60  150 
Total loans past due greater than 90 days and still accruing 11,997  7,814  10,985 
Non-accrual loans(2):      
Commercial 15,875  16,418  12,712 
Commercial real estate 21,924  22,625  26,645 
Home equity 9,761  9,309  6,848 
Residential real estate 12,749  12,205  12,043 
Premium finance receivables - commercial 14,709  14,214  14,561 
Premium finance receivables - life insurance      
Consumer and other 439  543  263 
Total non-accrual loans 75,457  75,314  73,072 
Total non-performing loans:      
Commercial 16,049  16,418  13,253 
Commercial real estate 21,924  22,625  26,645 
Home equity 9,761  9,309  6,848 
Residential real estate 12,749  12,205  12,043 
Premium finance receivables - commercial 22,671  21,968  24,855 
Premium finance receivables - life insurance 3,717     
Consumer and other 583  603  413 
Total non-performing loans $87,454  $83,128  $84,057 
Other real estate owned 17,699  19,933  26,849 
Other real estate owned - from acquisitions 22,583  15,117  17,096 
Other repossessed assets 581  428  174 
Total non-performing assets $128,317  $118,606  $128,176 
TDRs performing under the contractual terms of the loan agreement $29,911  $29,440  $42,744 
Total non-performing loans by category as a percent of its own respective category's period-end balance:      
Commercial 0.27% 0.28% 0.28%
Commercial real estate 0.35  0.38  0.48 
Home equity 1.34  1.25  0.87 
Residential real estate 1.81  1.84  1.98 
Premium finance receivables - commercial 0.91  0.90  1.05 
Premium finance receivables - life insurance 0.11     
Consumer and other 0.48  0.50  0.28 
Total loans, net of unearned income 0.44% 0.44% 0.49%
Total non-performing assets as a percentage of total assets 0.50% 0.47% 0.56%
Allowance for loan losses as a percentage of total non-performing loans 139.83% 141.58% 125.39%

(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 $11.8 million, $14.8 million, and $9.1 million as of December 31, 2016, September 30, 2016, and December 31, 2015, respectively.

The ratio of non-performing assets to total assets was 0.50% as of December 31, 2016, compared to 0.47% at September 30, 2016, and 0.56% at December 31, 2015. Non-performing assets, excluding covered assets and non-covered PCI loans, totaled $128.3 million at December 31, 2016, compared to $118.6 million at September 30, 2016 and $128.2 million at December 31, 2015. The increase in non-performing assets, excluding covered assets and non-covered PCI loans, compared to September 30, 2016 is primarily the result of $7.2 million of OREO acquired through acquisitions and $4.2 million of OREO from FDIC-covered transactions with expiring loss share agreements during the fourth quarter of 2016. Non-performing loans, excluding covered loans and non-covered PCI loans, totaled $87.5 million, or 0.44% of total loans, at December 31, 2016 compared to $83.1 million, or 0.44% of total loans, at September 30, 2016 and $84.1 million, or 0.49% of total loans, at December 31, 2015. OREO, excluding covered OREO, of $40.3 million at December 31, 2016 increased $5.2 million compared to $35.1 million at September 30, 2016 and decreased $3.7 million compared to $43.9 million at December 31, 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 Years Ended
  December 31, September 30, December 31, December 31, December 31,
(Dollars in thousands) 2016 2016 2015 2016 2015
Balance at beginning of period $83,128  $88,119  $85,976  $84,057  $78,677 
Additions, net 10,969  9,522  5,983  43,008  48,124 
Return to performing status (150) (231) (1,152) (3,260) (3,743)
Payments received (6,623) (5,235) (6,387) (19,976) (22,804)
Transfer to OREO and other repossessed assets (878) (2,270) (1,903) (7,046) (10,581)
Charge-offs (3,494) (3,353) (1,882) (10,323) (10,519)
Net change for niche loans (1) 4,502  (3,424) 3,422  994  4,903 
Balance at end of period $87,454  $83,128  $84,057  $87,454  $84,057 

(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:

  December 31, September 30, December 31,
(Dollars in thousands) 2016 2016 2015
Accruing TDRs:      
Commercial $4,643  $2,285  $5,613 
Commercial real estate 19,993  22,261  32,777 
Residential real estate and other 5,275  4,894  4,354 
Total accrual $29,911  $29,440  $42,744 
Non-accrual TDRs: (1)      
Commercial $1,487  $2,134  $134 
Commercial real estate 8,153  10,610  5,930 
Residential real estate and other 2,157  2,092  3,045 
Total non-accrual $11,797  $14,836  $9,109 
Total TDRs:      
Commercial $6,130  $4,419  $5,747 
Commercial real estate 28,146  32,871  38,707 
Residential real estate and other 7,432  6,986  7,399 
Total TDRs $41,708  $44,276  $51,853 
Weighted-average contractual interest rate of TDRs 4.33% 4.33% 4.13%

(1) Included in total non-performing loans.

At December 31, 2016, the Company had $41.7 million in loans modified in TDRs.  The $41.7 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 $44.3 million representing 89 credits at September, 2016 and decreased from $51.9 million representing 102 credits at December 31, 2015.

The table below presents a summary of TDRs as of December 31, 2016 and December 31, 2015, and shows the changes in the balance during the periods presented:

Three Months Ended December 31, 2016

(Dollars in thousands) Commercial Commercial
Real Estate
 Residential
Real Estate
and Other
 Total
Balance at beginning of period $4,419  $32,871  $6,986  $44,276 
Additions during the period 2,949    499  3,448 
Reductions:        
Charge-offs (701) (13)   (714)
Transferred to OREO and other repossessed assets   (68)   (68)
Removal of TDR loan status (1)   (1,337)   (1,337)
Payments received, net (537) (3,307) (53) (3,897)
Balance at period end $6,130  $28,146  $7,432  $41,708 

(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 December 31, 2015

(Dollars in thousands) Commercial Commercial
Real Estate
 Residential
Real Estate
and Other
 Total
Balance at beginning of period $5,864  $45,645  $7,811  $59,320 
Additions during the period   201    201 
Reductions:        
Charge-offs   (1,707) (48) (1,755)
Transferred to OREO and other repossessed assets     (135) (135)
Removal of TDR loan status (1) (19) (2,868) - (2,887)
Payments received, net (98) (2,564) (229) (2,891)
Balance at period end $5,747  $38,707  $7,399  $51,853 

Year Ended December 31, 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 3,294  8,521  1,082  12,897 
Reductions:        
Charge-offs (1,482) (1,051) (212) (2,745)
Transferred to OREO and other repossessed assets   (1,433) (535) (1,968)
Removal of TDR loan status (1)   (7,816)   (7,816)
Payments received, net (1,429) (8,782) (302) (10,513)
Balance at period end $6,130  $28,146  $7,432  $41,708 

Year Ended December 31, 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   370  1,664  2,034 
Reductions:        
Charge-offs (397) (1,975) (140) (2,512)
Transferred to OREO and other repossessed assets (562) (2,290) (414) (3,266)
Removal of TDR loan status (1) (490) (13,019)   (13,509)
Payments received, net (380) (12,002) (787) (13,169)
Balance at period end $5,747  $38,707  $7,399  $51,853 

(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 December 31, 2016 and approximately $2.7 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 the three months ended December 31, 2016 and 2015, the Company recorded $98,000 and $188,000, respectively in interest income representing this decrease in impairment. For the years ended December 31, 2016 and 2015, the Company recorded $421,000 and $573,000, 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 December 31, 2016, September 30, 2016 and December 31, 2015, and shows the activity for the respective period and the balance for each property type:

  Three Months Ended
  December 31, September 30, December 31,
(Dollars in thousands) 2016 2016 2015
Balance at beginning of period $35,050  $38,063  $51,880 
Disposals/resolved (5,850) (5,967) (9,156)
Transfers in at fair value, less costs to sell 667  3,958  2,345 
Transfers in from covered OREO subsequent to loss share expiration 4,213    69 
Additions from acquisition 7,230     
Fair value adjustments (1,028) (1,004) (1,193)
Balance at end of period $40,282  $35,050  $43,945 
       
  Period End
  December 31, September 30, December 31,
Balance by Property Type 2016 2016 2015
Residential real estate $8,063  $9,602  $11,322 
Residential real estate development 1,349  2,114  2,914 
Commercial real estate 30,870  23,334  29,709 
Total $40,282  $35,050  $43,945 

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.

  December 31, September 30, December 31,
(Dollars in thousands) 2016 2016 2015
Period End Balances:      
Loans $58,145  $95,940  $148,673 
Other real estate owned 5,302  10,399  21,383 
Other assets   216  411 
FDIC indemnification liability (16,701) (17,945) (6,100)
Total net covered assets $46,746  $88,610  $164,367 
Allowance for Covered Loan Losses Rollforward:      
Balance at beginning of quarter: $1,422  $2,412  $2,918 
Allowance for covered loan losses transferred to allowance for loan losses subsequent to loss share expiration (156)    
Provision for covered loan losses before benefit attributable to FDIC loss share agreements (35) (847) (2,011)
Benefit attributable to FDIC loss share agreements 153  677  1,874 
Net provision for covered loan losses and transfer from allowance for covered loan losses to allowance for loan losses (38) (170) (137)
Increase/decrease in FDIC indemnification liability/asset (153) (677) (1,874)
Loans charged-off (119) (918) (163)
Recoveries of loans charged-off 210  775  2,282 
Net recoveries (charge-offs) 91  (143) 2,119 
Balance at end of quarter $1,322  $1,422  $3,026 

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
  December 31, December 31,
(Dollars in thousands) 2016 2015
Accretable yield, beginning balance $52,977  $65,207 
Acquisitions 1,380   
Accretable yield amortized to interest income (6,113) (5,756)
Accretable yield amortized to indemnification asset/liability (1) (207) (2,550)
Reclassification from non-accretable difference(2) 1,634  2,236 
Increases (decreases) in interest cash flows due to payments and changes in interest rates (263) 4,765 
Accretable yield, ending balance (3) $49,408  $63,902 


  Years Ended
  December 31, December 31,
(Dollars in thousands) 2016 2015
Accretable yield, beginning balance $63,902  $79,102 
Acquisitions 2,462  9,993 
Accretable yield amortized to interest income (23,218) (24,115)
Accretable yield amortized to indemnification asset/liability (1) (5,746) (13,495)
Reclassification from non-accretable difference(2) 13,733  7,390 
(Decreases) increases in interest cash flows due to payments and changes in interest rates (1,725) 5,027 
Accretable yield, ending balance (3) $49,408  $63,902 

(1) Represents the portion of the current period accreted yield, resulting from lower expected losses, applied to reduce the loss share indemnification asset.
(2) Reclassification is the result of subsequent increases in expected principal cash flows.
(3) As of December 31, 2016, the Company estimates that the remaining accretable yield balance to be amortized to the indemnification asset for the bank acquisitions is $1.1 million. The remainder of the accretable yield related to bank acquisitions is expected to be amortized to interest income.

Accretion to interest income accounted for under ASC 310-30 totaled $6.1 million and $5.8 million in the fourth quarter of 2016 and 2015, respectively. For the years ended December 31, 2016 and 2015, the Company recorded accretion to interest income of $23.2 million and $24.1 million, respectively. These amounts include accretion from both covered and non-covered loans, and are included together within interest and fees on loans in the Consolidated Statements of Income.

Items Impacting Comparative Financial Results:

Acquisitions

On November 18, 2016, the Company completed its acquisition of FCFC. FCFC was the parent company of First Community Bank.  Through this transaction, the Company acquired First Community Bank's two banking locations in Elgin, Illinois, approximately $185 million in assets and approximately $150 million in deposits.

On August 19, 2016, the Company, through its wholly-owned subsidiary Lake Forest Bank & Trust Company, completed its acquisition of approximately $561 million in select performing loans and related relationships from an affiliate of GE Capital Franchise Finance. The loans are to franchise operators (primarily quick service restaurant concepts) in the Midwest and in the Western portion of the United States.

On March 31, 2016, the Company completed its acquisition of Generations Bancorp. Inc. ("Generations"). Generations was the parent company of Foundations Bank ("Foundations").  Through this transaction, the Company acquired Foundations' banking location in Pewaukee, Wisconsin, approximately $131 million in assets and approximately $100 million in deposits.             

On July 24, 2015, the Company completed its acquisition of Community Financial Shares, Inc ("CFIS"). CFIS was the parent company of Community Bank - Wheaton/Glen Ellyn ("CBWGE"). Through this transaction, the Company acquired CBWGE's four banking locations in Wheaton and Glen Ellyn, Illinois, approximately $351 million in assets and approximately $290 million in deposits.

On July 17, 2015, the Company completed its acquisition of Suburban Illinois Bancorp, Inc. ("Suburban"). Suburban was the parent company of Suburban Bank & Trust Company ("SBT"). Through this transaction, the Company acquired SBT's ten banking locations in Chicago and its suburbs, approximately $495 million in assets and approximately $417 million in deposits.

On July 1, 2015, the Company, through its wholly-owned subsidiary Wintrust Bank, completed its acquisition of North Bank.  Through this transaction, Wintrust Bank acquired two banking locations, $118 million in assets and approximately $101 million in deposits.

On January 16, 2015, the Company completed its acquisition of Delavan Bancshares, Inc. ("Delavan"). Delavan was the parent company of Community Bank CBD. Through this transaction, Town Bank acquired four banking locations, approximately $224 million in assets and approximately $170 million in deposits.   

WINTRUST SUBSIDIARIES AND LOCATIONS

Wintrust is a financial holding company whose common stock is traded on the Nasdaq Global Select Market (Nasdaq: WTFC). Its 15 community bank subsidiaries are: Lake Forest Bank & Trust Company, Hinsdale Bank & Trust Company, Wintrust Bank in Chicago, Libertyville Bank & Trust Company, Barrington Bank & Trust Company, N.A., Crystal Lake Bank & Trust Company, N.A., Northbrook Bank & Trust Company, Schaumburg Bank & Trust Company, N.A., Village Bank & Trust in Arlington Heights, Beverly Bank & Trust Company, N.A. in Chicago, Wheaton Bank & Trust Company, State Bank of The Lakes in Antioch, Old Plank Trail Community Bank, N.A. in New Lenox, St. Charles Bank & Trust Company and Town Bank in Hartland, Wisconsin.

The banks also operate facilities in Illinois in Algonquin, Aurora, Bloomingdale, Buffalo Grove, Cary, Chicago, Clarendon Hills, Crete, Deerfield, Des Plaines, Downers Grove, Elgin, Elk Grove Village, Elmhurst, Evergreen Park, Frankfort, Geneva, Glen Ellyn, Glencoe, Glenview, Gurnee, Grayslake, Hanover Park, Highland Park, Highwood, Hoffman Estates, Island Lake, Itasca, Joliet, Lake Bluff, Lake Villa, Lansing, Lemont, Lindenhurst, Lynwood, Markham, McHenry, Mokena, Mount Prospect, Mundelein, Naperville, North Chicago, Northfield, Norridge, Oak Lawn, Orland Park, Palatine, Park Ridge, Prospect Heights, Ravinia, Riverside, Rogers Park, Roselle, Round Lake Beach, Shorewood, Skokie, South Holland, Spring Grove, Steger, Stone Park, Vernon Hills, Wauconda, Western Springs, Willowbrook, Wilmette, Winnetka and Wood Dale and in Albany, Burlington, Clinton, Darlington, Delafield, Delavan, Elm Grove, Genoa City, Kenosha, Lake Geneva, Madison, Menomenee Falls, Milwaukee, Monroe, Pewaukee, Sharon, Wales, Walworth and Wind Lake, Wisconsin and Dyer, Indiana.

Additionally, the Company operates various non-bank business units:

  • First Insurance Funding Corporation, one of the largest insurance premium finance companies operating in the United States, serves commercial and life insurance loan custome