Market Overview

Wintrust Financial Corporation Reports Record Fourth Quarter 2017 Net Income, an Increase of 26% Over Prior Year, and Record Full-Year 2017 Net Income of $257.7 million, an Increase of 25% Over Prior Year

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ROSEMONT, Ill., Jan. 22, 2018 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation ("Wintrust" or "the Company") (NASDAQ:WTFC) announced net income of $68.8 million or $1.17 per diluted common share for the fourth quarter of 2017 compared to net income of $65.6 million or $1.12 per diluted common share for the third quarter of 2017 and $54.6 million or $0.94 per diluted common share for the fourth quarter of 2016. The Company recorded net income of $257.7 million or $4.40 per diluted common share for the year ended 2017 compared to net income of $206.9 million or $3.66 per diluted common share for the same period of 2016.

Highlights of the Fourth Quarter of 2017 *:

  • Total assets increased by $558 million from the prior quarter and now total $27.9 billion.
  • Total deposits increased $288 million to $23.2 billion with non-interest bearing deposit accounts now comprising 29% of total deposits.
  • Total loans, excluding the reclassification of covered loans and mortgage loans held-for-sale, increased by $681 million from the prior quarter.
  • Net interest margin increased primarily as a result of higher earning asset yields. This increase as well as $175 million of growth in average earning assets since the third quarter of 2017 drove a $3.1 million increase in net interest income over the prior quarter.
  • Net charge-offs, excluding covered loans, decreased to $3.7 million. Net charge-offs as a percentage of average total loans, excluding covered loans, decreased to seven basis points for the fourth quarter of 2017 and for the full-year 2017.
  • Allowance for loan losses as a percentage of total non-performing loans remained strong at 153%.
  • Recorded a $7.6 million net tax benefit related to the enactment of the Tax Cuts and Jobs Act on December 22, 2017 ("Tax Reform"). 
  • Recorded an increase of $8.4 million in bonus and long-term performance-based incentive compensation as a result of higher current and projected earnings as impacted by the higher rate environment, lower taxes and balance sheet growth. 
  • Increase in professional fees primarily as a result of $1.6 million of additional consulting costs related to continued investments in various areas of the Company including technology and an enhanced customer experience.
  • Increase in benefits expense primarily due to a $1.2 million negative adjustment of pension obligations assumed in previous acquisitions.
  • Entered into agreements with the Federal Deposit Insurance Corporation ("FDIC") that terminated all existing loss share agreements with the FDIC.
  • Opened one new branch in Rolling Meadows, Illinois to continue to expand our market area.

* See "Supplemental Financial Measures/Ratios" on pages 11-12 for more information on non-GAAP measures.

Edward J. Wehmer, President and Chief Executive Officer, commented, "Wintrust reported record net income for the fourth quarter of 2017 and for the full year of 2017. These results were driven by our continued strong asset growth throughout 2017 and an increased net interest margin as we continue to benefit from rising interest rates. The fourth quarter of 2017 was also characterized by strong deposit growth and a $7.6 million net tax benefit from Tax Reform."
               
Mr. Wehmer continued, "We experienced strong loan growth among our various loan categories, including the commercial, commercial real estate and life premium finance receivables portfolios. Excluding the reclassification of covered loans and mortgage loans held-for-sale, we grew our loan portfolio by $681 million during the fourth quarter. Our loan pipelines remain consistently strong. The increased loan volume and continued improvement in net interest margin from rising interest rates helped net interest income increase by $3.1 million. We remain well positioned for expected rising rates in the future. Deposit growth was strong in the fourth quarter of 2017 as deposits increased $288 million and exceeded $23 billion as of the end of the fourth quarter. Total deposit growth included $290 million of growth from demand deposits, which now total $6.8 billion and comprise 29% of our overall deposit base."

Commenting on credit quality, Mr. Wehmer noted, "During the fourth quarter of 2017, the Company continued its practice of addressing and resolving non-performing credits in a timely fashion. Excluding covered loans, net charge-offs totaled $3.7 million in the current quarter, decreasing $778,000 from the third quarter of 2017. Additionally, net charge-offs as a percentage of average total loans, excluding covered loans, decreased to 0.07% from 0.08% in the third quarter. For the full year of 2017, net charge-offs as a percentage of average total loans, excluding covered loans, decreased to 0.07% from 0.09% in the full year of 2016. Total non-performing loans, excluding covered loans, increased $12.2 million in the fourth quarter of 2017, or 0.42% of total loans, excluding covered loans. This increase was primarily the result of one relationship within the commercial real estate portfolio totaling $11.1 million becoming non-performing during the period. Additionally, the allowance for loan losses as a percentage of non-performing loans, excluding covered loans, remained strong at 153%. We believe that the Company's reserves remain appropriate."

Mr. Wehmer further commented, "The wealth management business unit's strong contribution to revenue continued in the fourth quarter of 2017 with wealth management revenue increasing $2.1 million during the period as a result of continued growth in assets under management. Mortgage banking revenue in the fourth quarter of 2017 totaled $27.4 million, a slight decrease of $773,000 compared to the third quarter of 2017. Mortgage banking revenue for the fourth quarter of 2017 compared to the third quarter of 2017 was impacted by a $46,000 positive fair value adjustment related to mortgage servicing rights assets compared to a $2.2 million negative fair value adjustment in the third quarter of 2017. Mortgage loan origination volumes in the fourth quarter of 2017 totaled $879 million compared to $956 million in the third quarter of 2017 as a result of typical seasonality in our market area. Purchases represented 67% of the volume for the fourth quarter of 2017 compared to 80% in the third quarter of 2017. Our mortgage pipeline remains strong. We continue to look for opportunities to further enhance the mortgage banking business both organically and through acquisitions. The recently completed acquisition of Veterans First Mortgage in early January 2018 will assist us to grow our mortgage banking business with opportunities to expand in both size and delivery channels."

Turning to the future, Mr. Wehmer stated, "Wintrust continues to take a steady and measured approach to achieving our main objectives of growing franchise value, increasing profitability, leveraging our expense infrastructure and increasing shareholder value. As 2017 comes to a close, we expect our growth engine to continue its momentum into 2018 in all areas of our business while focusing on expense control to achieve our goal of a net overhead ratio below 1.50% in 2018.  Loan growth at the end of the fourth quarter of 2017 should add to this momentum as period-end loan balances, excluding covered loans and mortgage loans held-for-sale, exceeded the fourth quarter average balance by $560 million. We remain well-positioned for a rising rate environment in the future, which, coupled with this loan growth, should continue to grow net interest income. Additionally, Tax Reform at the end of the year is expected to help fuel our growth engine and increase profitability as we enter 2018. At this time, we expect our effective income tax rate for the full year of 2018 to be approximately 26%-27%, excluding any impact of excess tax benefits associated with share-based compensation, compared to an effective tax rate, excluding any impact of such excess tax benefits and Tax Reform, of approximately 37.5% for the full year of 2017. Evaluating strategic acquisitions and organic branch growth will also 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 2017 and the year ended 2017.

http://resource.globenewswire.com/Resource/Download/b1b9f647-370d-4dbb-a0ce-49ea9b0cc956

Wintrust's key operating measures and growth rates for the fourth quarter of 2017, as compared to the sequential and linked quarters, are shown in the table below:

                % or(4)
basis point  (bp)
change from

3nd Quarter
2017
  % or
basis point  (bp)
change from
4rd Quarter
2016
    Three Months Ended    
(Dollars in thousands)   December 31,
 2017
  September 30,
 2017
  December 31,
 2016
   
Net income   $ 68,781     $ 65,626     $ 54,608     5   %   26   %
Net income per common share – diluted   $ 1.17     $ 1.12     $ 0.94     4   %   24   %
Net revenue (1)   $ 300,137     $ 295,719     $ 276,053     1   %   9   %
Net interest income   $ 219,099     $ 215,988     $ 190,778     1   %   15   %
Net interest margin   3.45 %   3.43 %   3.21 %   2   bp   24   bp
Net interest margin - fully taxable equivalent (non-GAAP) (2)   3.49 %   3.46 %   3.23 %   3   bp   26   bp
Net overhead ratio (3)   1.69 %   1.53 %   1.48 %   16   bp   21   bp
Return on average assets   1.00 %   0.96 %   0.85 %   4   bp   15   bp
Return on average common equity   9.39 %   9.15 %   8.32 %   24   bp   107   bp
Return on average tangible common equity (non-GAAP) (2)   11.65 %   11.39 %   10.68 %   26   bp   97   bp
At end of period                        
Total assets   $ 27,915,970     $ 27,358,162     $ 25,668,553     8   %   9   %
Total loans, excluding loans held-for-sale, excluding covered loans   21,640,797     20,912,781     19,703,172     14   %   10   %
Total loans, including loans held-for-sale, excluding covered loans   21,954,389     21,283,063     20,121,546     13   %   9   %
Total deposits   23,183,347     22,895,063     21,658,632     5   %   7   %
Total shareholders' equity   2,976,939     2,908,925     2,695,617     9   %   10   %
                                   

(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,
 2017
  September 30,
 2017
  December 31,
 2016
  December 31,
 2017
  December 31,
 2016
Selected Financial Condition Data (at end of period):                    
Total assets   $ 27,915,970     $ 27,358,162     $ 25,668,553          
Total loans, excluding loans held-for-sale and covered loans   21,640,797     20,912,781     19,703,172          
Total deposits   23,183,347     22,895,063     21,658,632          
Junior subordinated debentures   253,566     253,566     253,566          
Total shareholders' equity   2,976,939     2,908,925     2,695,617          
Selected Statements of Income Data:                    
Net interest income   $ 219,099     $ 215,988     $ 190,778     $ 832,076     $ 722,193  
Net revenue (1)   300,137     295,719     276,053     1,151,582     1,047,623  
Net income   68,781     65,626     54,608     257,682     206,875  
Net income per common share – Basic   $ 1.19     $ 1.14     $ 0.98     $ 4.53     $ 3.83  
Net income per common share – Diluted   $ 1.17     $ 1.12     $ 0.94     $ 4.40     $ 3.66  
Selected Financial Ratios and Other Data:                    
Performance Ratios:                    
Net interest margin   3.45 %   3.43 %   3.21 %   3.41 %   3.24 %
Net interest margin - fully taxable equivalent (non-GAAP) (2)   3.49 %   3.46 %   3.23 %   3.44 %   3.26 %
Non-interest income to average assets   1.18 %   1.17 %   1.32 %   1.21 %   1.34 %
Non-interest expense to average assets   2.87 %   2.70 %   2.80 %   2.78 %   2.81 %
Net overhead ratio (3)   1.69 %   1.53 %   1.48 %   1.56 %   1.47 %
Return on average assets   1.00 %   0.96 %   0.85 %   0.98 %   0.85 %
Return on average common equity   9.39 %   9.15 %   8.32 %   9.26 %   8.37 %
Return on average tangible common equity (non-GAAP) (2)   11.65 %   11.39 %   10.68 %   11.63 %   10.90 %
Average total assets   $ 27,179,484     $ 27,012,295     $ 25,611,060     $ 26,369,702     $ 24,292,231  
Average total shareholders' equity   2,942,999     2,882,682     2,689,876     2,842,081     2,549,929  
Average loans to average deposits ratio (excluding loans held-for-sale, excluding covered loans)   92.3 %   91.8 %   89.6 %   92.7 %   90.9 %
Average loans to average deposits ratio (excluding loans held-for-sale, including covered loans)   92.4 %   92.1 %   89.9 %   92.9 %   91.4 %
Common Share Data at end of period:                    
Market price per common share   $ 82.37     $ 78.31     $ 72.57          
Book value per common share (2)   $ 50.96     $ 49.86     $ 47.12          
Tangible common book value per share (2)   $ 41.68     $ 40.53     $ 37.08          
Common shares outstanding   55,965,207     55,838,063     51,880,540          
Other Data at end of period:(6)                    
Leverage Ratio (4)   9.3 %   9.2 %   8.9 %        
Tier 1 capital to risk-weighted assets (4)   9.9 %   10.0 %   9.7 %        
Common equity Tier 1 capital to risk-weighted assets (4)   9.4 %   9.5 %   8.6 %        
Total capital to risk-weighted assets (4)   12.0 %   12.2 %   11.9 %        
Allowance for credit losses (5)   $ 139,174     $ 134,395     $ 123,964          
Non-performing loans   90,162     77,983     87,454          
Allowance for credit losses to total loans (5)   0.64 %   0.64 %   0.63 %        
Non-performing loans to total loans   0.42 %   0.37 %   0.44 %        
Number of:                    
Bank subsidiaries   15     15     15          
Banking offices   157     156     155          
                           

(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.
(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,
 2017
  September 30,
 2017
  December 31,
 2016
Assets            
Cash and due from banks   $ 277,534     $ 251,896     $ 267,194  
Federal funds sold and securities purchased under resale agreements   57     56     2,851  
Interest bearing deposits with banks   1,063,242     1,218,728     980,457  
Available-for-sale securities, at fair value   1,803,666     1,665,903     1,724,667  
Held-to-maturity securities, at amortized cost   826,449     819,340     635,705  
Trading account securities   995     643     1,989  
Federal Home Loan Bank and Federal Reserve Bank stock   89,989     87,192     133,494  
Brokerage customer receivables   26,431     23,631     25,181  
Mortgage loans held-for-sale   313,592     370,282     418,374  
Loans, net of unearned income, excluding covered loans   21,640,797     20,912,781     19,703,172  
Covered loans       46,601     58,145  
Total loans   21,640,797     20,959,382     19,761,317  
Allowance for loan losses   (137,905 )   (133,119 )   (122,291 )
Allowance for covered loan losses       (758 )   (1,322 )
Net loans   21,502,892     20,825,505     19,637,704  
Premises and equipment, net   621,895     609,978     597,301  
Lease investments, net   212,335     193,828     129,402  
Accrued interest receivable and other assets   567,374     580,612     593,796  
Trade date securities receivable   90,014     189,896      
Goodwill   501,884     502,021     498,587  
Other intangible assets   17,621     18,651     21,851  
Total assets   $ 27,915,970     $ 27,358,162     $ 25,668,553  
Liabilities and Shareholders' Equity            
Deposits:            
Non-interest bearing   $ 6,792,497     $ 6,502,409     $ 5,927,377  
Interest bearing   16,390,850     16,392,654     15,731,255  
 Total deposits   23,183,347     22,895,063     21,658,632  
Federal Home Loan Bank advances   559,663     468,962     153,831  
Other borrowings   266,123     251,680     262,486  
Subordinated notes   139,088     139,052     138,971  
Junior subordinated debentures   253,566     253,566     253,566  
Trade date securities payable       880      
Accrued interest payable and other liabilities   537,244     440,034     505,450  
Total liabilities   24,939,031     24,449,237     22,972,936  
Shareholders' Equity:            
Preferred stock   125,000     125,000     251,257  
Common stock   56,068     55,940     51,978  
Surplus   1,529,035     1,519,596     1,365,781  
Treasury stock   (4,986 )   (4,884 )   (4,589 )
Retained earnings   1,313,657     1,254,759     1,096,518  
Accumulated other comprehensive loss   (41,835 )   (41,486 )   (65,328 )
Total shareholders' equity   2,976,939     2,908,925     2,695,617  
Total liabilities and shareholders' equity   $ 27,915,970     $ 27,358,162     $ 25,668,553  
                         

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

 
  Three Months Ended   Years Ended
(In thousands, except per share data) December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  December 31,
 2017
  December 31,
 2016
Interest income                  
Interest and fees on loans $ 229,738     $ 227,120     $ 199,155     $ 868,881     $ 741,001  
Interest bearing deposits with banks 2,723     3,272     1,541     9,252     4,236  
Federal funds sold and securities purchased under resale agreements         1     2     4  
Investment securities 18,160     16,058     12,954     63,315     62,038  
Trading account securities 2     8     32     25     75  
Federal Home Loan Bank and Federal Reserve Bank stock 1,067     1,080     1,144     4,370     4,287  
Brokerage customer receivables 150     150     186     623     816  
Total interest income 251,840     247,688     215,013     946,468     812,457  
Interest expense                  
Interest on deposits 24,930     23,655     16,413     83,326     58,409  
Interest on Federal Home Loan Bank advances 2,124     2,151     2,439     8,798     10,886  
Interest on other borrowings 1,600     1,482     1,074     5,370     4,355  
Interest on subordinated notes 1,786     1,772     1,779     7,116     7,111  
Interest on junior subordinated debentures 2,301     2,640     2,530     9,782     9,503  
Total interest expense 32,741     31,700     24,235     114,392     90,264  
Net interest income 219,099     215,988     190,778     832,076     722,193  
Provision for credit losses 7,772     7,896     7,350     29,768     34,084  
Net interest income after provision for credit losses 211,327     208,092     183,428     802,308     688,109  
Non-interest income                  
Wealth management 21,910     19,803     19,512     81,766     76,018  
Mortgage banking 27,411     28,184     35,489     113,472     128,743  
Service charges on deposit accounts 8,907     8,645     8,054     34,513     31,210  
Gains on investment securities, net 14     39     1,575     45     7,645  
Fees from covered call options 1,610     1,143     1,476     4,402     11,470  
Trading gains (losses), net 24     (129 )   1,007     (845 )   91  
Operating lease income, net 8,598     8,461     5,171     29,646     16,441  
Other 12,564     13,585     12,991     56,507     53,812  
Total non-interest income 81,038     79,731     85,275     319,506     325,430  
Non-interest expense                  
Salaries and employee benefits 118,009     106,251     104,735     430,078     405,158  
Equipment 9,500     9,947     9,532     38,358     37,055  
Operating lease equipment depreciation 7,015     6,794     4,219     24,107     13,259  
Occupancy, net 14,154     13,079     14,254     52,920     50,912  
Data processing 7,915     7,851     7,687     31,495     28,776  
Advertising and marketing 7,382     9,572     6,691     30,830     24,776  
Professional fees 8,879     6,786     5,425     27,835     20,411  
Amortization of other intangible assets 1,028     1,068     1,158     4,401     4,789  
FDIC insurance 4,324     3,877     4,726     16,231     16,065  
OREO expense, net 599     590     1,843     3,593     5,187  
Other 17,775     17,760     20,101     71,969     75,297  
Total non-interest expense 196,580     183,575     180,371     731,817     681,685  
Income before taxes 95,785     104,248     88,332     389,997     331,854  
Income tax expense 27,004     38,622     33,724     132,315     124,979  
Net income $ 68,781     $ 65,626     $ 54,608     $ 257,682     $ 206,875  
Preferred stock dividends 2,050     2,050     3,629     9,778     14,513  
Net income applicable to common shares $ 66,731     $ 63,576     $ 50,979     $ 247,904     $ 192,362  
Net income per common share - Basic $ 1.19     $ 1.14     $ 0.98     $ 4.53     $ 3.83  
Net income per common share - Diluted $ 1.17     $ 1.12     $ 0.94     $ 4.40     $ 3.66  
Cash dividends declared per common share $ 0.14     $ 0.14     $ 0.12     $ 0.56     $ 0.48  
Weighted average common shares outstanding 55,924     55,796     51,812     54,703     50,278  
Dilutive potential common shares 1,010     966     4,152     1,983     3,994  
Average common shares and dilutive common shares 56,934     56,762     55,964     56,686     54,272  
                             

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,
 2017
  September 30,
 2017
  December 31,
 2016
  December 31,
 2017
  December 31,
 2016
Net income     $ 68,781     $ 65,626     $ 54,608     $ 257,682     $ 206,875  
Less: Preferred stock dividends     2,050     2,050     3,629     9,778     14,513  
Net income applicable to common shares—Basic (A)   66,731     63,576     50,979     247,904     192,362  
Add: Dividends on convertible preferred stock, if dilutive             1,578     1,578     6,313  
Net income applicable to common shares—Diluted (B)   66,731     63,576     52,557     249,482     198,675  
Weighted average common shares outstanding (C)   55,924     55,796     51,812     54,703     50,278  
Effect of dilutive potential common shares:                      
Common stock equivalents     1,010     966     1,052     998     894  
Convertible preferred stock, if dilutive             3,100     985     3,100  
Weighted average common shares and effect of dilutive potential common shares (D)   56,934     56,762     55,964     56,686     54,272  
Net income per common share:                      
Basic (A/C)   $ 1.19     $ 1.14     $ 0.98     $ 4.53     $ 3.83  
Diluted (B/D)   $ 1.17     $ 1.12     $ 0.94     $ 4.40     $ 3.66  
                                           

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 for a period, net income applicable to common shares is not adjusted by the associated preferred dividends. On April 25, 2017, 2,073 shares of the Series C Preferred Stock were converted at the option of the respective holder into 51,244 shares of the Company's common stock, pursuant to the terms of the Series C Preferred Stock. On April 27, 2017, the Company caused a mandatory conversion of its outstanding 124,184 shares of Series C Preferred Stock into 3,069,828 shares of the Company's common stock at a conversion rate of 24.72 shares of common stock per share of Series C Preferred Stock. Cash was paid in lieu of fractional shares for an amount considered insignificant.

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 using tax rates effective as of the end of the period. 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) 2017   2017   2017   2017   2016   2017   2016
Calculation of Net Interest Margin and Efficiency Ratio                          
(A) Interest Income (GAAP) $ 251,840     $ 247,688     $ 231,181     $ 215,759     $ 215,013     $ 946,468     $ 812,457  
Taxable-equivalent adjustment:                          
 - Loans 1,106     1,033     831     790     666     3,760     2,282  
 - Liquidity Management Assets 1,019     921     866     907     815     3,713     3,630  
 - Other Earning Assets 2     5     2     5     17     14     40  
(B) Interest Income - FTE $ 253,967     $ 249,647     $ 232,880     $ 217,461     $ 216,511     $ 953,955     $ 818,409  
(C) Interest Expense (GAAP) 32,741     31,700     26,772     23,179     24,235     114,392     90,264  
(D) Net Interest Income - FTE (B minus C) $ 221,226     $ 217,947     $ 206,108     $ 194,282     $ 192,276     $ 839,563     $ 728,145  
(E) Net Interest Income (GAAP) (A minus C) $ 219,099     $ 215,988     $ 204,409     $ 192,580     $ 190,778     $ 832,076     $ 722,193  
Net interest margin (GAAP-derived) 3.45 %   3.43 %   3.41 %   3.36 %   3.21 %   3.41 %   3.24 %
Net interest margin - FTE 3.49 %   3.46 %   3.43 %   3.39 %   3.23 %   3.44 %   3.26 %
(F) Non-interest income $ 81,038     $ 79,731     $ 89,972     $ 68,765     $ 85,275     $ 319,506     $ 325,430  
(G) Gains (losses) on investment securities, net 14     39     47     (55 )   1,575     45     7,645  
(H) Non-interest expense 196,580     183,575     183,544     168,118     180,371     731,817     681,685  
Efficiency ratio (H/(E+F-G)) 65.50 %   62.09 %   62.36 %   64.31 %   65.71 %   63.55 %   65.55 %
Efficiency ratio - FTE (H/(D+F-G)) 65.04 %   61.68 %   62.00 %   63.90 %   65.36 %   63.14 %   65.18 %
Calculation of Tangible Common Equity ratio (at period end)                          
Total shareholders' equity $ 2,976,939     $ 2,908,925     $ 2,839,458     $ 2,764,983     $ 2,695,617          
(I) Less: Convertible preferred stock             (126,257 )   (126,257 )        
Less:  Non-convertible preferred stock (125,000 )   (125,000 )   (125,000 )   (125,000 )   (125,000 )        
Less: Intangible assets (519,505 )   (520,672 )   (519,806 )   (520,028 )   (520,438 )        
(J) Total tangible common shareholders' equity $ 2,332,434     $ 2,263,253     $ 2,194,652     $ 1,993,698     $ 1,923,922          
Total assets $ 27,915,970     $ 27,358,162     $ 26,929,265     $ 25,778,893     $ 25,668,553          
Less: Intangible assets (519,505 )   (520,672 )   (519,806 )   (520,028 )   (520,438 )        
(K) Total tangible assets $ 27,396,465     $ 26,837,490     $ 26,409,459     $ 25,258,865     $ 25,148,115          
Tangible common equity ratio (J/K) 8.5 %   8.4 %   8.3 %   7.9 %   7.7 %        
Tangible common equity ratio, assuming full conversion of convertible preferred stock ((J-I)/K) 8.5 %   8.4 %   8.3 %   8.4 %   8.2 %        
Calculation of book value per share                          
Total shareholders' equity $ 2,976,939     $ 2,908,925     $ 2,839,458     $ 2,764,983     $ 2,695,617          
Less: Preferred stock (125,000 )   (125,000 )   (125,000 )   (251,257 )   (251,257 )        
(L) Total common equity $ 2,851,939     $ 2,783,925     $ 2,714,458     $ 2,513,726     $ 2,444,360          
(M) Actual common shares outstanding 55,965     55,838     55,700     52,504     51,881          
Book value per common share (L/M) $ 50.96     $ 49.86     $ 48.73     $ 47.88     $ 47.12          
Tangible common book value per share (J/M) $ 41.68     $ 40.53     $ 39.40     $ 37.97     $ 37.08          
Calculation of return on average common equity                                              
(N) Net income applicable to common shares $ 66,731     $ 63,576     $ 62,847     $ 54,750     $ 50,979     $ 247,904     $ 192,362  
Add: After-tax intangible asset amortization   738       672       726       771       716       2,907       2,986  
(O) Tangible net income applicable to common shares $ 67,469     $ 64,248     $ 63,573     $ 55,521     $ 51,695     $ 250,811     $ 195,348  
Total average shareholders' equity $ 2,942,999     $ 2,882,682     $ 2,800,905     $ 2,739,050     $ 2,689,876     $ 2,842,081     $ 2,549,929  
Less: Average preferred stock   (125,000 )     (125,000 )     (161,028 )     (251,257 )     (251,257 )     (165,114 )     (251,258 )
(P) Total average common shareholders' equity $ 2,817,999     $ 2,757,682     $ 2,639,877     $ 2,487,793     $ 2,438,619     $ 2,676,967     $ 2,298,671  
Less: Average intangible assets   (519,626 )     (520,333 )     (519,340 )     (520,346 )     (513,017 )     (519,910 )     (506,241 )
(Q) Total average tangible common shareholders' equity $ 2,298,373     $ 2,237,349     $ 2,120,537     $ 1,967,447     $ 1,925,602     $ 2,157,057     $ 1,792,430  
Return on average common equity, annualized  (N/P)   9.39 %     9.15 %     9.55 %     8.93 %     8.32 %     9.26 %     8.37 %
Return on average tangible common equity, annualized (O/Q)   11.65 %     11.39 %     12.02 %     11.44 %     10.68 %     11.63 %     10.90 %
                                                       

BUSINESS UNIT SUMMARY

Community Banking

Through its community banking segment, the Company provides banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the local areas the Company services. In the fourth quarter of 2017, revenue within this franchise was primarily driven by increased net interest income due to a higher net interest margin, partially offset by lower revenue from the mortgage banking business. The net interest margin increased in the fourth quarter of 2017 compared to the third quarter of 2017 primarily as a result of higher yields on the commercial loan portfolio (excluding lease loans) and the securities portfolio, partially offset by higher rates on interest-bearing deposits. Mortgage banking revenue decreased by $773,000 from $28.2 million for the third quarter of 2017 to $27.4 million for the fourth quarter of 2017. The lower  revenue was primarily due to originations during the current period decreasing to $879.4 million from $956.0 million in the third quarter of 2017 as a result of typical seasonality in our primary market area. The reduction in mortgage banking revenue due to lower origination volumes was partially offset by a $46,000 positive fair value adjustment related to mortgage servicing rights assets compared to a $2.2 million negative fair value adjustment in the third quarter of 2017. Purchases represented 67% of loan origination volume for the fourth quarter of 2017. The Company's gross commercial and commercial real estate loan pipelines remain strong. Before the impact of scheduled payments and prepayments, at December 31, 2017, gross commercial and commercial real estate loan pipelines totaled $974.4 million, or $630.2 million when adjusted for the probability of closing, compared to $1.1 billion, or $714.7 million when adjusted for the probability of closing, at September 30, 2017.

Specialty Finance

Through its specialty finance segment, the Company offers financing of insurance premiums for businesses and individuals, equipment financing through structured loans and lease products to customers in a variety of industries and accounts receivable financing, value-added, out-sourced administrative services, and other services. In the fourth quarter of 2017, the specialty finance unit experienced higher revenue as a result of increased volumes and higher yields within its insurance premium financing receivables portfolio. Originations of $1.8 billion during the fourth quarter of 2017 resulted in a $21.6 million increase in average balances. The increase in average balances along with higher yields on these loans resulted in a $723,000 increase in interest income attributed to this portfolio. The Company's leasing business continued to grow during the fourth quarter of 2017, increasing its portfolio of assets, including capital leases, loans and equipment on operating leases, 38% on an annualized basis to $1.0 billion at the end of the fourth quarter of 2017. Revenues from the Company's out-sourced administrative services business remained steady, totaling approximately $1.1 million in the fourth quarter of 2017 and third quarter of 2017.

Wealth Management

Through its wealth management segment, the Company offers a full range of wealth management services through three separate subsidiaries: trust and investment services, asset management, securities brokerage services and 401(k) and retirement plan services. At December 31, 2017, the Company's wealth management subsidiaries had approximately $24.6 billion of assets under administration, which includes $2.7 billion of assets owned by the Company and its subsidiary banks, representing a $515.6 million increase from the $24.1 billion of assets under administration at September 30, 2017. This growth in assets under administration was primarily driven by growth in the Company's asset management business.

LOANS

Loan Portfolio Mix and Growth Rates

                % Growth
(Dollars in thousands)   December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  From (1)
September 30,
2017
  From
December 31,
2016
Balance:                    
Commercial   $ 6,787,677     $ 6,456,034     $ 6,005,422     20 %   13 %
Commercial real estate   6,580,618     6,400,781     6,196,087     11     6  
Home equity   663,045     672,969     725,793     (6 )   (9 )
Residential real estate   832,120     789,499     705,221     21     18  
Premium finance receivables - commercial   2,634,565     2,664,912     2,478,581     (5 )   6  
Premium finance receivables - life insurance   4,035,059     3,795,474     3,470,027     25     16  
Consumer and other   107,713     133,112     122,041     (76 )   (12 )
Total loans, net of unearned income, excluding covered loans   $ 21,640,797     $ 20,912,781     $ 19,703,172     14 %   10 %
Covered loans       46,601     58,145     (100 )   (100 )
Total loans, net of unearned income   $ 21,640,797     $ 20,959,382     $ 19,761,317     13 %   10 %
Mix:                    
Commercial   31 %   31 %   30 %        
Commercial real estate   30     31     31          
Home equity   3     3     4          
Residential real estate   4     3     4          
Premium finance receivables - commercial   12     13     12          
Premium finance receivables - life insurance   19     18     18          
Consumer and other   1     1     1          
Total loans, net of unearned income, excluding covered loans   100 %   100 %   100 %        
Covered loans                    
Total loans, net of unearned income   100 %   100 %   100 %        
                           

(1)  Annualized

Commercial and Commercial Real Estate Loan Portfolios

    As of December 31, 2017
        % 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   $ 4,342,505     32.5 %   $ 11,260     $     $ 39,901  
Franchise   847,597     6.3     2,447         6,451  
Mortgage warehouse lines of credit   194,523     1.5             1,454  
Asset-based lending   980,466     7.3     1,550         8,236  
Leases   413,172     3.1     439         1,242  
PCI - commercial loans (1)   9,414     0.1         877     527  
Total commercial   $ 6,787,677     50.8 %   $ 15,696     $ 877     $ 57,811  
Commercial Real Estate:                    
Construction   $ 745,514     5.6 %   $ 3,143     $     $ 8,728  
Land   126,484     0.9     188         3,838  
Office   894,833     6.7     2,438         5,736  
Industrial   883,019     6.6     811         5,767  
Retail   951,527     7.1     12,328         7,389  
Multi-family   915,644     6.8             9,509  
Mixed use and other   1,935,705     14.5     3,140         13,879  
PCI - commercial real estate (1)   127,892     1.0         7,135     381  
Total commercial real estate   $ 6,580,618     49.2 %   $ 22,048     $ 7,135     $ 55,227  
Total commercial and commercial real estate   $ 13,368,295     100.0 %   $ 37,744     $ 8,012     $ 113,038  
                     
Commercial real estate - collateral location by state:                    
Illinois   $ 5,128,434     78.0 %            
Wisconsin   712,835     10.8              
Total primary markets   $ 5,841,269     88.8 %            
Indiana   138,316     2.1              
Florida   69,427     1.1              
Arizona   58,594     0.9              
Michigan   47,167     0.7              
California   68,478     1.0              
Other (no individual state greater than 0.6%)   357,367     5.4              
Total   $ 6,580,618     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,
 2017
  September 30,
 2017
  December 31,
 2016
  From (1)
September 30,
2017
  From
December 31,
2016
Balance:                    
Non-interest bearing   $ 6,792,497     $ 6,502,409     $ 5,927,377     18 %   15 %
NOW and interest bearing demand deposits   2,315,055     2,273,025     2,624,442     7     (12 )
Wealth management deposits (2)   2,323,699     2,171,758     2,209,617     28     5  
Money market   4,515,353     4,607,995     4,441,811     (8 )   2  
Savings   2,829,373     2,673,201     2,180,482     23     30  
Time certificates of deposit   4,407,370     4,666,675     4,274,903     (22 )   3  
Total deposits   $ 23,183,347     $ 22,895,063     $ 21,658,632     5 %   7 %
Mix:                    
Non-interest bearing   29 %   28 %   27 %        
NOW and interest bearing demand deposits   10     10     12          
Wealth management deposits (2)   10     10     10          
Money market   20     20     21          
Savings   12     12     10          
Time certificates of deposit   19     20     20          
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, 2017

(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   $ 1,494     $ 35,931     $ 126,182     $ 908,264     $ 1,071,871     0.90%
4-6 months   59,747     26,866         787,365     873,978     1.01%
7-9 months       22,437         594,359     616,796     1.03%
10-12 months       13,436         595,315     608,751     1.11%
13-18 months   249     14,587         767,006     781,842     1.32%
19-24 months       16,719         166,485     183,204     1.35%
24+ months   1,000     7,838         262,090     270,928     1.54%
Total   $ 62,490     $ 137,814     $ 126,182     $ 4,080,884     $ 4,407,370     1.10%
                                             

(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 2017 compared to the third quarter of 2017 (sequential quarters) and fourth quarter of 2016 (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,
 2017
  September 30,
 2017
  December 31,
 2016
  December 31,
 2017
  September 30,
 2017
  December 31,
 2016
  December 31,
 2017
  September 30,
 2017
  December 31,
 2016
Interest-bearing deposits with banks and cash equivalents(1) $ 914,319     $ 1,003,572     $ 1,251,677     $ 2,723     $ 3,272     $ 1,542     1.18 %   1.29 %   0.49 %
Investment securities 2,736,253     2,652,119     2,477,708     19,179     16,979     13,769     2.78     2.54     2.21  
FHLB and FRB stock 82,092     81,928     131,231     1,067     1,080     1,144     5.15     5.23     3.47  
Liquidity management assets(2)(7) $ 3,732,664     $ 3,737,619     $ 3,860,616     $ 22,969     $ 21,331     $ 16,455     2.44 %   2.26 %   1.70 %
Other earning assets(2)(3)(7) 26,955     25,844     27,608     154     163     235     2.27     2.49     3.37  
Loans, net of unearned
income(2)(4)(7)
21,416,369     21,195,222     19,711,504     230,758     227,553     198,861     4.27     4.26     4.01  
Covered loans 6,025     48,415     59,827     86     600     960     5.66     4.91     6.38  
Total earning assets(7) $ 25,182,013     $ 25,007,100     $ 23,659,555     $ 253,967     $ 249,647     $ 216,511     4.00 %   3.96 %   3.64 %
Allowance for loan and covered loan losses (138,584 )   (135,519 )   (122,665 )                        
Cash and due from banks 244,097     242,186     221,892                          
Other assets 1,891,958     1,898,528     1,852,278                          
Total assets $ 27,179,484     $ 27,012,295     $ 25,611,060                          
                                   
NOW and interest bearing demand deposits $ 2,284,576     $ 2,344,848     $ 2,533,638     $ 1,407     $ 1,313     $ 1,097     0.24 %   0.22 %   0.17 %
Wealth management deposits 2,005,197     2,320,674     2,232,451     4,059     4,715     2,522     0.80     0.81     0.45  
Money market accounts 4,611,515     4,471,342     4,480,699     4,154     3,505     2,324     0.36     0.31     0.21  
Savings accounts 2,741,621     2,581,946     2,087,494     2,716     2,162     1,164     0.39     0.33     0.22  
Time deposits 4,581,464     4,573,081     4,232,981     12,594     11,960     9,306     1.09     1.04     0.87  
Interest-bearing deposits $ 16,224,373     $ 16,291,891     $ 15,567,263     $ 24,930     $ 23,655     $ 16,413     0.61 %   0.58 %   0.42 %
Federal Home Loan Bank advances 324,748     324,996     388,780     2,124     2,151     2,439     2.59     2.63     2.50  
Other borrowings 255,972     268,850     240,174     1,600     1,482     1,074     2.48     2.19     1.78  
Subordinated notes 139,065     139,035     138,953     1,786     1,772     1,779     5.14     5.10     5.12  
Junior subordinated debentures 253,566     253,566     253,566     2,301     2,640     2,530     3.55     4.07     3.90  
Total interest-bearing liabilities $ 17,197,724     $ 17,278,338     $ 16,588,736     $ 32,741     $ 31,700     $ 24,235     0.75 %   0.73 %   0.58 %
Non-interest bearing deposits 6,605,553     6,419,326     5,902,439                          
Other liabilities 433,208     431,949     430,009                          
Equity 2,942,999     2,882,682     2,689,876                          
Total liabilities and shareholders' equity $ 27,179,484     $ 27,012,295     $ 25,611,060                          
Interest rate spread(5)(7)                         3.25 %   3.23 %   3.06 %
Less:  Fully tax-equivalent adjustment             (2,127 )   (1,959 )   (1,498 )   (0.04 )   (0.03 )   (0.02 )
Net free funds/contribution(6) $ 7,984,289     $ 7,728,762     $ 7,070,819                 0.24     0.23     0.17  
Net interest income/ margin(7)  (GAAP)             $ 219,099     $ 215,988     $ 190,778     3.45 %   3.43 %   3.21 %
Fully tax-equivalent adjustment             2,127     1,959     1,498     0.04     0.03     0.02  
Net interest income/ margin - FTE (7)             $ 221,226     $ 217,947     $ 192,276     3.49 %   3.46 %   3.23 %
                                                     

(1) Includes interest-bearing deposits from 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, 2017, September 30, 2017 and December 31, 2016 were $2.1 million, $2.0 million and $1.5 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 2017, net interest income totaled $219.1 million, an increase of $3.1 million as compared to the third quarter of 2017 and an increase of $28.3 million as compared to the fourth quarter of 2016. Net interest margin was 3.45% (3.49% on a fully tax-equivalent basis) during the fourth quarter of 2017 compared to 3.43% (3.46% on a fully tax-equivalent basis) during the third quarter of 2017 and 3.21% (3.23% on a fully tax-equivalent basis) during the fourth quarter of 2016.

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, 2017 compared to the year ended December 31, 2016:

  Average Balance
for year ended,
  Interest
for year ended,
  Yield/Rate
for year ended,
(Dollars in thousands) December 31,
 2017
  December 31,
 2016
  December 31,
 2017
  December 31,
 2016
  December 31,
 2017
  December 31,
 2016
Interest-bearing deposits with banks and cash equivalents (1) $ 856,020     $ 829,845     $ 9,254     $ 4,240     1.08 %   0.51 %
Investment securities 2,590,260     2,611,909     67,028     65,668     2.59     2.51  
FHLB and FRB stock 89,333     120,726     4,370     4,287     4.89     3.55  
Liquidity management assets(2)(7) $ 3,535,613     $ 3,562,480     $ 80,652     $ 74,195     2.28 %   2.08 %
Other earning assets(2)(3)(7) 25,951     28,992     662     931     2.55     3.21  
Loans, net of unearned income(2)(4)(7) 20,788,946     18,628,261     870,390     737,694     4.19     3.96  
Covered loans 40,665     102,948     2,251     5,589     5.54     5.43  
Total earning assets(7) $ 24,391,175     $ 22,322,681     $ 953,955     $ 818,409     3.91 %   3.67 %
Allowance for loan and covered loan losses (133,432 )   (118,229 )                
Cash and due from banks 239,638     248,507                  
Other assets 1,872,321     1,839,272                  
Total assets $ 26,369,702     $ 24,292,231                  
                       
NOW and interest bearing demand deposits $ 2,402,254     $ 2,438,052     $ 5,027     $ 4,014     0.21 %   0.16 %
Wealth management deposits 2,125,177     1,877,020     13,952     8,206     0.66     0.44  
Money market accounts 4,482,137     4,343,332     12,588     9,254     0.28     0.21  
Savings accounts 2,471,663     1,887,748     7,715     3,313     0.31     0.18  
Time deposits 4,423,067     4,074,734     44,044     33,622     1.00     0.83  
Interest-bearing deposits $ 15,904,298     $ 14,620,886     $ 83,326     $ 58,409     0.52 %   0.40 %
Federal Home Loan Bank advances 380,412     653,529     8,798     10,886     2.31     1.67  
Other borrowings 255,136     248,753     5,370     4,355     2.10     1.75  
Subordinated notes 139,022     138,912     7,116     7,111     5.12     5.12  
Junior subordinated debentures 253,566     254,591     9,782     9,503     3.81     3.67  
Total interest-bearing liabilities $ 16,932,434     $ 15,916,671     $ 114,392     $ 90,264     0.67 %   0.57 %
Non-interest bearing deposits 6,182,048     5,409,923                  
Other liabilities 413,139     415,708                  
Equity 2,842,081     2,549,929                  
Total liabilities and shareholders' equity $ 26,369,702     $ 24,292,231                  
Interest rate spread(5)(7)                 3.24 %   3.10 %
Less:  Fully tax-equivalent adjustment         (7,487 )   (5,952 )   (0.03 )   (0.02 )
Net free funds/contribution(6) $ 7,458,741     $ 6,406,010             0.20     0.16  
Net interest income/ margin(7)  (GAAP)         $ 832,076     $ 722,193     3.41 %   3.24 %
Fully tax-equivalent adjustment         7,487     5,952     0.03     0.02  
Net interest income/ margin - FTE (7)         $ 839,563     $ 728,145     3.44 %   3.26 %
                                   

(1) Includes interest-bearing deposits from 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, 2017 and 2016 were $7.5 million and $6.0 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 2017 net interest income totaled $832.1 million, an increase of $109.9 million as compared to the year ended 2016. Net interest margin was 3.41% (3.44% on a fully tax-equivalent basis) for the year ended 2017 compared to 3.24% (3.26% on a fully tax-equivalent basis) for the year ended 2017.

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, 2017, September 30, 2017 and December 31, 2016 is as follows:

           
Static Shock Scenario +200
Basis 
Points
  +100
 Basis
 Points
  -100
Basis
 Points
December 31, 2017 17.7%   9.0%   (11.8)%
September 30, 2017 19.5%   9.8%   (12.9)%
December 31, 2016 18.5%   9.6%   (13.2)%


Ramp Scenario +200
Basis
Points
  +100
Basis
Points
  -100
Basis
Points
December 31, 2017 8.9%   4.6%   (5.1)%
September 30, 2017 9.0%   4.6%   (5.3)%
December 31, 2016 7.6%   4.0%   (5.0)%
           

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

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table classifies the loan portfolio, excluding covered loans, at December 31, 2017 by date at which the loans reprice or mature, and the type of rate exposure:

As of December 31, 2017 One year or less   From one to five
years
  Over five years    
(Dollars in thousands)       Total
Commercial              
Fixed rate $ 162,137     $ 916,046     $ 548,248     $ 1,626,431  
Variable rate 5,153,353     6,113     1,780     5,161,246  
Total commercial $ 5,315,490     $ 922,159     $ 550,028     $ 6,787,677  
Commercial real estate              
Fixed rate 430,938     1,744,750     257,890     2,433,578  
Variable rate 4,120,039     26,564     437     4,147,040  
Total commercial real estate $ 4,550,977     $ 1,771,314     $ 258,327     $ 6,580,618  
Home equity              
Fixed rate 10,100     4,849     58,402     73,351  
Variable rate 589,694             589,694  
Total home equity $ 599,794     $ 4,849     $ 58,402     $ 663,045  
Residential real estate              
Fixed rate 58,459     30,114     149,453     238,026  
Variable rate 59,307     221,629     313,158     594,094  
Total residential real estate $ 117,766     $ 251,743     $ 462,611     $ 832,120  
Premium finance receivables - commercial              
Fixed rate 2,561,032     73,533         2,634,565  
Variable rate              
Total premium finance receivables - commercial $ 2,561,032     $ 73,533     $     $ 2,634,565  
Premium finance receivables - life insurance              
Fixed rate 13,114     33,355     2,130     48,599  
Variable rate 3,986,460             3,986,460  
Total premium finance receivables - life insurance $ 3,999,574     $ 33,355     $ 2,130     $ 4,035,059  
Consumer and other              
Fixed rate 53,936     12,491     4,001     70,428  
Variable rate 37,266     19         37,285  
Total consumer and other $ 91,202     $ 12,510     $ 4,001     $ 107,713  
Total per category              
Fixed rate 3,289,716     2,815,138     1,020,124     7,124,978  
Variable rate 13,946,119     254,325     315,375     14,515,819  
   Total loans, net of unearned income, excluding covered loans $ 17,235,835     $ 3,069,463     $ 1,335,499     $ 21,640,797  
Variable Rate Loan Pricing by Index:              
Prime $ 2,798,945              
One- month LIBOR 7,052,440              
Three- month LIBOR 412,169              
Twelve- month LIBOR 4,012,009              
Other 240,256              
   Total variable rate $ 14,515,819              

A table accompanying this announcement can be found at:

http://resource.globenewswire.com/Resource/Download/fb235704-e92d-4e11-b24a-cc152dbd1098

Source: Bloomberg

As noted in the table on the previous page, the majority of the Company's portfolio is tied to LIBOR indices which, as shown in the table above, do not mirror the same increases as the prime rate or the federal funds rate when the Federal Reserve raises interest rates.  Specifically, the Company has $7.1 billion of variable rate loans tied to one-month LIBOR and $4.0 billion of variable rate loans tied to twelve-month LIBOR. The above chart shows that the Federal Reserve raised interest rates by 25 bps in the first and second quarters of 2017, and during those periods one-month LIBOR increased by 21 bps and 24 bps respectively, while twelve-month LIBOR increased by 11 bps in the first quarter of 2017 and then decreased by 6 bps in the second quarter of 2017. The Federal Reserve did not raise interest rates during the third quarter of 2017.  During that period, one-month LIBOR increased by 1 bp and twelve-month LIBOR increased by 4 bps. The Federal Reserve raised interest rates by 25 bps in the fourth quarter of 2017. During that period, one-month LIBOR and twelve-month LIBOR increased by 33 bps.

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 2017 compared to
Q3 2017
  Q4 2017 compared to
Q4 2016
(Dollars in thousands)   2017   2017   2016   $ Change   % Change   $ Change   % Change
Brokerage   $ 6,067     $ 5,127     $ 6,408     $ 940     18 %   $ (341 )   (5 )%
Trust and asset management   15,843     14,676     13,104     1,167     8     2,739     21  
Total wealth management   21,910     19,803     19,512     2,107     11     2,398     12  
Mortgage banking   27,411     28,184     35,489     (773 )   (3 )   (8,078 )   (23 )
Service charges on deposit accounts   8,907     8,645     8,054     262     3     853     11  
Gains on investment securities, net   14     39     1,575     (25 )   (64 )   (1,561 )   (99 )
Fees from covered call options   1,610     1,143     1,476     467     41     134     9  
Trading gains (losses), net   24     (129 )   1,007     153     (119 )   (983 )   (98 )
Operating lease income, net   8,598     8,461     5,171     137     2     3,427     66  
Other:                            
Interest rate swap fees   1,963     1,762     2,870     201     11     (907 )   (32 )
BOLI   754     897     981     (143 )   (16 )   (227 )   (23 )
Administrative services   1,103     1,052     1,115     51     5     (12 )   (1 )
Loss on extinguishment of debt           (717 )       NM    717     (100 )
Early pay-offs of leases   7         728     7     NM    (721 )   (99 )
Miscellaneous   8,737     9,874     8,014     (1,137 )   (12 )   723     9  
Total Other   12,564     13,585     12,991     (1,021 )   (8 )   (427 )   (3 )
Total Non-Interest Income   $ 81,038     $ 79,731     $ 85,275     $ 1,307     2 %   $ (4,237 )   (5 )%

  

    Years Ended        
    December 31,   December 31,   $   %
(Dollars in thousands)   2017   2016   Change   Change
Brokerage   $ 22,863     $ 25,519     $ (2,656 )   (10 )%
Trust and asset management   58,903     50,499     8,404     17  
Total wealth management   81,766     76,018     5,748     8  
Mortgage banking   113,472     128,743     (15,271 )   (12 )
Service charges on deposit accounts   34,513     31,210     3,303     11  
Gains on investment securities, net   45     7,645     (7,600 )   (99 )
Fees from covered call options   4,402     11,470     (7,068 )   (62 )
Trading (losses) gains, net   (845 )   91     (936 )   NM       
Operating lease income, net   29,646     16,441     13,205     80  
Other:                
Interest rate swap fees   7,379     12,024     (4,645 )   (39 )
BOLI   3,524     3,594     (70 )   (2 )
Administrative services   4,165     4,409     (244 )   (6 )
Gain on extinguishment of debt       3,588     (3,588 )   (100 )
Early pay-offs of leases   1,228     728     500     69  
Miscellaneous   40,211     29,469     10,742     36  
Total Other   56,507     53,812     2,695     5  
Total Non-Interest Income   $ 319,506     $ 325,430     $ (5,924 )   (2 )%


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 2017 and fourth quarter of 2016 is primarily attributable to growth in assets under management due to new customers and market appreciation as well as higher customer trading activity.  Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors and the brokerage commissions, managed money fees and insurance product commissions at Wayne Hummer Investments.

The decrease in mortgage banking revenue in the current quarter as compared to the third quarter of 2017 resulted primarily from lower origination volumes. Mortgage loans originated or purchased for sale decreased during the current quarter, totaling $879.4 million in the fourth quarter of 2017 as compared to $956.0 million in the third quarter of 2017 and $1.2 billion in the fourth quarter of 2016. The reduction in mortgage banking revenue from lower origination volumes was partially offset by a $46,000 positive fair value adjustment related to mortgage servicing rights assets compared to a $2.2 million negative fair value adjustment in the third quarter of 2017. 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 mortgage servicing rights as the Company does not hedge this change in fair value. The Company typically originates mortgage loans held-for-sale with associated mortgage servicing rights retained or released. The Company records mortgage servicing rights 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,
 2017
  September 30,
 2017
  December 31,
 2016
  December 31,
 2017
  December 31,
 2016
Retail originations   $ 744,496     809,961     $ 1,042,145     $ 3,142,824     $ 4,020,788  
Correspondent originations   134,904     145,999     135,726     549,261     365,551  
Total originations (A)   $ 879,400     955,960     $ 1,177,871     $ 3,692,085     $ 4,386,339  
                     
Purchases as a percentage of originations   67 %   80 %   52 %   75 %   58 %
Refinances as a percentage of originations   33     20     48     25     42  
Total   100 %   100 %   100 %   100 %   100 %
                     
Production revenue (B) (1)   $ 20,603     $ 24,038     $ 28,320     $ 90,458     $ 113,360  
Production margin (B / A)   2.34 %   2.51 %   2.40 %   2.45 %   2.58 %
                     
Loans serviced for others (C)   $ 2,929,133     $ 2,622,411     $ 1,784,760          
Mortgage servicing rights, at fair value (D)   33,676     29,414     19,103          
Percentage of mortgage servicing rights to loans serviced for others (D / C)   1.15 %   1.12 %   1.07 %        

(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 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 increased in the current quarter compared to the third quarter of 2017 and fourth quarter of 2016, primarily as a result of selling call options against a larger value of underlying securities resulting in higher premiums received by the Company. There were no outstanding call option contracts at December 31, 2017, September 30, 2017 or December 31, 2016.

The increase in operating lease income in the current quarter compared to the prior periods is primarily related to growth in business from the Company's leasing divisions during the fourth quarter of 2017.

The decrease in other non-interest income in the current quarter as compared to the third quarter of 2017 is primarily due to foreign currency remeasurement loss of $163,000 recorded in the current period (compared to a $901,000 foreign currency remeasurement gain recorded in the third quarter of 2017), partially offset by higher interest rate swap fees.

NON-INTEREST EXPENSE

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

    Three Months Ended                
    December 31,   September 30,   December 31,   Q4 2017 compared to
Q3 2017
  Q4 2017 compared to
Q4 2016
(Dollars in thousands)   2017   2017   2016   $ Change   % Change   $ Change   % Change
Salaries and employee benefits:                            
Salaries   $ 58,239     $ 57,689     $ 53,108     $ 550     1 %   $ 5,131     10 %
Commissions and incentive compensation   40,723     32,095     35,744     8,628     27     4,979     14  
Benefits   19,047     16,467     15,883     2,580     16     3,164     20  
Total salaries and employee benefits   118,009     106,251     104,735     11,758     11     13,274     13  
Equipment   9,500     9,947     9,532     (447 )   (4 )   (32 )    
Operating lease equipment depreciation   7,015     6,794     4,219     221     3     2,796     66  
Occupancy, net   14,154     13,079     14,254     1,075     8     (100 )   (1 )
Data processing   7,915     7,851     7,687     64     1     228     3  
Advertising and marketing   7,382     9,572     6,691     (2,190 )   (23 )   691     10  
Professional fees   8,879     6,786     5,425     2,093     31     3,454     64  
Amortization of other intangible assets   1,028     1,068     1,158     (40 )   (4 )   (130 )   (11 )
FDIC insurance   4,324     3,877     4,726     447     12     (402 )   (9 )
OREO expense, net   599     590     1,843     9     2     (1,244 )   (67 )
Other:                            
Commissions - 3rd party brokers   1,057     990     1,165     67     7     (108 )   (9 )
Postage   1,427     1,814     1,955     (387 )   (21 )   (528 )   (27 )
Miscellaneous   15,291     14,956     16,981     335     2     (1,690 )   (10 )
Total other   17,775     17,760     20,101     15         (2,326 )   (12 )
Total Non-Interest Expense   $ 196,580     $ 183,575     $ 180,371     $ 13,005     7 %   $ 16,209     9 %

  

    Years Ended        
    December 31,   December 31,   $   %
(Dollars in thousands)   2017   2016   Change   Change
Salaries and employee benefits:                
Salaries   $ 226,151     $ 210,623     $ 15,528     7 %
Commissions and incentive compensation   133,511     128,390     5,121     4  
Benefits   70,416     66,145     4,271     6  
Total salaries and employee benefits   430,078     405,158     24,920     6  
Equipment   38,358     37,055     1,303     4  
Operating lease equipment depreciation   24,107     13,259     10,848     82  
Occupancy, net   52,920     50,912     2,008     4  
Data processing   31,495     28,776     2,719     9  
Advertising and marketing   30,830     24,776     6,054     24  
Professional fees   27,835     20,411     7,424     36  
Amortization of other intangible assets   4,401     4,789     (388 )   (8 )
FDIC insurance   16,231     16,065     166     1  
OREO expense, net   3,593     5,187     (1,594 )   (31 )
Other:                
Commissions - 3rd party brokers   4,178     5,161     (983 )   (19 )
Postage   6,763     7,184     (421 )   (6 )
Miscellaneous   61,028     62,952     (1,924 )   (3 )
Total other   71,969     75,297     (3,328 )   (4 )
Total Non-Interest Expense   $ 731,817     $ 681,685     $ 50,132     7 %

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 2017 primarily as a result of higher commissions and incentive compensation due to an increase in bonus and long-term performance-based incentive compensation from higher current and projected earnings as impacted by the higher rate environment, lower taxes and balance sheet growth as well as an increase in salaries and employee benefits (primarily health plan related). Additionally, salaries and employee benefits expense included a $1.2 million negative adjustment of pension obligations assumed in previous acquisitions and higher payroll taxes.

Occupancy expense increased in the current quarter compared to the third quarter of 2017 due to higher maintenance and repair costs, and increased utilities and other occupancy expenses. Occupancy expense includes depreciation on premises, real estate taxes, utilities and maintenance of premises, as well as net rent expense for lease premises.

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

The decrease in advertising and marketing expenses during the current quarter compared to the third quarter of 2017 is primarily related to lower expenses for community advertisements and sponsorships. Marketing costs are incurred to promote the Company's brand, commercial banking capabilities, the Company's various products, to attract loans and deposits and to announce new branch openings as well as the expansion of the company's non-bank businesses. The level of marketing expenditures depends on the timing of sponsorship programs and type of marketing programs utilized which are determined based on the market area, targeted audience, competition and various other factors.

The increase in professional fees during the current quarter compared to the third quarter of 2017 is primarily related to higher consulting fees related to continued investments in various areas of the Company including technology and an enhanced customer experience as well as higher legal fees. Professional fees include legal, audit and tax fees, external loan review costs, consulting arrangements and normal regulatory exam assessments.

INCOME TAXES

The Company recorded income tax expense of $27.0 million in the fourth quarter of 2017 compared to $38.6 million in the third quarter of 2017 and $33.7 million in the fourth quarter of 2016. The effective tax rates were 28.19% in the fourth quarter of 2017, 37.05% in the third quarter of 2017 and 38.18% in the fourth quarter of 2016. For the year ended December 31, 2017, the Company recorded income tax expense of $132.3 million (33.93% effective tax rate) compared to $125.0 million (37.66% effective tax rate) for the same period of 2016. The lower effective tax rate for the fourth quarter of 2017 was primarily due to a $7.6 million income tax benefit related to the enactment of Tax Reform. The enactment of such legislation in December, which reduces the federal income tax rate for corporations from 35% to 21% effective January 1, 2018, required the Company to remeasure its existing net deferred tax liabilities at year end to reflect the new tax rate, which resulted in a $10.5 million net tax benefit.  This net tax benefit was partially offset by a $2.9 million tax from Tax Reform on a deemed repatriation of unremitted earnings on our Canadian subsidiary. The lower effective tax rate for the year ended 2017 as compared to 2016 was due to Tax Reform as well as recording $6.2 million of excess tax benefits related to the adoption of new accounting rules over income taxes attributed to share-based compensation that became effective on January 1, 2017. Approximately $3.4 million of the excess tax benefits were recorded in the first quarter of 2017. Excess tax benefits are expected to be higher in the first quarter when the majority of the Company's share-based awards vest, and will fluctuate throughout the year based on the Company's stock price and timing of employee stock option exercises and vesting of other share-based awards.

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)   2017   2017   2016   2017   2016
Allowance for loan losses at beginning of period   $ 133,119     $ 129,591     $ 117,693     $ 122,291     $ 105,400  
Provision for credit losses   7,772     7,942     7,357     29,982     34,790  
Other adjustments (1)   698     (39 )   33     573     (291 )
Reclassification (to) from allowance for unfunded lending-related commitments   7     94     (25 )   69     (725 )
Charge-offs:                    
Commercial   1,340     2,265     3,054     5,159     7,915  
Commercial real estate   1,001     989     375     4,236     1,930  
Home equity   728     968     326     3,952     3,998  
Residential real estate   542     267     410     1,284     1,730  
Premium finance receivables - commercial   2,314     1,716     1,843     7,335     8,193  
Premium finance receivables - life insurance                    
Consumer and other   207     213     205     729     925  
   Total charge-offs   6,132     6,418     6,213     22,695     24,691  
Recoveries:                    
Commercial   235     801     668     1,870     1,594  
Commercial real estate   1,037     323     1,916     2,190     2,945  
Home equity   359     178     300     746     484  
Residential real estate   165     55     21     452     225  
Premium finance receivables - commercial   613     499     498     2,128     2,374  
Premium finance receivables - life insurance                    
Consumer and other   32     93     43     299     186  
   Total recoveries   2,441     1,949     3,446     7,685     7,808  
Net charge-offs   (3,691 )   (4,469 )   (2,767 )   (15,010 )   (16,883 )
Allowance for loan losses at period end   $ 137,905     $ 133,119     $ 122,291     $ 137,905     $ 122,291  
Allowance for unfunded lending-related commitments at period end   1,269     1,276     1,673     1,269     1,673  
Allowance for credit losses at period end   $ 139,174     $ 134,395     $ 123,964     $ 139,174     $ 123,964  
Annualized net charge-offs (recoveries) by category as a percentage of its own respective category's average:                    
   Commercial   0.07 %   0.09 %   0.16 %   0.05 %   0.12 %
   Commercial real estate   0.00     0.04     (0.10 )   0.03     (0.02 )
   Home equity   0.22     0.46     0.01     0.46     0.46  
   Residential real estate   0.13     0.08     0.13     0.08     0.14  
   Premium finance receivables - commercial   0.26     0.18     0.22     0.20     0.24  
   Premium finance receivables - life insurance   0.00     0.00     0.00     0.00     0.00  
   Consumer and other   0.52     0.37     0.47     0.34     0.54  
      Total loans, net of unearned income, excluding covered loans   0.07 %   0.08 %   0.06 %   0.07 %   0.09 %
Net charge-offs as a percentage of the provision for credit losses   47.49 %   56.27 %   37.61 %   50.06 %   48.53 %
Loans at period-end, excluding covered loans   $ 21,640,797     $ 20,912,781     $ 19,703,172          
Allowance for loan losses as a percentage of loans at period end   0.64 %   0.64 %   0.62 %        
Allowance for credit losses as a percentage of loans at period end   0.64 %   0.64 %   0.63 %        

(1) Includes $742,000 of allowance for covered loan losses reclassified as a result of the termination of all existing loss share agreements with the FDIC during the fourth quarter of 2017.


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 2017 totaled seven basis points on an annualized basis compared to eight basis points on an annualized basis in the third quarter of 2017 and six basis points on an annualized basis in the fourth quarter of 2016.  Net charge-offs totaled $3.7 million in the fourth quarter of 2017, a $778,000 decrease from $4.5 million in the third quarter of 2017 and a $924,000 increase from $2.8 million in the fourth quarter of 2016. The provision for credit losses, excluding the provision for covered loan losses, totaled $7.8 million for the fourth quarter of 2017 compared to $7.9 million for the third quarter of 2017 and $7.4 million for the fourth quarter of 2016.

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

The Company also provided a provision for covered loan losses on covered loans when applicable.

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

    Three Months Ended   Years Ended
    December 31,   September 30,   December 31,   December 31,   December 31,
(Dollars in thousands)   2017   2017   2016   2017   2016
Provision for loan losses   $ 7,779     $ 8,036     $ 7,332     $ 30,051     $ 34,065  
Provision for unfunded lending-related commitments   (7 )   (94 )   25     (69 )   725  
Provision for covered loan losses       (46 )   (7 )   (214 )   (706 )
Provision for credit losses   $ 7,772     $ 7,896     $ 7,350     $ 29,768     $ 34,084  
                     
            Period End
            December 31,   September 30,   December 31,
            2017   2017   2016
Allowance for loan losses           $ 137,905     $ 133,119     $ 122,291  
Allowance for unfunded lending-related commitments           1,269     1,276     1,673  
Allowance for covered loan losses               758     1,322  
Allowance for credit losses           $ 139,174     $ 135,153     $ 125,286  


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, excluding covered loans, as of December 31, 2017 and September 30, 2017.

    As of December 31, 2017
    Recorded   Calculated   As a percentage
of its own respective
(Dollars in thousands)   Investment   Allowance   category's balance
Commercial:(1)            
Commercial and industrial   $ 3,771,593     $ 36,812     0.98 %
Asset-based lending   979,526     8,236     0.84  
Tax exempt   380,523     2,600     0.68  
Leases   411,721     1,242     0.30  
Commercial real estate:(1)            
Residential construction   47,241     889     1.88  
Commercial construction   697,404     7,839     1.12  
Land   124,740     3,835     3.07  
Office   854,882     5,731     0.67  
Industrial   846,191     5,762     0.68  
Retail   915,769     7,353     0.80  
Multi-family   885,905     9,495     1.07  
Mixed use and other   1,835,612     13,814     0.75  
Home equity(1)   602,175     10,319     1.71  
Residential real estate(1)   783,842     6,447     0.82  
   Total core loan portfolio   $ 13,137,124     $ 120,374     0.92 %
Commercial:            
Franchise   $ 741,965     $ 6,367     0.86 %
Mortgage warehouse lines of credit   194,524     1,454     0.75  
Community Advantage - homeowner associations   164,837     412     0.25  
Aircraft   2,984     42     1.41  
Purchased non-covered commercial loans (2)   140,004     646     0.46  
Commercial real estate:            
Purchased non-covered commercial real estate (2)   372,874     509     0.14  
Purchased non-covered home equity (2)   60,870     174     0.29  
Purchased non-covered residential real estate (2)   48,278     241     0.50  
Premium finance receivables            
U.S. commercial insurance loans   2,315,644     4,872     0.21  
Canada commercial insurance loans (2)   318,921     484     0.15  
Life insurance loans (1)   3,835,790     1,490     0.04  
Purchased life insurance loans (2)   199,269          
Consumer and other (1)   104,204     836     0.80  
Purchased non-covered consumer and other (2)   3,509     4     0.11  
   Total consumer, niche and purchased loan portfolio   $ 8,503,673     $ 17,531     0.21 %
   Total loans, net of unearned income, excluding covered loans   $ 21,640,797     $ 137,905     0.64 %

(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, 2017
    Recorded   Calculated   As a percentage
of its own respective
(Dollars in thousands)   Investment   Allowance   category's balance
Commercial:(1)            
Commercial and industrial   $ 3,587,207     $ 35,803     1.00 %
Asset-based lending   895,283     7,682     0.86  
Tax exempt   350,470     2,454     0.70  
Leases   380,056     1,208     0.32  
Commercial real estate:(1)            
Residential construction   37,501     722     1.93  
Commercial construction   635,763     6,843     1.08  
Land   99,360     3,352     3.37  
Office   836,978     6,245     0.75  
Industrial   798,459     5,532     0.69  
Retail   900,005     6,094     0.68  
Multi-family   833,330     8,856     1.06  
Mixed use and other   1,870,439     14,199     0.76  
Home equity(1)   615,690     10,556     1.71  
Residential real estate(1)   753,407     6,565     0.87  
   Total core loan portfolio   $ 12,593,948     $ 116,111     0.92 %
Commercial:            
Franchise   $ 690,867     $ 5,950     0.86 %
Mortgage warehouse lines of credit   194,370     1,438     0.74  
Community Advantage - homeowner associations   156,457     392     0.25  
Aircraft   3,084     43     1.39  
Purchased non-covered commercial loans (2)   198,240     765     0.39  
Commercial real estate:            
Purchased non-covered commercial real estate (2)   388,946     197     0.05  
Purchased non-covered home equity (2)   57,279          
Purchased non-covered residential real estate (2)   36,092     92     0.25  
Premium finance receivables            
U.S. commercial insurance loans   2,353,705     4,760     0.20  
Canada commercial insurance loans (2)   311,207     469     0.15  
Life insurance loans (1)   3,586,011     1,324     0.04  
Purchased life insurance loans (2)   209,463          
Consumer and other (1)   130,852     1,577     1.21  
Purchased non-covered consumer and other (2)   2,260     1     0.04  
   Total consumer, niche and purchased loan portfolio   $ 8,318,833     $ 17,008     0.20 %
   Total loans, net of unearned income, excluding covered loans   $ 20,912,781     $ 133,119     0.64 %

(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, 2017 and September 30, 2017.

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.

In addition to the $137.9 million of allowance for loan losses, there is $4.9 million of non-accretable credit discount on purchased loans reported in accordance with ASC 310-30, excluding covered loans, that is available to absorb credit losses.

The tables below show the aging of the Company's loan portfolio at December 31, 2017 and September 30, 2017:

        90+ days   60-89   30-59        
As of December 31, 2017       and still   days past   days past        
(Dollars in thousands)   Nonaccrual   accruing   due   due   Current   Total Loans
Loan Balances:                        
Commercial (1)   $ 15,696     $ 877     $ 4,218     $ 29,407     $ 6,737,479     $ 6,787,677  
Commercial real estate (1)   22,048     7,135     4,346     29,326     6,517,763     6,580,618  
Home equity   8,978         518     4,634     648,915     663,045  
Residential real estate (1)   17,977     5,304     1,303     8,378     799,158     832,120  
Premium finance receivables - commercial   12,163     9,242     17,796     15,849     2,579,515     2,634,565  
Premium finance receivables - life insurance (1)           4,837     10,017     4,020,205     4,035,059  
Consumer and other (1)   740     101     242     727     105,903     107,713  
Total loans, net of unearned income   $ 77,602     $ 22,659     $ 33,260     $ 98,338     $ 21,408,938     $ 21,640,797  


As of December 31, 2017
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 (1)   0.2 %   %   0.1 %   0.4 %   99.3 %   100.0 %
Commercial real estate (1)   0.3     0.1     0.1     0.4     99.1     100.0  
Home equity   1.4         0.1     0.7     97.8     100.0  
Residential real estate (1)   2.2     0.6     0.2     1.0     96.0     100.0  
Premium finance receivables - commercial   0.5     0.4     0.7     0.6     97.8     100.0  
Premium finance receivables - life insurance (1)           0.1     0.2     99.7     100.0  
Consumer and other (1)   0.7     0.1     0.2     0.7     98.3     100.0  
Total loans, net of unearned income   0.4 %   0.1 %   0.2 %   0.5 %   98.8 %   100.0 %

(1) Including PCI loans. 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, 2017       and still   days past   days past        
(Dollars in thousands)   Nonaccrual   accruing   due   due   Current   Total Loans
Loan Balances:                        
Commercial (1)   $ 13,931     $ 1,489     $ 5,036     $ 36,450     $ 6,399,128     $ 6,456,034  
Commercial real estate (1)   14,878     8,443     5,838     16,955     6,354,667     6,400,781  
Home equity   7,581         446     2,590     662,352     672,969  
Residential real estate (1)   14,743     1,120     2,055     165     771,416     789,499  
Premium finance receivables - commercial   9,827     9,584     7,421     9,966     2,628,114     2,664,912  
Premium finance receivables - life insurance (1)       6,740     946     6,937     3,780,851     3,795,474  
Consumer and other (1)   540     221     242     685     131,424     133,112  
Total loans, net of unearned income, excluding covered loans   $ 61,500     $ 27,597     $ 21,984     $ 73,748     $ 20,727,952     $ 20,912,781  
Covered loans   1,936     2,233     1,074     45     41,313     46,601  
Total loans, net of unearned income   $ 63,436     $ 29,830     $ 23,058     $ 73,793     $ 20,769,265     $ 20,959,382  


As of September 30, 2017
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 (1)   0.2 %   %   0.1 %   0.6 %   99.1 %   100.0 %
Commercial real estate (1)   0.2     0.1     0.1     0.3     99.3     100.0  
Home equity   1.1         0.1     0.4     98.4     100.0  
Residential real estate (1)   1.9     0.1     0.3         97.7     100.0  
Premium finance receivables - commercial   0.4     0.4     0.3     0.4     98.5     100.0  
Premium finance receivables - life insurance (1)       0.2         0.2     99.6     100.0  
Consumer and other (1)   0.4     0.2     0.2     0.5     98.7     100.0  
Total loans, net of unearned income, excluding covered loans   0.3 %   0.1 %   0.1 %   0.4 %   99.1 %   100.0 %
Covered loans   4.2     4.8     2.3     0.1     88.6     100.0  
Total loans, net of unearned income   0.3 %   0.1 %   0.1 %   0.4 %   99.1 %   100.0 %

(1) Including PCI loans. 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, 2017, $33.3 million of all loans, or 0.2%, were 60 to 89 days past due and $98.3 million, or 0.5%, were 30 to 59 days (or one payment) past due. As of September 30, 2017, $22.0 million of all loans, excluding covered loans, or 0.1%, were 60 to 89 days past due and $73.7 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, 2017 that are current with regard to the contractual terms of the loan agreement represent 97.8% of the total home equity portfolio. Residential real estate loans at December 31, 2017 that are current with regards to the contractual terms of the loan agreements comprise 96.0% 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)   2017 (3)   2017   2016
Loans past due greater than 90 days and still accruing(1):            
Commercial   $     $     $ 174  
Commercial real estate            
Home equity            
Residential real estate   3,278          
Premium finance receivables - commercial   9,242     9,584     7,962  
Premium finance receivables - life insurance       6,740     3,717  
Consumer and other   40     159     144  
   Total loans past due greater than 90 days and still accruing   12,560     16,483     11,997  
Non-accrual loans(2):            
Commercial   15,696     13,931     15,875  
Commercial real estate   22,048     14,878     21,924  
Home equity   8,978     7,581     9,761  
Residential real estate   17,977     14,743     12,749  
Premium finance receivables - commercial   12,163     9,827     14,709  
Premium finance receivables - life insurance            
Consumer and other   740     540     439  
   Total non-accrual loans   77,602     61,500     75,457  
Total non-performing loans:            
Commercial   15,696     13,931     16,049  
Commercial real estate   22,048     14,878     21,924  
Home equity   8,978     7,581     9,761  
Residential real estate   21,255     14,743     12,749  
Premium finance receivables - commercial   21,405     19,411     22,671  
Premium finance receivables - life insurance       6,740     3,717  
Consumer and other   780     699     583  
   Total non-performing loans   $ 90,162     $ 77,983     $ 87,454  
Other real estate owned   20,244     17,312     17,699  
Other real estate owned - from acquisitions   20,402     20,066     22,583  
Other repossessed assets   153     301     581  
Total non-performing assets   $ 130,961     $ 115,662     $ 128,317  
TDRs performing under the contractual terms of the loan agreement   $ 23,427     $ 26,972     $ 29,911  
Total non-performing loans by category as a percent of its own respective category's period-end balance:            
Commercial   0.23 %   0.22 %   0.27 %
Commercial real estate   0.34     0.23     0.35  
Home equity   1.35     1.13     1.34  
Residential real estate   2.55     1.87     1.81  
Premium finance receivables - commercial   0.81     0.73     0.91  
Premium finance receivables - life insurance       0.18     0.11  
Consumer and other   0.72     0.53     0.48  
Total loans, net of unearned income   0.42 %   0.37 %   0.44 %
Total non-performing assets as a percentage of total assets   0.47 %   0.42 %   0.50 %
Allowance for loan losses as a percentage of total non-performing loans   152.95 %   170.70 %   139.83 %

(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 $10.1 million, $6.2 million and $11.8 million as of December 31, 2017, September 30, 2017 and December 31, 2016, respectively.
(3) Includes $2.6 million of non-performing loans and $2.9 million of other real estate owned reclassified from covered assets as a result of the termination of all existing loss share agreements with the FDIC during the fourth quarter of 2017.


The ratio of non-performing assets to total assets was 0.47% as of December 31, 2017, compared to 0.42% at September 30, 2017, and 0.50% at December 31, 2016. Non-performing assets, excluding covered assets and non-covered PCI loans, totaled $131.0 million at December 31, 2017, compared to $115.7 million at September 30, 2017 and $128.3 million at December 31, 2016. Non-performing loans, excluding covered loans and non-covered PCI loans, totaled $90.2 million, or 0.42% of total loans, at December 31, 2017 compared to $78.0 million, or 0.37% of total loans, at September 30, 2017 and $87.5 million, or 0.44% of total loans, at December 31, 2016. The increase in non-performing loans, excluding covered loans and non-covered PCI loans, compared to September 30, 2017 was primarily the result of one relationship within the commercial real estate portfolio totaling $11.1 million becoming non-performing during the period. OREO, excluding covered OREO, of $40.6 million at December 31, 2017 increased $3.3 million compared to $37.4 million at September 30, 2017 and increased $364,000 compared to $40.3 million at December 31, 2016.

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 and non-covered PCI loans, for the periods presented:

    Three Months Ended   Years Ended
    December 31,   September 30,   December 31,   December 31,   December 31,
(Dollars in thousands)   2017   2017   2016   2017   2016
Balance at beginning of period   $ 77,983     $ 69,050     $ 83,128     $ 87,454     $ 84,057  
Additions, net, from non-covered portfolio   25,619     10,622     10,969     55,738     42,927  
Additions, net, from covered non-performing loans subsequent to loss share expiration   2,572             2,572     81  
Return to performing status   (426 )   (603 )   (150 )   (3,596 )   (3,260 )
Payments received   (4,271 )   (6,633 )   (6,623 )   (27,202 )   (19,976 )
Transfer to OREO and other repossessed assets   (3,960 )   (1,072 )   (878 )   (9,236 )   (7,046 )
Charge-offs   (2,443 )   (2,295 )   (3,494 )   (10,362 )   (10,323 )
Net change for niche loans (1)   (4,912 )   8,914     4,502     (5,206 )   994  
Balance at end of period   $ 90,162     $ 77,983     $ 87,454     $ 90,162     $ 87,454  

(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)   2017   2017   2016
Accruing TDRs:            
Commercial   $ 3,661     $ 3,774     $ 4,643  
Commercial real estate   16,160     16,475     19,993  
Residential real estate and other   3,606     6,723     5,275  
   Total accrual   $ 23,427     $ 26,972     $ 29,911  
Non-accrual TDRs: (1)            
Commercial   $ 4,000     $ 2,493     $ 1,487  
Commercial real estate   1,340     1,492     8,153  
Residential real estate and other   4,763     2,226     2,157  
   Total non-accrual   $ 10,103     $ 6,211     $ 11,797  
Total TDRs:            
Commercial   $ 7,661     $ 6,267     $ 6,130  
Commercial real estate   17,500     17,967     28,146  
Residential real estate and other   8,369     8,949     7,432  
   Total TDRs   $ 33,530     $ 33,183     $ 41,708  
Weighted-average contractual interest rate of TDRs   4.21 %   4.39 %   4.33 %

(1) Included in total non-performing loans.

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, 2017, September 30, 2017 and December 31, 2016, 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)   2017   2017   2016
Balance at beginning of period   $ 37,378     $ 39,361     $ 35,050  
Disposals/resolved   (6,107 )   (2,391 )   (5,850 )
Transfers in at fair value, less costs to sell   6,733     898     667  
Transfers in from covered OREO subsequent to loss share expiration   2,851         4,213  
Additions from acquisition           7,230  
Fair value adjustments   (209 )   (490 )   (1,028 )
Balance at end of period   $ 40,646     $ 37,378     $ 40,282  
             
    Period End
    December 31,   September 30,   December 31,
Balance by Property Type   2017   2017   2016
Residential real estate   $ 7,515     $ 7,236     $ 8,063  
Residential real estate development   2,221     676     1,349  
Commercial real estate   30,910     29,466     30,870  
Total   $ 40,646     $ 37,378     $ 40,282  


Items Impacting Comparative Financial Results:

Acquisitions

On February 14, 2017, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of American Homestead Mortgage, LLC ("AHM"), in a business combination. AHM is located in Montana's Flathead Valley and originated approximately $55 million of residential mortgage loans in 2016.

On November 18, 2016, the Company completed its acquisition of First Community Financial Corporation ("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 $187 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 $134 million in assets and approximately $100 million in deposits.

Termination of Loss Share Agreements

On October 16, 2017, the Company entered in agreements with the FDIC that terminated all existing loss share agreements with the FDIC.  The loss share agreements were related to the Company's acquisition of assets and assumption of liabilities of eight failed banks through FDIC assisted transactions in 2010, 2011 and 2012.

Under terms of the agreements, the Company made a net payment of $15.2 million to the FDIC as consideration for the early termination of the loss share agreements.  The Company recorded a pre-tax gain of approximately $0.4 million in the fourth quarter of 2017 to write off the remaining loss share asset, relieve the claw-back liability and recognize the payment to the FDIC.

Approximately $0.2 million of the remaining net indemnification liabilities that were scheduled to be amortized against future earnings did not occur for the remainder of the fourth quarter of 2017. Additionally, $0.8 million, $0.8 million and $0.7 million each year in 2018, 2019 and 2020, respectively, of previously scheduled amortization will not occur.

The termination of the FDIC loss share agreements has no effect on yields of the loans that were previously covered under these agreements.  Subsequent to this transaction, the Company is solely responsible for all future charge-offs, recoveries, gains, losses and expenses related to the previously covered assets as the FDIC will no longer share in those amounts.

Items Occurring Subsequent to December 31, 2017:

Acquisitions

On January 4, 2018, the Company acquired certain assets and assumed certain liabilities of the mortgage banking business of iFreedom Direct Corporation DBA Veterans First Mortgage ("Veterans First Mortgage"), in a business combination. The company also acquired servicing rights from Veterans First Mortgage on approximately 8,300 loans, totaling an estimated $1.4 billion in principal balance. Veterans First Mortgage is a consumer direct lender with three offices, operating two in Salt Lake City and one in San Diego, and originated in excess of $800 million in loans in 2017.

Increase in Minimum Wage

On January 19, 2018, the Company announced that as a result of the Tax Reform, Wintrust will increase the minimum wage paid to its eligible non-commissioned hourly employees to $15 per hour.   The Company expects that over 600 employees will benefit from this action.

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, N.A., 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, 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, Rolling Meadows, 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, Menomonee 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, a division of Lake Forest Bank & Trust Company, N.A., and Wintrust Life Finance, a division of Lake Forest Bank & Trust Company, N.A., serve commercial and life insurance loan customers, respectively, throughout the United States.
  • First Insurance Funding of Canada serves commercial insurance loan customers throughout Canada.
  • Tricom, Inc. of Milwaukee provides high-yielding, short-term accounts receivable financing and value-added out-sourced administrative services, such as data processing of payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States.
  • Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., engages primarily in the origination and purchase of residential mortgages for sale into the secondary market through origination offices located throughout the United States. Loans are also originated nationwide through relationships with wholesale and correspondent offices.
  • Wayne Hummer Investments, LLC is a broker-dealer providing a full range of private client and brokerage services to clients and correspondent banks located primarily in the Midwest.
  • Great Lakes Advisors LLC provides money management services and advisory services to individual accounts.
  • The Chicago Trust Company, a trust subsidiary, allows Wintrust to service customers' trust and investment needs at each banking location.
  • Wintrust Asset Finance which offers direct leasing opportunities.

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as "intend," "plan," "project," "expect," "anticipate," "believe," "estimate," "contemplate," "possible," "point," "will," "may," "should," "would" and "could." Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management's expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company's 2016 Annual Report on Form 10-K and in any of the Company's subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company's future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management's long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company's business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:

  • negative economic conditions that adversely affect the economy, housing prices, the job market and other factors that may affect the Company's liquidity and the performance of its loan portfolios, particularly in the markets in which it operates;
  • the extent of defaults and losses on the Company's loan portfolio, which may require further increases in its allowance for credit losses;
  • estimates of fair value of certain of the Company's assets and liabilities, which could change in value significantly from period to period;
  • the financial success and economic viability of the borrowers of our commercial loans;
  • commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin;
  • the extent of commercial and consumer delinquencies and declines in real estate values, which may require further increases in the Company's allowance for loan and lease losses;
  • inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio;
  • changes in the level and volatility of interest rates, the capital markets and other market indices that may affect, among other things, the Company's liquidity and the value of its assets and liabilities;
  • competitive pressures in the financial services business which may affect the pricing of the Company's loan and deposit products as well as its services (including wealth management services), which may result in loss of market share and reduced income from deposits, loans, advisory fees and income from other products;
  • failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of the Company's recent or future acquisitions;
  • unexpected difficulties and losses related to FDIC-assisted acquisitions, including those resulting from our loss-sharing arrangements with the FDIC;
  • any negative perception of the Company's reputation or financial strength;
  • ability of the Company to raise additional capital on acceptable terms when needed;
  • disruption in capital markets, which may lower fair values for the Company's investment portfolio;
  • ability of the Company to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations and to manage risks associated therewith;
  • adverse effects on our information technology systems resulting from failures, human error or cyberattack, any of which could result in an information or security breach, the disclosure or misuse of confidential or proprietary information, significant legal and financial losses and reputational harm;
  • adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors;
  • increased costs as a result of protecting our customers from the impact of stolen debit card information;
  • accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions;
  • ability of the Company to attract and retain senior management experienced in the banking and financial services industries;
  • environmental liability risk associated with lending activities;
  • the impact of any claims or legal actions to which the Company is subject, including any effect on our reputation;
  • losses incurred in connection with repurchases and indemnification payments related to mortgages and increases in reserves associated therewith;
  • the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;
  • the soundness of other financial institutions;
  • the expenses and delayed returns inherent in opening new branches and de novo banks;
  • examinations and challenges by tax authorities, and any unanticipated impact of Tax Reform;
  • changes in accounting standards, rules and interpretations, including any changes as a result of Tax Reform, and the impact on the Company's financial statements;
  • the ability of the Company to receive dividends from its subsidiaries;
  • a decrease in the Company's regulatory capital ratios, including as a result of further declines in the value of its loan portfolios, or otherwise;
  • legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies, including those resulting from the Dodd-Frank Act;
  • a lowering of our credit rating;
  • changes in U.S. monetary policy;
  • restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business resulting from the Dodd-Frank Act;
  • increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment, including the Dodd-Frank Act;
  • the impact of heightened capital requirements;
  • increases in the Company's FDIC insurance premiums, or the collection of special assessments by the FDIC;
  • delinquencies or fraud with respect to the Company's premium finance business;
  • credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company's premium finance loans;
  • the Company's ability to comply with covenants under its credit facility; and
  • fluctuations in the stock market, which may have an adverse impact on the Company's wealth management business and brokerage operation.

Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. The Company undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events after the date of the press release. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases.

CONFERENCE CALL, WEB CAST AND REPLAY

The Company will hold a conference call at 1:00 p.m. (Central Time) Tuesday, January 23, 2018 regarding fourth quarter and year-end 2017 results. Individuals interested in listening should call (877) 363-5049 and enter Conference ID #6892328. A simultaneous audio-only web cast and replay of the conference call may be accessed via the Company's website at http://www.wintrust.com, Investor Relations, Investor News and Events, Presentations & Conference Calls. The text of the fourth quarter and year-end 2017 earnings press release will be available on the home page of the Company's website at http://www.wintrust.com and at the Investor Relations, Investor News and Events, Press Releases link on its website.


WINTRUST FINANCIAL CORPORATION

Supplemental Financial Information

5 Quarter Trends


WINTRUST FINANCIAL CORPORATION - Supplemental Financial Information
Selected Financial Highlights - 5 Quarter Trends
(Dollars in thousands, except per share data)

    Three Months Ended
    December 31,   September 30,   June 30,   March 31,   December 31,
    2017   2017   2017   2017   2016
Selected Financial Condition Data (at end of period):                    
Total assets   $ 27,915,970     $ 27,358,162     $ 26,929,265     $ 25,778,893     $ 25,668,553  
Total loans, excluding loans held-for-sale and covered loans   21,640,797     20,912,781     20,743,332     19,931,058     19,703,172  
Total deposits   23,183,347     22,895,063     22,605,692     21,730,441     21,658,632  
Junior subordinated debentures   253,566     253,566     253,566     253,566     253,566  
Total shareholders' equity   2,976,939     2,908,925     2,839,458     2,764,983     2,695,617  
Selected Statements of Income Data:                    
Net interest income   219,099     215,988     204,409     192,580     190,778  
Net revenue (1)   300,137     295,719     294,381     261,345     276,053  
Net income   68,781     65,626     64,897     58,378     54,608  
Net income per common share – Basic   $ 1.19     $ 1.14     $ 1.15     $ 1.05     $ 0.98  
Net income per common share – Diluted   $ 1.17     $ 1.12     $ 1.11     $ 1.00     $ 0.94  
Selected Financial Ratios and Other Data:                    
Performance Ratios:                    
Net interest margin   3.45 %   3.43 %   3.41 %   3.36 %   3.21 %
Net interest margin - fully taxable equivalent (non-GAAP) (2)   3.49 %   3.46 %   3.43 %   3.39 %   3.23 %
Non-interest income to average assets   1.18 %   1.17 %   1.39 %   1.11 %   1.32 %
Non-interest expense to average assets   2.87 %   2.70 %   2.83 %   2.70 %   2.80 %
Net overhead ratio (3)   1.69 %   1.53 %   1.44 %   1.60 %   1.48 %
Return on average assets   1.00 %   0.96 %   1.00 %   0.94 %   0.85 %
Return on average common equity   9.39 %   9.15 %   9.55 %   8.93 %   8.32 %
Return on average tangible common equity (non-GAAP) (2)   11.65 %   11.39 %   12.02 %   11.44 %   10.68 %
Average total assets   $ 27,179,484     $ 27,012,295     $ 26,050,949     $ 25,207,348     $ 25,611,060  
Average total shareholders' equity   2,942,999     2,882,682     2,800,905     2,739,050     2,689,876  
Average loans to average deposits ratio (excluding loans held-for-sale, excluding covered loans)   92.3 %   91.8 %   94.1 %   92.5 %   89.6 %
Average loans to average deposits ratio (excluding loans held-for-sale, including covered loans)   92.4     92.1     94.4     92.7     89.9  
Common Share Data at end of period:                    
Market price per common share   $ 82.37     $ 78.31     $ 76.44     $ 69.12     $ 72.57  
Book value per common share (2)   $ 50.96     $ 49.86     $ 48.73     $ 47.88     $ 47.12  
Tangible common book value per share (2)   $ 41.68     $ 40.53     $ 39.40     $ 37.97     $ 37.08  
Common shares outstanding   55,965,207     55,838,063     55,699,927     52,503,663     51,880,540  
Other Data at end of period:(6)                    
Leverage Ratio(4)   9.3 %   9.2 %   9.2 %   9.3 %   8.9 %
Tier 1 Capital to risk-weighted assets (4)   9.9 %   10.0 %   9.8 %   10.0 %   9.7 %
Common equity Tier 1 capital to risk-weighted assets (4)   9.4 %   9.5 %   9.3 %   8.9 %   8.6 %
Total capital to risk-weighted assets (4)   12.0 %   12.2 %   12.0 %   12.2 %   11.9 %
Allowance for credit losses (5)   $ 139,174     $ 134,395     $ 131,296     $ 127,630     $ 123,964  
Non-performing loans   90,162     77,983     69,050     78,979     87,454  
Allowance for credit losses to total loans (5)   0.64 %   0.64 %   0.63 %   0.64 %   0.63 %
Non-performing loans to total loans   0.42 %   0.37 %   0.33 %   0.40 %   0.44 %
Number of:                    
Bank subsidiaries   15     15     15     15     15  
Banking offices   157     156     153     155     155  

(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.
(5) The allowance for credit losses includes both the allowance for loan losses and the allowance for unfunded lending-related commitments, but excluding the allowance for covered loan losses. 
(6) Asset quality ratios exclude covered loans.


WINTRUST FINANCIAL CORPORATION - SUPPLEMENTAL FINANCIAL INFORMATION
Consolidated Statements of Condition - 5 Quarter Trends

    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)    
    December 31,   September 30,   June 30,   March 31,   December 31,
(In thousands)   2017   2017   2017   2017   2016
Assets                    
Cash and due from banks   $ 277,534     $ 251,896     $ 296,105     $ 214,102     $ 267,194  
Federal funds sold and securities purchased under resale agreements   57     56     56     3,046     2,851  
Interest bearing deposits with banks   1,063,242     1,218,728     1,011,635     1,007,468     980,457  
Available-for-sale securities, at fair value   1,803,666     1,665,903     1,649,636     1,803,733     1,724,667  
Held-to-maturity securities, at amortized cost   826,449     819,340     793,376     667,764     635,705  
Trading account securities   995     643     1,987     714     1,989  
Federal Home Loan Bank and Federal Reserve Bank stock   89,989     87,192     80,812     78,904     133,494  
Brokerage customer receivables   26,431     23,631     23,281     23,171     25,181  
Mortgage loans held-for-sale   313,592     370,282     382,837     288,964     418,374  
Loans, net of unearned income, excluding covered loans   21,640,797     20,912,781     20,743,332     19,931,058     19,703,172  
Covered loans       46,601     50,119     52,359     58,145  
Total loans   21,640,797     20,959,382     20,793,451     19,983,417     19,761,317  
Allowance for loan losses   (137,905 )   (133,119 )   (129,591 )   (125,819 )   (122,291 )
Allowance for covered loan losses       (758 )   (1,074 )   (1,319 )   (1,322 )
Net loans   21,502,892     20,825,505     20,662,786     19,856,279     19,637,704  
Premises and equipment, net   621,895     609,978     605,211     598,746     597,301  
Lease investments, net   212,335     193,828     191,248     155,233     129,402  
Accrued interest receivable and other assets   567,374     580,612     577,359     560,741     593,796  
Trade date securities receivable   90,014     189,896     133,130          
Goodwill   501,884     502,021     500,260     499,341     498,587  
Other intangible assets   17,621     18,651     19,546     20,687     21,851  
   Total assets   $ 27,915,970     $ 27,358,162     $ 26,929,265     $ 25,778,893     $ 25,668,553  
Liabilities and Shareholders' Equity                    
Deposits: