UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑
☐
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2020
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period from to
Commission File Number 001-35077
Wintrust Financial Corporation
(Exact name of registrant as specified in its charter)
Illinois
(State or other jurisdiction of incorporation or organization)
36-3873352
(I.R.S. Employer Identification No.)
9700 W. Higgins Road, Suite 800
Rosemont, Illinois 60018
(Address of principal executive offices)
Registrant’s telephone number, including area code: (847) 939-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, no par value
Series D Preferred Stock, no par value
Depositary Shares, Each Representing a 1/1,000th Interest in a Share of
6.875% Fixed-Rate Non-Cumulative Perpetual Series E Preferred Stock, no
par value
WTFC
WTFCM
WTFCP
The NASDAQ Global Select Market
The NASDAQ Global Select Market
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ Yes ¨ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes þ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of
“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Smaller reporting company
☑
☐
Accelerated filer
Emerging growth company
☐
☐
Non-Accelerated filer
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal controls over financial reporting under Section 404(b) of
the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ Yes ¨ No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2020 (the last business day of the registrant’s most recently completed second
quarter), determined using the closing price of the common stock on that day of $43.62, as reported by the NASDAQ Global Select Market, was $2,490,791,184.
As of February 22, 2021, the registrant had 56,891,238 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 27, 2021 are incorporated by reference into Part III.
TABLE OF CONTENTS
PART I
ITEM 1
Business............................................................................................................................................
ITEM 1A.
Risk Factors.......................................................................................................................................
ITEM 1B.
Unresolved Staff Comments.............................................................................................................
ITEM 2.
Properties .........................................................................................................................................
ITEM 3.
Legal Proceedings ............................................................................................................................
ITEM 4.
Mine Safety Disclosures ..................................................................................................................
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ..............................................................................................................................
ITEM 6.
Selected Financial Data.....................................................................................................................
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ..........
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk..........................................................
ITEM 8.
Financial Statements and Supplementary Data.................................................................................
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........
ITEM 9A.
Controls and Procedures ..................................................................................................................
ITEM 9B.
Other Information.............................................................................................................................
PART III
ITEM 10.
Directors, Executive Officers and Corporate Governance................................................................
ITEM 11.
ITEM 12.
Executive Compensation...................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters..............................................................................................................................................
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence.................................
ITEM 14.
Principal Accountant Fees and Services...........................................................................................
PART IV
ITEM 15.
Exhibits, Financial Statement Schedules..........................................................................................
ITEM 16.
Form 10-K Summary........................................................................................................................
Signatures..........................................................................................................................................
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PART I
ITEM 1. BUSINESS
Overview
Wintrust Financial Corporation, an Illinois corporation (“we,” “Wintrust” or “the Company”), which was incorporated in 1992,
is a financial holding company based in Rosemont, Illinois, with total assets of approximately $45.1 billion as of December 31,
2020. We provide community-oriented, personal and commercial banking services to customers located in the Chicago
metropolitan area, southern Wisconsin and northwest Indiana (“our market area”) through our fifteen wholly-owned-banking
subsidiaries (collectively, the “banks”), as well as the origination and purchase of residential mortgages for sale into the
secondary market through Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A. (“Barrington Bank”). In
addition, we provide specialty finance services, including financing for the payment of commercial insurance premiums and life
insurance premiums (“premium finance receivables”) on a national basis through FIRST Insurance Funding, a division of our
wholly-owned subsidiary Lake Forest Bank & Trust Company, N.A. (“Lake Forest Bank”), and Wintrust Life Finance, a
division of Lake Forest Bank, and in Canada through our premium finance company, First Insurance Funding of Canada (“FIFC
Canada”), lease financing and other direct leasing opportunities through our wholly-owned subsidiary, Wintrust Asset Finance,
Inc. (“Wintrust Asset Finance”), and short-term accounts receivable financing and outsourced administrative services through
our wholly-owned subsidiary, Tricom, Inc. of Milwaukee (“Tricom”). Further, we provide a full range of wealth management
services primarily to customers in our market area through four separate subsidiaries, The Chicago Trust Company, N.A.
(“CTC”), Wintrust Investments, LLC (“Wintrust Investments”), Great Lakes Advisors, LLC (“Great Lakes Advisors”) and
Chicago Deferred Exchange Company, LLC (“CDEC”).
Our Business and Reporting Segments
As set forth in Note 24, “Segment Information,” our operations consist of three primary segments: community banking,
specialty finance and wealth management. The three reportable segments are strategic business units that are separately
managed as they offer different products and services and have different marketing strategies. In addition, each segment’s
customer base has varying characteristics and each segment has a different regulatory environment. While the Company’s
management monitors each of the fifteen bank subsidiaries’ operations and profitability separately, these subsidiaries have been
aggregated into one reportable operating segment due to the similarities in products and services, customer base, operations,
profitability measures and economic characteristics. All segment measurements discussed below are based on the reportable
segments and do not reflect intersegment eliminations.
Community Banking
Through our community banking segment, our banks provide community-oriented, personal and commercial banking services
to customers located in our market area. Our customers include individuals, small to mid-sized businesses, local governmental
units and institutional clients residing primarily in the banks’ local service areas. The banks have a strategy to provide
comprehensive community-focused banking services. In keeping with this strategy, the banks provide highly personalized and
responsive service, a characteristic of locally-owned and managed institutions. As such, the banks compete for deposits
principally by offering depositors a variety of deposit programs, convenient office locations, hours and other services, and for
loan originations primarily through the interest rates and loan fees they charge, the efficiency and quality of services they
provide to borrowers and the variety of their loan and cash management products. Using our multiple bank charter corporate
structure to our advantage, we offer our MaxSafe® deposit accounts, which provide customers with expanded Federal Deposit
Insurance Corporation (“FDIC”) insurance coverage by spreading a customer's deposit across our fifteen banks. This product
differentiates our banks from many of our competitors that have consolidated their bank charters into branches. We also have
downtown Chicago and Milwaukee offices that work with each of our banks to capture commercial and industrial business. Our
commercial and industrial lenders in our downtown offices operate in close partnership with lenders at our community banks.
By combining our expertise in the commercial and industrial sector with our high level of personal service and a full suite of
banking products, we believe we create another point of differentiation from both our larger and smaller competitors. Our banks
also offer home equity, consumer, and real estate loans, safe deposit facilities, ATMs, online and mobile banking and other
innovative and traditional services specially tailored to meet the needs of customers in their market areas.
We developed our banking franchise through a combination of de novo organization and the purchase of existing bank
franchises. The organizational efforts began in 1991, when a group of experienced bankers and local business people identified
an unfilled niche in the Chicago metropolitan area retail banking market. As large banks acquired smaller ones and personal
service was subjected to consolidation strategies, the opportunity increased for locally owned and operated, highly personal
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service-oriented banks. As a result, Lake Forest Bank was founded in December 1991 to service the Lake Forest and Lake Bluff
communities.
As of December 31, 2020, we owned fifteen nationally chartered banks: Lake Forest Bank, Barrington Bank, Wintrust Bank,
N.A. (“Wintrust Bank”), Libertyville Bank & Trust Company, N.A. (“Libertyville Bank”), Northbrook Bank & Trust
Company, N.A. (“Northbrook Bank”), Village Bank & Trust, N.A. (“Village Bank”), Wheaton Bank & Trust Company, N.A.
(“Wheaton Bank”), State Bank of the Lakes, N.A., Crystal Lake Bank & Trust Company, N.A. (“Crystal Lake Bank”),
Schaumburg Bank & Trust Company, N.A. (“Schaumburg Bank”), Beverly Bank & Trust Company, N.A. (“Beverly Bank”),
Old Plank Trail Community Bank, N.A. (“Old Plank Trail Bank”), Hinsdale Bank & Trust Company, N.A. (“Hinsdale Bank”),
St. Charles Bank & Trust Company, N.A. (“St. Charles Bank”) and Town Bank, N.A. (“Town Bank”). As of December 31,
2020, we had 181 banking locations. Each nationally-chartered bank is subject to regulation, supervision and regular
examination by the Office of the Comptroller of the Currency (“OCC”).
We also engage in the retail origination and purchase of residential mortgages through Wintrust Mortgage as well as consumer
direct lending primarily to veterans through our Veterans First brand. Certain originated loans are sold to unaffiliated
companies or the Company's banks with servicing remaining within Wintrust Mortgage operations. Wintrust Mortgage
maintains retail mortgage offices in a number of states, with the largest concentration located in the Chicago, Minneapolis, Salt
Lake City and Los Angeles metropolitan areas.
We also offer several niche lending products through several of the banks. These include Barrington Bank's Community
Advantage program, which provides lending, deposit and cash management services to condominium, homeowner and
community associations; Hinsdale Bank's mortgage warehouse lending program, which provides loan and deposit services to
mortgage brokerage companies located predominantly in the Chicago metropolitan area; and Lake Forest Bank's franchise
lending program, which provides lending to restaurant franchisees. Other niches offered throughout our banking franchise
include Wintrust Commercial Finance, which offers direct leasing opportunities; Wintrust Business Credit, which specializes in
asset-based lending for middle-market companies; Wintrust SBA Lending, which is dedicated to offering expertise in Small
Business Administration loans; Wintrust Commercial Real Estate, which concentrates on real estate lending solutions including
commercial mortgages and construction loans; and Wintrust Government, Non-Profit & Hospital, which focuses on financial
solutions for mission-based organizations such as hospitals, non-profits, educational institutions and local government
operations. In addition, we offer a niche deposit service through our Northbrook Bank's Funds Group.
For the years ended December 31, 2020, 2019 and 2018, the community banking segment had net revenues of $1.3 billion, $1.1
billion and $1.0 billion, respectively, and net income of $164 million, $238 million and $241 million, respectively. The
community banking segment had total assets of $36.8 billion, $29.6 billion and $25.4 billion as of December 31, 2020, 2019
and 2018, respectively. The community banking segment accounted for approximately 76% of our consolidated net revenues,
excluding intersegment eliminations, for the year ended December 31, 2020.
Specialty Finance
Through our specialty finance segment, we offer financing of insurance premiums for businesses and individuals; accounts
receivable financing, value-added, out-sourced administrative services; and other specialty finance businesses. FIRST Insurance
Funding and Wintrust Life Finance engage in the premium finance receivables business, our most significant specialized
lending niche, including commercial insurance premium finance and life insurance premium finance. We also engage in
commercial insurance premium finance in Canada through our wholly-owned subsidiary FIFC Canada.
In their commercial insurance premium finance operations, FIRST Insurance Funding and FIFC Canada make loans to
businesses to finance the insurance premiums they pay on their commercial insurance policies. Approved medium and large
insurance agents and brokers located throughout the United States and Canada assist FIRST Insurance Funding and FIFC
Canada, respectively, in arranging each commercial premium finance loan between the borrower and FIRST Insurance Funding
or FIFC Canada, as the case may be. FIRST Insurance Funding or FIFC Canada evaluates each loan request according to its
own underwriting criteria including the amount of the down payment on the insurance policy, the term of the loan, the credit
quality of the insurance company providing the financed insurance policy, the interest rate, the borrower's previous payment
history, if any, and other factors deemed appropriate. Upon approval of the loan by FIRST Insurance Funding or FIFC Canada,
as the case may be, the borrower makes a down payment on the financed insurance policy, which is generally done by
providing payment to the agent or broker, who then forwards it to the insurance company. FIRST Insurance Funding or FIFC
Canada may either forward the financed amount of the remaining policy premiums directly to the insurance carrier or to the
agent or broker for remittance to the insurance carrier on FIRST Insurance Funding's or FIFC Canada's behalf. In some cases
the agent or broker may hold our collateral, in the form of the proceeds of the unearned insurance premium from the insurance
company, and forward it to FIRST Insurance Funding or FIFC Canada in the event of a default by the borrower. This lending
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involves relatively rapid turnover of the loan portfolio and high volume of loan originations. Because the agent or broker is the
primary contact to the ultimate borrowers who are located nationwide and because proceeds and our collateral may be handled
by the agent or brokers during the term of the loan, FIRST Insurance Funding and FIFC Canada may be more susceptible to
third party (i.e., agent or broker) fraud. The Company performs various controls and procedures including ongoing credit and
other reviews of the agents and brokers as well as performs various internal audit steps to mitigate against the risk of material
fraud.
The commercial and property premium finance business is subject to regulation in the majority of states. Regulation typically
governs notices to borrowers prior to cancellation of a policy and required communication to insurance agents and insurance
companies. FIRST Insurance Funding offers financing of commercial insurance policies in all 50 states, the District of
Columbia, Puerto Rico, and the U.S. Virgin Islands. FIRST Insurance Funding’s legal department regularly monitors changes
to regulations and updates policies and programs accordingly.
Wintrust Life Finance finances life insurance policy premiums generally used for estate planning purposes of high net-worth
borrowers. These loans are originated directly with the borrowers with assistance from life insurance carriers, independent
insurance agents, financial advisors and legal counsel. The cash surrender value of the life insurance policy is the primary form
of collateral. In addition, these loans often are secured with a letter of credit, marketable securities or certificates of deposit. In
some cases, Wintrust Life Finance may make a loan that has a partially unsecured position.
The life insurance premium finance business is subject to banking regulations but is not subject to additional regulatory regimes
(e.g. additional state regulation). Wintrust Life Finance's compliance department regularly monitors the regulatory environment
and the company's compliance with existing regulations. Wintrust Life Finance maintains a policy prohibiting the known
financing of stranger-originated life insurance and has established procedures to identify and prevent the company from
financing such policies. While a carrier could potentially put at risk the cash surrender value of a policy, which serves as
Wintrust Life Finance's primary collateral, by challenging the validity of the insurance contract for lack of an insurable interest,
Wintrust Life Finance believes it has strong counterclaims against any such claims by carriers, in addition to recourse to
borrowers and guarantors as well as to additional collateral in certain cases.
Premium finance loans made by FIRST Insurance Funding, Wintrust Life Finance and FIFC Canada are primarily secured by
the insurance policies financed by the loans. These insurance policies are written by a large number of insurance companies
geographically dispersed throughout the United States and Canada. Our premium finance receivables balances finance
insurance policies that are spread among a large number of insurers, however one of the insurers represents approximately 14%
of such balances, and two additional insurers represent approximately 6% and 5% each of such balances. FIRST Insurance
Funding, Wintrust Life Finance and FIFC Canada consistently monitor carrier ratings and financial performance of our carriers.
In the event ratings fall below certain levels, most of Wintrust Life Finance's life insurance premium finance policies provide
for an event of default and allow Wintrust Life Finance to have recourse to borrowers and guarantors as well as to additional
collateral in certain cases. For the commercial premium finance business, the term of the loans is sufficiently short such that in
the event of a decline in carrier ratings, FIRST Insurance Funding or FIFC Canada, as the case may be, can restrict or eliminate
additional loans to finance premiums to such carriers. The majority of premium finance receivables are purchased by the banks
in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative
investments.
Through our wholly-owned subsidiary Wintrust Asset Finance, we provide equipment financing through structured loan and
lease products to customers in a variety of industries throughout the United States. Wintrust Asset Finance provides financing
of fixed assets consisting of property, plant and equipment, transportation (trucks, trailers, rail, marine, buses), construction,
manufacturing equipment, technology, oil and gas, restaurant equipment, medical and healthcare. As of December 31, 2020, the
Company’s leasing portfolio, including capital leases, loans and equipment on operating leases, totaled $2.1 billion compared to
$1.6 billion as of December 31, 2019. During 2020, Wintrust Asset Finance contributed approximately $62.0 million to our
revenue, which does not reflect intersegment eliminations.
Through our wholly-owned subsidiary Tricom, we provide high-yielding, short-term accounts receivable financing and value-
added, outsourced administrative services, such as data processing of payrolls, billing and cash management services to the
temporary staffing industry. Tricom’s clients, located throughout the United States, provide staffing services to businesses in
diversified industries. During 2020, Tricom processed payrolls with associated client billings of approximately $549 million
and contributed approximately $9.8 million to our revenue, net of interest expense, which does not reflect intersegment
eliminations.
In 2020, our commercial premium finance operations, life insurance premium finance operations, leasing operations and
accounts receivable finance operations accounted for 42%, 31%, 23% and 4%, respectively, of the total revenues of our
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specialty finance business. For the years ended December 31, 2020, 2019 and 2018 the specialty finance segment had net
revenues of $263 million, $241 million and $203 million, respectively, and net income of $100 million, $89 million and $82
million, respectively. The specialty finance segment had total assets of $7.0 billion, $5.9 billion and $5.1 billion as of
December 31, 2020, 2019 and 2018, respectively. The specialty finance segment accounted for 16% of our consolidated net
revenues, excluding intersegment eliminations, for the year ended December 31, 2020.
Wealth Management
Through our wealth management segment, we offer a full range of wealth management services through four separate
subsidiaries (Wintrust Investments, CTC, Great Lakes Advisors and CDEC): trust and investment services, tax-deferred like-
kind exchange services, asset management, securities brokerage services and 401(k) and retirement plan services.
Wintrust Investments, our registered broker/dealer subsidiary which has been operating since 1931, provides a full range of
private client and securities brokerage services to clients located primarily in the Midwest. Wintrust Investments is
headquartered in downtown Chicago, operates an office in Appleton, Wisconsin, and has established branch locations in offices
at a majority of our banks. Wintrust Investments also provides a full range of investment services to clients through a network
of relationships with community-based financial institutions primarily located in Illinois. Wintrust Investments is regulated by
the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) as a registered
broker-dealer, as well as by the SEC as a registered investment adviser.
CTC, our trust subsidiary, offers trust and investment management services to clients through offices located in downtown
Chicago and at various banking offices of our fifteen banks. CTC is subject to regulation, supervision and regular examination
by the OCC.
Great Lakes Advisors, our registered investment adviser with locations in downtown Chicago and Tampa, Florida as well as in
various banking offices of our fifteen banks, provides money management services and advisory services to individuals,
institutions, and municipal and tax-exempt organizations. Great Lakes Advisors also provides portfolio management and
financial advisory services for a wide range of pension and profit-sharing plans as well as money management and advisory
services to CTC. Great Lakes Advisors is regulated by the SEC as a registered investment adviser.
CDEC, our provider of tax-deferred like-kind exchange services, provides Qualified Intermediary services (as defined by U.S.
Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind exchanges under Internal Revenue Code (“IRC”)
Section 1031. Under IRC Section 1031, a taxpayer may defer the gain on the sale of certain investment property if the taxpayer
utilizes the services of a Qualified Intermediary. These transactions typically generate customer deposits during the period
following the sale of the property until such proceeds are used to purchase a replacement property. These deposits may flow
into our banks as a source of low-cost deposits. CDEC is the subsidiary of Elektra Holding Company, LLC (“Elektra”), which
was acquired by the Company in December of 2018.
As of December 31, 2020, the Company’s wealth management subsidiaries had approximately $30.1 billion of assets under
administration, which included $3.5 billion of assets owned by the Company and its subsidiary banks. For the years ended
December 31, 2020, 2019 and 2018, the wealth management segment had net revenues of $134 million, $130 million and $109
million, respectively, and net income of $29 million, $28 million and $20 million, respectively. The wealth management
segment had total assets of $1.3 billion, $1.1 billion and $733 million as of December 31, 2020, 2019 and 2018, respectively.
The wealth management segment accounted for 8% of our consolidated net revenues, excluding intersegment eliminations, for
the year ended December 31, 2020.
Strategy and Competition
The Company has employed certain strategies since 2013 to achieve strong net income amid an environment characterized by
low interest rates and increased competition. In general, the Company has taken a steady and measured approach to grow
strategically and manage expenses. Specifically, the Company has:
•
Leveraged its internal loan pipeline and external growth opportunities to grow earnings assets to increase net interest
income;
Continued efforts to reduce interest costs by improving our funding mix;
•
• Written call option contracts on certain securities as an economic hedge to mitigate overall interest rate risk and enhance
the securities’ overall return by using fees generated from these options;
Entered into mirror-image swap transactions to both satisfy customer preferences and maintain variable rate exposure;
Completed strategic acquisitions to expand our presence in existing and complimentary markets;
•
•
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•
•
Focused on cost control and leveraging our current infrastructure to grow without a commensurate increase in operating
expenses; and
Expanded the Wintrust Asset Finance direct leasing niche.
Our strategy and competitive position for each of our business segments is summarized in further detail, below.
Community Banking
We compete in the commercial banking industry through our banks in the communities they serve. The commercial banking
industry is highly competitive and the banks face strong direct competition for deposits, loans and other financial related
services. The banks compete with other commercial banks, thrifts, credit unions, stockbrokers, government-sponsored entities,
mutual fund companies, insurance companies, factoring companies and other commercial entities offering financial services
products, including non-bank financial companies and entities commonly known as financial technology companies. Some of
these competitors are local, while others are statewide or nationwide.
As a $45 billion asset financial services company, we expect to benefit from greater access to financial and managerial
resources than our smaller local competitors while maintaining our commitment to local decision-making and to our community
banking philosophy. In particular, we are able to provide a wider product selection and larger credit facilities than many of our
smaller competitors, and we believe our service offerings help us in recruiting talented staff. We continue to add lenders
throughout the community banking organization, many of whom have joined us because of our ability to offer a range of
products and level of services which compete effectively with both larger and smaller market participants. We have continued
to expand our product delivery systems, including a wide variety of electronic banking options for our retail and commercial
customers which allow us to provide a level of service typically associated with much larger banking institutions. Additionally,
we have access to public capital markets whereas many of our local competitors are privately held and may have limited
capital-raising capabilities.
Management views service as a great equalizer to offset some of the inherent advantages of its significantly larger competitors.
We also believe we are positioned to compete effectively with other larger and more diversified banks, bank holding companies
and other financial services companies due to the multi-chartered approach that pushes accountability for building a franchise
and a high level of customer service down to each of our banking franchises. Additionally, we believe that we provide a
relatively complete portfolio of products that is responsive to the majority of our customers’ needs through the retail and
commercial operations supplied by our banks, and through our mortgage and wealth management operations. The breadth of
our product mix allows us to compete effectively with our larger competitors, while our multi-chartered approach with local and
accountable management provides for what we believe is superior customer service relative to our larger and more centralized
competitors. We continue to grow our digital service offerings while maintaining our expectations of high quality, more
traditional banking services.
Wintrust Mortgage competes with large mortgage brokers as well as other banking organizations. Consolidation, on-going
investor push-backs, enhanced regulatory guidance and the promise of equal oversight for both banks and independent lenders
have created challenges for small and medium-sized independent mortgage lenders. Wintrust Mortgage’s size, bank affiliation,
regulatory competency, branding, technology, business development tools and reputation make the firm well positioned to
compete in this environment. We continue to increase the amount of loans sold with servicing retained, including those loans
sold to the Company’s banks with servicing remaining within Wintrust Mortgage operations. While earnings will fluctuate with
the rise and fall of long-term interest rates, we expect that mortgage banking revenue will be a continuous source of revenue for
us and our mortgage lending relationships will continue to provide franchise value to our other financial service businesses.
We continue to review our branch footprint and in 2020, the Company opened one new branch location in the Chicago
metropolitan area. In January 2021, the Company announced the sale of three branches in southwestern Wisconsin. Also, the
Company has initiated plans to close an additional 10 branches. These are predominantly smaller locations in close proximity to
other Wintrust locations. As such, we do not expect any material attrition or customer disruption. We expect the noted branches
to close prior to the end of the second quarter of 2021 and the branch sale in Wisconsin to close in the second quarter of 2021.
In the fourth quarter of 2020, we recorded an impairment charge of $1.4 million associated with the closing of the 10 locations.
Collectively, the reduction of 13 locations represents approximately 7% of the Wintrust retail banking locations. It is important
to note that while we see increased use of electronic services and are investing heavily in digital capabilities to allow clients to
choose how they want to be served, Wintrust will continue to selectively open branches in areas where we are not represented.
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Specialty Finance
FIRST Insurance Funding and Wintrust Life Finance encounter intense competition from numerous other firms, including a
number of national commercial premium finance companies, companies affiliated with insurance carriers, independent
insurance brokers who offer premium finance services and other lending institutions. Some of our competitors are larger and
have greater financial and other resources. FIRST Insurance Funding and Wintrust Life Finance compete with these entities by
emphasizing a high level of knowledge of the insurance industry, flexibility in structuring financing transactions, and the timely
funding of qualifying contracts. We believe that our commitment to service also distinguishes us from our competitors. FIFC
Canada competes with one national commercial premium finance company and a few regional providers.
Wintrust Asset Finance competes with other bank-affiliated, independent, captive and vendor equipment leasing and finance
companies. Wintrust Asset Finance believes a customer-focused origination philosophy, an experienced team, strong
underwriting discipline and expert asset management enables them to compete effectively in a growing and dynamic market.
Tricom competes with numerous other firms, including a small number of similar niche finance companies and payroll
processing firms, as well as various finance companies, banks and other lending institutions. Tricom’s management believes
that its commitment to service distinguishes it from competitors.
Wealth Management Activities
Our wealth management companies (CTC, Wintrust Investments, Great Lakes Advisors and CDEC) compete with larger wealth
management subsidiaries of other larger bank holding companies as well as with other trust companies, brokerage and other
financial service companies, stockbrokers and financial advisors. We believe we can successfully compete for trust, tax
services, asset management and brokerage business by offering personalized attention and customer service to small to midsize
businesses and affluent individuals. We continue to recruit and hire experienced wealth management professionals from within
the larger Chicago metropolitan area as well as Wisconsin, which is expected to help in attracting new customer relationships.
Supervision and Regulation
Regulatory Environment
Our business is heavily regulated by both federal and state agencies. Both the scope of the laws and regulations and the
intensity of the supervision to which our business is subject have increased in recent years, in response to the financial crisis as
well as other factors such as technological and market changes. Regulatory enforcement and fines have also increased across
the banking and financial services sector. Many of these changes have occurred as a result of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (“Dodd-Frank Act”) and its implementing regulations, most of which are now in place.
We expect that our business will remain subject to extensive regulation and supervision. Further, it is possible that the scope of
regulation and supervision will be higher in the Biden Administration.
On May 24, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”) was
signed into law. Among other regulatory changes, the Economic Growth Act amends various sections of the Dodd-Frank Act,
including section 165 of the Dodd-Frank Act, which was revised to raise the asset thresholds for determining the application of
enhanced prudential standards for bank holding companies (“BHCs”). The effects of these changes on the Company are
expected to be limited because the Company was subject to only limited enhanced prudential standards prior to the Economic
Growth Act’s enactment. Certain of our competitors, however, will benefit from a more significant reduction in regulatory
burdens.
The Company is a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), subject
to regulation, supervision, and examination by the Federal Reserve. The Company is also subject to the disclosure and
regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, both
as administered by the SEC, as well as the rules of NASDAQ that apply to companies with securities listed on the NASDAQ
Global Select Market. Each nationally-chartered bank is subject to regulation, supervision and regular examination by the OCC.
The deposits of all of our subsidiary banks are insured by the Deposit Insurance Fund (“DIF”) and, as such, the FDIC has
additional oversight authority over the banks. The supervision, regulation and examination of banks and bank holding
companies by bank regulatory agencies are intended primarily for the protection of depositors, the DIF, and the banking system
as a whole, rather than shareholders of banks and bank holding companies, and in some instances may be contrary to
shareholders’ interests.
8
The Consumer Financial Protection Bureau (“CFPB”) has broad rulemaking authority over a wide range of federal consumer
protection laws applicable to the business of our subsidiary banks and some other operating subsidiaries. Because each of our
subsidiary banks has less than $10 billion in total consolidated assets, our subsidiary banks’ federal banking agency, not the
CFPB, is responsible for examining and supervising the subsidiary banks’ compliance with federal consumer protection laws
and regulations. Our non-bank subsidiaries are subject to regulation by their functional regulators, including applicable state
finance and insurance agencies, the applicable exchanges, the SEC, FINRA, and the OCC, as well as by the Federal Reserve.
Federal and state laws, and the regulations of the bank regulatory agencies issued under them, affect the scope of business, the
kinds and amounts of investments banks may make, reserve requirements, capital levels, the nature and amount of collateral for
loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with insiders and affiliates and the
payment of dividends. The regulatory agencies have broad discretion to impose restrictions and limitations on the operations of
a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply
with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.
The following is a description of some of the laws and regulations that affect our business. By necessity, the descriptions below
are summaries that do not purport to be complete, and that are qualified in their entirety by reference to those statutes and
regulations discussed, and all regulatory interpretations thereof. Any changes in applicable laws, regulations, or the
interpretations thereof could have a material adverse effect on our business or the business of our subsidiaries.
Bank Holding Company Regulation
The Company is a bank holding company that has elected to be treated as a financial holding company. The activities of bank
holding companies generally are limited to the business of banking, managing or controlling banks, and certain other activities
determined by the Federal Reserve to be closely related to banking. As a financial holding company, we may engage in an
expanded range of activities, including activities that are considered to be financial in nature. Financial holding companies may
also engage in activities incidental or complementary to financial activities, if the Federal Reserve determines that such
activities pose no substantial risk to the safety or soundness of depository institutions or the financial system in general.
Impermissible activities for financial holding companies and their subsidiaries include activities that are related to commerce,
such as sales of nonfinancial products or manufacturing. As a result, subject to certain exceptions, the BHC Act generally
prohibits us from acquiring direct or indirect ownership or control of voting shares of any company engaged in activities that
are not permissible for us to engage in.
Maintaining our financial holding company status requires that the Company and each of our subsidiary banks remain “well-
capitalized” and “well-managed” as defined by regulation and that each of our subsidiary banks maintain at least a
“satisfactory” rating under the Community Reinvestment Act (“CRA”). If we or our subsidiary banks fail to continue to meet
these requirements, we could be subject to restrictions on new activities and acquisitions, and/or be required to cease and
possibly divest operations that conduct existing activities that are not permissible for a bank holding company that is not a
financial holding company.
The BHC Act generally requires us to obtain prior approval from the Federal Reserve before acquiring direct or indirect
ownership or control of more than 5% of the voting shares of an additional bank or bank holding company, or to merge or
consolidate with another bank holding company. The Bank Merger Act generally requires our subsidiary banks to obtain prior
regulatory approval to merge or consolidate with, or acquire substantially all of the assets of or assume deposits of, another
bank. We must also be well-capitalized and well-managed, in order to acquire a bank located outside of our home state.
The Federal Deposit Insurance Act (“FDIA”) and Federal Reserve regulations and policy require us to serve as a source of
financial and managerial strength for our subsidiary banks, and to commit resources to support the banks. This support may be
required even if doing so may adversely affect our ability to meet other obligations.
Acquisitions of Ownership of the Company
Acquisitions of the Company’s voting stock above certain thresholds may be subject to prior regulatory notice or approval
under applicable federal banking laws. Investors are responsible for ensuring that they do not, directly or indirectly, acquire
shares of our stock in excess of the amount that can be acquired without regulatory approval or notice under the BHC Act and
the Change in Bank Control Act.
9
Volcker Rule
We are prohibited under the Volcker Rule from (1) engaging in short-term proprietary trading for our own account, and
(2) having certain ownership interests in and relationships with hedge funds or private equity funds. The fundamental
prohibitions of the Volcker Rule apply to banking entities of any size, including the Company and its bank subsidiaries. The
Volcker Rule regulations contain exemptions for market-making, hedging, underwriting, trading in U.S. government and
agency obligations and also permit certain ownership interests in certain types of funds to be retained. They also permit the
offering and sponsoring of funds under certain conditions. The Volcker Rule regulations impose significant compliance and
reporting obligations on banking entities. The Company has put in place the compliance programs required by the Volcker Rule
and has either divested or received extensions for any holdings in illiquid funds.
As of October 2019, the five regulatory agencies charged with implementing the Volcker Rule finalized amendments to the
Volcker Rule's proprietary trading and compliance provisions. These amendments tailor the Volcker Rule’s compliance
requirements to the amount of a firm’s trading activity, revise the definition of trading account, clarify certain key provisions in
the Volcker Rule, and modify the information companies are required to provide the federal agencies.
In June 2020, the five regulatory agencies again modified the Volcker Rule, effective October 1, 2020. These modifications
permit banking entities to engage in certain fund activities, expand permissible transactions with covered funds, reduce
extraterritorial effects on foreign funds, and clarify the Volcker Rule. These requirements are not expected to have a material
impact on the Company’s investing and trading activities. The Company will continue to monitor the Volcker Rule-related
developments and assess their impact on its operations as necessary.
Capital Requirements of the Company and Subsidiary Banks
We and our subsidiary banks are required to maintain minimum risk-based and leverage capital ratios, as well as a capital
conservation buffer (“Capital Conservation Buffer”), pursuant to regulations adopted by the Federal Reserve and the OCC to
implement the Basel III capital framework (“U.S. Basel III Rule”).
Regulatory Capital and Risk-weighted Assets
Regulatory capital requirements apply to Common Equity Tier 1 capital, Tier 1 capital and total capital.
•
•
•
Common Equity Tier 1 capital consists primarily of common stock and related surplus (net of treasury stock), retained
earnings, and certain minority interests, subject to certain regulatory adjustments. For us and our subsidiary banks,
Common Equity Tier 1 capital does not include most elements of accumulated other comprehensive income (“AOCI”)
because we exercised an opt-out election that was available to us with respect to certain changes in the capital treatment
of AOCI. We made this election to avoid variations in the level of our capital depending on fluctuations in the fair value
of our securities and derivatives portfolio.
Tier 1 capital is composed of Common Equity Tier 1 capital and Additional Tier 1 capital. Additional Tier 1 capital
consists primarily of non-cumulative perpetual preferred stock and related surplus, certain minority interests and, subject
to certain regulatory limits, certain grandfathered cumulative perpetual preferred stock and certain grandfathered trust
preferred securities.
Total capital is composed of Tier 1 capital and Tier 2 capital. Tier 2 capital consists primarily of capital instruments and
related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual
preferred stock, mandatory convertible securities, intermediate preferred stock, certain trust preferred securities and
subordinated debt. Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of
risk-weighted assets (“RWAs”) and, for institutions that have exercised the opt-out election regarding the treatment of
AOCI up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market
values.
Certain adjustments to and deductions from capital are required for purposes of calculating these regulatory capital measures,
including with respect to goodwill, intangible assets, certain deferred tax assets, AOCI and investments in the capital
instruments of unconsolidated financial institutions. In July 2019, the U.S. bank regulators finalized changes to certain aspects
of the U.S. Basel III capital rules that simplified, for certain bank holding companies and banks, including us and our subsidiary
banks, the framework for capital deductions for mortgage servicing assets, certain deferred tax assets and investments in the
capital instruments of unconsolidated financial institutions, and the recognition of minority interests in regulatory capital. These
amendments were effective as of April 1, 2020. The final rule also supersedes the transition rule that the U.S. bank regulators
adopted in 2017 to allow certain banking organizations to continue to apply the transition treatment in effect in 2017 while the
U.S. bank regulators considered the capital simplification proposals.
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In addition, in December 2018, the U.S. federal banking agencies finalized rules that permit BHCs and banks to phase in, for
regulatory capital purposes, the day-one impact of Accounting Standards Update (“ASU”) 2016-13 Financial Instruments -
Credit Losses (Topic 326) (“CECL”) on retained earnings over a period of three years. In response to the COVID-19 pandemic,
in 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC published another final rule to delay
the estimated impact on regulatory capital stemming from the implementation of CECL. The final rule maintains the three-year
transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on
regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition
period (five-year transition option). The Company is adopting the capital transition relief over the permissible five-year period.
For further discussion of the new CECL accounting standard, including the Company's implementation of such guidance, see
“Summary of Critical Accounting Policies” under Management's Discussion and Analysis of Financial Condition and Results
of Operations in Item 7 and Note 2 “Recent Accounting Pronouncements,” to the Consolidated Financial Statements presented
under Item 8 of this Annual Report on Form 10-K.
Capital Ratio Requirements
Under the U.S. Basel III Rule, we and our subsidiary banks are required to maintain the following minimum capital ratios:
•
•
•
•
Common Equity Tier 1 capital to RWAs ratio (“Common Equity Tier 1 Capital Ratio”) of 4.5%;
Tier 1 capital to RWAs ratio (“Tier 1 Capital Ratio”) of 6.0%;
Total capital to RWAs ratio (“Total Capital Ratio”) of 8.0%; and
Tier 1 capital to quarterly average assets (net of goodwill, certain other intangible assets and certain other deductions)
ratio (“Tier 1 Leverage Ratio”) of 4.0%.
To be well-capitalized, our subsidiary banks must maintain the following capital ratios:
•
•
•
•
Common Equity Tier 1 Capital Ratio of 6.5% or greater;
Tier 1 Capital Ratio of 8.0% or greater;
Total Capital Ratio of 10.0% or greater; and
Tier 1 Leverage Ratio of 5.0% or greater.
The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect the higher capital
requirements imposed under the U.S. Basel III Rule. For purposes of the Federal Reserve’s Regulation Y, including
determining whether a bank holding company meets the requirements to be a financial holding company, bank holding
companies, such as the Company, must maintain a Tier 1 Capital Ratio of 6.0% or greater and a Total Capital Ratio of 10.0% or
greater to be well-capitalized. If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank
holding companies as that applicable to our subsidiary banks, the Company’s capital ratios as of December 31, 2020 would
exceed such revised well-capitalized standard. The Federal Reserve may require bank holding companies, including us, to
maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a
bank holding company’s particular condition, risk profile and growth plans.
Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible
additional discretionary actions by regulators, including restrictions on our or our subsidiary banks’ ability to pay dividends or
otherwise distribute capital or to receive regulatory approval of applications, or other restrictions on growth. Such actions, if
undertaken, could have an adverse material effect on our operations or financial condition.
In addition to meeting the minimum capital requirements, under the U.S. Basel III Rule, we and our banking subsidiaries must
also maintain the required Capital Conservation Buffer to avoid becoming subject to restrictions on capital distributions and
certain discretionary bonus payments to management. The Capital Conservation Buffer is 2.5% and is calculated as a ratio of
Common Equity Tier 1 capital to RWAs and it effectively increases the required minimum risk-based capital ratios. The Tier 1
Leverage Ratio is not impacted by the Capital Conservation Buffer, and a banking institution may be considered well-
capitalized while remaining out of compliance with the Capital Conservation Buffer.
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The table below summarizes the capital requirements that we and our subsidiary banks must satisfy to avoid limitations on
capital distributions and certain discretionary bonus payments (i.e., the required minimum capital ratios plus the Capital
Conservation Buffer):
Common Equity Tier 1 Capital Ratio
Tier 1 Capital Ratio
Total Capital Ratio
Minimum Regulatory Capital Ratio Plus
Capital Conservation Buffer
7.00 %
8.50
10.50
As of December 31, 2020, our Company's and our subsidiary banks’ regulatory capital ratios were above the well-capitalized
standards and met the Capital Conservation Buffer. Based on current estimates, we believe that we and our subsidiary banks
will continue to exceed all applicable well-capitalized regulatory capital requirements and the Capital Conservation Buffer.
Please refer to the table below for a summary of our regulatory capital ratios as of December 31, 2020, calculated using the
regulatory capital methodology applicable to us during 2020.
Company Regulatory Capital Ratios
Minimum
Regulatory
Capital Ratio
for the
Company
Minimum
Ratio + Capital
Conservation
Buffer(1)
Well-
Capitalized
Minimum
for the
Company(2)
Common Equity Tier 1 Capital Ratio
Tier 1 Capital Ratio
Total Capital Ratio
Tier 1 Leverage Ratio
4.50 %
6.00
8.00
4.00
7.00 %
8.50
10.50
N/A
The Company
8.8 %
10.0
12.6
N/A
6.00
10.00
N/A
8.1
(1) Reflects the Capital Conservation Buffer of 2.50%.
(2) Reflects the well-capitalized standard applicable to the Company for purposes of the Federal Reserve’s Regulation Y. The
Federal Reserve has not yet revised the well-capitalized standard for BHCs to reflect the higher capital requirements
imposed under the U.S. Basel III Rule or to add Common Equity Tier 1 capital ratio and Tier 1 leverage ratio
requirements to this standard. As a result, the Common Equity Tier 1 capital ratio and Tier 1 leverage ratio are denoted
as “N/A” in this column. If the Federal Reserve were to apply the same or a very similar well-capitalized standard to
BHCs as the standard applicable to our subsidiary banks, the Company’s capital ratios as of December 31, 2020 would
exceed such revised well-capitalized standard.
In addition to the above, as a result of participation in mortgage programs with certain government-sponsored entities as well as
other investors, the Company has specific net worth requirements for continued participation. As of December 31, 2020, the
Company remained in compliance with such requirements.
Liquidity Requirements
Large financial firms are subject to the Liquidity Coverage Ratio (“LCR”) rule, which requires them to meet certain liquidity
measures by holding an adequate amount of unencumbered high-quality liquid assets, such as Treasury securities and other
sovereign debt. In addition, in October 2020, the federal banking agencies finalized the Net Stable Funding Ratio (“NSFR”)
rule, which requires large financial firms to meet certain net stable funding measures by funding themselves with adequate
amounts of medium- and long-term funding.
In October 2019, the federal banking agencies finalized a rule that, among other things, increased the asset thresholds at which
large financial firms would be subject to the LCR and the NSFR. We and our subsidiary banks are not subject to the LCR or the
NSFR. Instead, monitoring of the Company’s and our banking subsidiaries’ liquidity is addressed as a supervisory matter by
our federal and state banking regulators, without required formulaic measures set by regulation.
Capital Planning and Stress Testing Requirements
Pursuant to the Economic Growth Act, which increased the asset thresholds at which company-run stress test requirements
apply, we are no longer required to conduct annual company-run stress tests. While none of our subsidiary banks met the
previous asset thresholds or meet the current increased asset thresholds that would cause them to be subject to stress testing
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requirements under this rule, we run periodic capital stress testing on the consolidated entity and the banks and use those results
to inform management on appropriate levels of capital needed.
Payment of Dividends and Share Repurchases
We are a legal entity separate and distinct from our banking and non-banking subsidiaries. Since our consolidated net income
consists largely of net income of our bank and non-bank subsidiaries, our ability to pay dividends and repurchase shares
depends upon our receipt of dividends from our subsidiaries. There are various federal and state law limitations on the extent to
which our banking subsidiaries can declare and pay dividends to us, including regulatory capital requirements, general
regulatory oversight to prevent unsafe or unsound practices and federal and state banking law requirements concerning the
payment of dividends out of net profits or surplus. Applicable banking laws also prohibit, without prior regulatory approval,
insured depository institutions, such as our bank subsidiaries, from making dividend distributions if such distributions are not
paid out of available earnings. In addition, our right, and the right of our shareholders and creditors, to participate in any
distribution of the assets or earnings of our bank and non-bank subsidiaries is further subject to the prior claims of creditors of
our subsidiaries. No assurances can be given that the banks will, in any circumstances, pay dividends to the Company.
We and our bank subsidiaries must maintain the applicable Common Equity Tier 1 Capital Conservation Buffer to avoid
becoming subject to restrictions on capital distributions, including dividends. The Capital Conservation Buffer is currently at its
fully phased-in level of 2.5%. For more information on the Capital Conservation Buffer, see above.
Our ability to declare and pay dividends to our shareholders is similarly limited by federal banking law and Federal Reserve
regulations and policy. Federal Reserve policy provides that a bank holding company should not pay dividends unless (1) the
bank holding company’s net income over the last four quarters (net of dividends paid) is sufficient to fully fund the dividends,
(2) the prospective rate of earnings retention appears consistent with the capital needs, asset quality and overall financial
condition of the bank holding company and its subsidiaries and (3) the bank holding company will continue to meet minimum
required capital adequacy ratios. The policy also provides that a bank holding company should inform the Federal Reserve
reasonably in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being
paid or that could result in a material adverse change to the bank holding company’s capital structure. Bank holding companies
also are required to consult with the Federal Reserve before materially increasing dividends. The Federal Reserve could prohibit
or limit the payment of dividends by a bank holding company if it determines that payment of the dividend would constitute an
unsafe or unsound practice.
FDICIA and Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires the federal bank regulatory
agencies to take “prompt corrective action” regarding FDIC-insured depository institutions that do not meet certain capital
adequacy standards. A depository institution’s treatment for purposes of the prompt corrective action provisions depends upon
its level of capitalization and certain other factors. An institution that fails to remain well-capitalized becomes subject to a series
of restrictions that increase in severity as its capital condition weakens. Such restrictions may include a prohibition on capital
distributions, restrictions on asset growth or restrictions on the ability to receive regulatory approval of applications. The
FDICIA also provides for enhanced supervisory authority over undercapitalized institutions, including authority for the
appointment of a conservator or receiver for the institution. In certain instances, a bank holding company may be required to
guarantee the performance of an undercapitalized subsidiary bank’s capital restoration plan.
As of December 31, 2020, each of the Company’s banks was categorized as “well-capitalized” and, in addition, met additional
requirements under the Capital Conservation Buffer.
Enforcement Authority
The federal bank regulatory agencies have broad authority to issue orders to depository institutions and their holding companies
prohibiting activities that constitute violations of law, rule, regulation, or administrative order, or that represent unsafe or
unsound banking practices, as determined by the federal banking agencies. The federal banking agencies also are empowered to
require affirmative actions to correct any violation or practice; issue administrative orders that can be judicially enforced; direct
increases in capital; limit dividends and distributions; restrict growth; assess civil money penalties against institutions or
individuals who violate any laws, regulations, orders, or written agreements with the agencies; order termination of certain
activities of holding companies or their non-bank subsidiaries; remove officers and directors; order divestiture of ownership or
control of a non-banking subsidiary by a holding company; or terminate deposit insurance and appoint a conservator or
receiver.
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Safety and Soundness
The federal bank regulatory agencies have adopted a set of guidelines prescribing safety and soundness standards relating to
internal controls and information systems, informational security, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. The guidelines prohibit excessive
compensation as an unsafe and unsound practice, and describe compensation as excessive when the amounts paid are
unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder.
During the past decade, properly managing risks has been identified as critical to the conduct of safe and sound banking
activities and has become even more important as new technologies, product innovation, and the size and speed of financial
transactions have changed the nature of banking markets. The agencies have identified a spectrum of risks facing banking
institutions including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk. Some of the
regulatory pronouncements have focused on operational risk, which arises from the potential that inadequate information
systems, operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses.
New products and services, third-party risk management and cybersecurity are critical sources of operational risk that financial
institutions are expected to address in the current environment. Our subsidiary banks are expected to have active board and
senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and
management information systems; and comprehensive and effective internal controls.
Cross-Guarantee
Under the cross-guarantee provision of the FDIA, insured depository institutions such as our subsidiary banks may be liable to
the FDIC for any losses incurred, or reasonably expected to be incurred, by the FDIC resulting from the default of, or FDIC
assistance to, any other commonly controlled insured depository institution. An FDIC cross-guarantee claim against a
depository institution is superior in right of payment to claims of the holding company and its affiliates against such depository
institution. All of our subsidiary banks are commonly controlled within the meaning of the cross-guarantee provision.
Insurance of Deposit Accounts
The deposits of each of our subsidiary banks are insured by the Depositors Insurance Fund (“DIF”) up to the standard
maximum deposit insurance amount of $250,000 per depositor. Each of our subsidiary banks is subject to deposit insurance
assessments based on the risk it poses to the DIF, as determined by the capital category and supervisory category to which it is
assigned. The FDIC has authority to raise or lower assessment rates on insured deposits in order to achieve statutorily required
reserve ratios in the DIF and to impose special additional assessments. Until September 30, 2018, insured depository
institutions with total consolidated assets of $10 billion or more were required to pay an assessment surcharge. None of our
bank subsidiaries were subject to this surcharge. However, there is a risk that our subsidiary banks’ deposit insurance premiums
will increase if failures of insured depository institutions deplete the DIF or if the FDIC were to change its view of the risk that
they pose to the DIF.
In addition, the Deposit Insurance Fund Act of 1996 authorized the Financing Corporation (“FICO”) to impose assessments on
DIF assessable deposits in order to service the interest on FICO’s bond obligations. The FICO assessment rate was adjusted
quarterly through the final collection in the second quarter of 2019. The rate was approximately 0.120 basis points for the
second quarter of 2019 (12 cents per $10,000 of assessable deposits).
As of June 30, 2020, the DIF reserve ratio fell to 1.30%. The FDIC, as required under the Federal Deposit Insurance Act,
established a plan on September 15, 2020, to restore the DIF reserve ratio to meet or exceed 1.35% within eight years. The
FDIC’s restoration plan projects the reserve ratio to exceed 1.35% without increasing the deposit insurance assessment rate,
subject to ongoing monitoring over the next eight years. The FDIC could increase the deposit insurance assessments for certain
insured depository institutions, including our subsidiary banks, if the DIF reserve ratio is not restored as projected.
Limits on Loans to One Borrower and Loans to Insiders
Federal banking laws impose limits on the amount of credit a bank can extend to any one person (or group of related persons).
For national banks, this limit includes credit exposures arising from derivative transactions, repurchase agreements, and
securities lending and borrowing transactions.
Applicable banking laws and regulations also place restrictions on loans by FDIC-insured banks and their affiliates to their
directors, executive officers and principal shareholders.
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Lending Standards and Guidance
The federal banking agencies have adopted uniform regulations prescribing standards for extensions of credit that are secured
by liens or interests in real estate or made for the purpose of financing permanent improvements to real estate. Under these
regulations, all insured depository institutions, such as our subsidiary banks, must adopt and maintain written policies
establishing appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are
made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio
diversification standards, prudent underwriting standards (including loan-to-value limits) that are clear and measurable, loan
administration procedures, and documentation, approval and reporting requirements. The real estate lending policies must
reflect consideration of the federal bank regulators’ Interagency Guidelines for Real Estate Lending Policies.
De Novo Branching and De Novo Banks
With the approval of applicable regulators, national banks and state banks may establish de novo branches in states other than
their home state as if such state was the bank’s home state.
For a three-year period, newly chartered banks are subject to enhanced supervisory procedures, including higher capital
requirements, more frequent examinations and other requirements.
Anti-Tying Provisions
Each of our subsidiary banks is prohibited from conditioning the availability of any product or service, or varying the price for
any product or service, on the requirement that the customer obtain some additional product or service from the bank or any of
its affiliates, other than loans, deposits and trust services.
Transactions with Affiliates
Certain transactions between a bank and its holding company or other non-bank affiliates are subject to various restrictions
imposed by state and federal law and regulation. Such “covered transactions” include loans and other extensions of credit by the
bank to the affiliate, investments in securities issued by the affiliate, purchases of assets from the affiliate, certain derivative
transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as collateral for a
loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of the affiliate. In general, these affiliate
transaction rules limit the amount of covered transactions between an institution and a single affiliate, as well as the aggregate
amount of covered transactions between an institution and all of its affiliates. In addition, covered transactions that are credit
transactions must be secured by acceptable collateral, and all affiliate transactions, including those that do not qualify as
covered transactions, must be on terms that are at least as favorable to the bank as then-prevailing in the market for comparable
transactions with unaffiliated entities. Transactions between affiliated banks may be subject to certain exemptions under
applicable federal law.
Community Reinvestment Act
Under the CRA, insured depository institutions, including our subsidiary banks, have a continuing and affirmative obligation to
help meet the credit needs of its entire community, including low and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for insured depository institutions nor does it limit an insured depository
institution’s discretion to develop the types of products and services that it believes are best suited to its particular community,
consistent with the CRA. However, insured depository institutions are rated on their performance in meeting the needs of their
communities. The CRA requires each federal banking agency to take an insured depository institution’s CRA record into
account when evaluating certain applications by the insured depository institution or its holding company, including
applications for charters, branches and other deposit facilities, relocations, mergers, consolidations, acquisitions of assets or
assumptions of liabilities, and bank and savings association acquisitions. An unsatisfactory record of performance may be the
basis for denying or conditioning approval of an application by an insured depository institution or its holding company. The
CRA also requires that all institutions publicly disclose their CRA ratings. Each of our subsidiary banks received a
“satisfactory” or better rating from the Federal Reserve or the OCC on its most recent CRA performance evaluation.
In May 2020, the OCC finalized amendments to its CRA rules, which apply to national banks, including our subsidiary banks.
The OCC’s final rule clarifies and expands the types of activities that qualify for positive CRA consideration, updates how
banks determine assessment areas in which they are evaluated, establishes objective performance standards to evaluate CRA
performance and imposes more comprehensive CRA-related data collection and reporting requirements. Our subsidiary banks
must comply with most of these amended requirements by January 1, 2023 or January 1, 2024, as applicable.
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The FDIC and Federal Reserve are also in the process of proposing amendments to their respective CRA rules. While FDIC
and Federal Reserve CRA rules do not apply to our subsidiary banks, future rulemaking to harmonize the CRA rules of the
three federal banking agencies could result in changes to CRA requirements applicable to national banks, including our
subsidiary banks.
Compliance with Consumer Protection Laws
Our subsidiary banks and some other operating subsidiaries are subject to a variety of federal and state statutes and regulations
designed to protect consumers. The CFPB has broad rulemaking authority over a wide range of federal consumer protection
laws that apply to banks and other providers of financial products and services, including the authority to prohibit “unfair,
deceptive or abusive” acts and practices, but examination and supervision is carried out by each subsidiary bank’s primary
federal banking agency and, where applicable, state banking agency, not the CFPB. In addition, the Dodd-Frank Act authorizes
state attorneys general and other state officials to enforce consumer protection rules issued by the CFPB. State authorities have
recently increased their focus on and enforcement of consumer protection rules.
Interest and other charges collected or contracted for by banks are subject to state usury laws and federal laws concerning
interest rates. Loan operations are also subject to federal laws applicable to credit transactions, such as:
•
•
•
•
•
•
•
•
the federal Truth-In-Lending Act and Regulation Z issued by the CFPB, governing disclosures of credit terms to
consumer borrowers;
The Real Estate Settlement Procedures Act and Regulation X issued by the CFPB, requiring that borrowers for mortgage
loans for one- to four-family residential real estate receive various disclosures, including good faith estimates of
settlement costs, lender servicing and escrow account practices, and prohibiting certain practices that increase the cost of
settlement services;
the Home Mortgage Disclosure Act and Regulation C issued by the CFPB, requiring financial institutions to provide
information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation
to help meet the housing needs of the community it serves;
the Equal Credit Opportunity Act and Regulation B issued by the CFPB, prohibiting discrimination on the basis of
various prohibited factors in extending credit;
the Fair Credit Reporting Act and Regulation V issued by the CFPB, governing the use and provision of information to
consumer reporting agencies;
the Fair Debt Collection Practices Act and Regulation F issued by the CFPB, governing the manner in which consumer
debts may be collected by collection agencies;
the Service Members Civil Relief Act, applying to all debts incurred prior to commencement of active military service
(including credit card and other open-end debt) and limiting the amount of interest, including service and renewal charges
and any other fees or charges (other than bona fide insurance) that is related to the obligation or liability; and
the guidance of the various federal agencies charged with the responsibility of implementing such federal laws.
Deposit operations are subject to, among others:
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the Truth in Savings Act and Regulation DD issued by the CFPB, which require disclosure of deposit terms to
consumers;
Regulation CC issued by the Federal Reserve Board, which relates to the availability of deposit funds to consumers;
the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of financial records; and
the Electronic Fund Transfer Act and Regulation E issued by the CFPB, which governs automatic deposits to and
withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines
and other electronic banking services.
There are consumer protection standards that apply to functional areas of operation rather than applying only to loan or deposit
products. Our subsidiary banks and some other operating subsidiaries are also subject to certain state laws and regulations
designed to protect consumers.
The CFPB has promulgated, and continues to promulgate, many mortgage-related final rules since it was established under the
Dodd-Frank Act, including rules related to the ability to repay and qualified mortgage standards, mortgage servicing standards,
loan originator compensation standards, high-cost mortgage requirements, Home Mortgage Disclosure Act requirements and
appraisal and escrow standards for higher priced mortgages. Most of the provisions of these mortgage-related final rules are
currently effective. In addition, several proposed revisions to mortgage-related rules are pending finalization. The mortgage-
related final rules issued by the CFPB have materially restructured the origination, servicing and securitization of residential
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mortgages in the United States. These rules have impacted, and will continue to impact, the business practices of mortgage
lenders, including the Company.
In order to ensure compliance with all mortgage-related rules and regulations, the Company consolidated its consumer
mortgage loan origination and loan servicing operations primarily within Wintrust Mortgage. All consumer mortgage
applications are taken through Wintrust Mortgage, which has extensively trained loan originators located at many of our
branches. While in certain limited cases our banks may offer specialized consumer mortgages to our customers, substantially all
consumer mortgages for all of our banks are originated and closed by Wintrust Mortgage. Wintrust Mortgage then sells loans to
third parties or to our banks. To the extent that we retain consumer mortgage loans in our bank portfolios, our banks have
engaged Wintrust Mortgage to provide loan servicing.
In January 2021, the OCC released a final rule that would require certain OCC-supervised banks to provide access to services,
capital, and credit based on their risk assessment of individual customers, rather than broad-based decisions affecting whole
categories or classes of customers, which includes requiring banks to make each financial service they offer available to all
persons in the geographic market served by them on proportionally equal terms. The rule is scheduled to take effect on April 1,
2021. However, the OCC announced that the next confirmed Comptroller of the Currency will review the final rule, and its
future remains uncertain.
Changes to consumer protection regulations, including those promulgated by the CFPB, could affect our business but the
likelihood, timing and scope of any such changes and the impact any such change may have on us cannot be determined with
any certainty. See Item 1A. Risk Factors.
Debit Interchange
We are subject to a statutory requirement that interchange fees for electronic debit transactions that are paid to or charged by
payment card issuers, including our bank subsidiaries, be reasonable and proportional to the cost incurred by the issuer.
Interchange fees for electronic debit transactions are limited to 21 cents plus 0.05% of the transaction, plus an additional one
cent per transaction fraud adjustment, impose requirements regarding routing and exclusivity of electronic debit transactions,
and generally require that debit cards be usable in at least two unaffiliated networks.
Anti-Money Laundering Programs
The Bank Secrecy Act (“BSA”) and USA PATRIOT Act of 2001 (“USA PATRIOT Act”) contain anti-money laundering
(“AML”) and financial transparency provisions intended to detect, and prevent the use of the U.S. financial system for, money
laundering and terrorist financing activities. The BSA, as amended by the USA PATRIOT Act, requires depository institutions
and their holding companies to undertake activities including maintaining an AML program, verifying the identity of clients,
monitoring for and reporting suspicious transactions, reporting on cash transactions exceeding specified thresholds, and
responding to requests for information by regulatory authorities and law enforcement agencies. Each of our subsidiary banks is
subject to the BSA and, therefore, is required to provide its employees with AML training, designate an AML compliance
officer and undergo an annual, independent audit to assess the effectiveness of its AML program. We have implemented
policies, procedures and internal controls that are designed to comply with these AML requirements. In May 2016, the
Financial Crimes Enforcement Network (“FinCEN”), which is a unit of the Treasury Department that drafts regulations
implementing the USA PATRIOT Act and other AML and BSA legislation, issued final rules governing enhanced customer
due diligence. The rules impose several new obligations on covered financial institutions with respect to their “legal entity
customers,” including corporations, limited liability companies and other similar entities. For each such customer that opens an
account (including an existing customer opening a new account), the covered financial institution must identify and verify the
customer’s “beneficial owners,” who are specifically defined in the rules. The rules contain an exemption for certain insurance
premium financing transactions. Bank regulators are focusing their examinations on anti-money laundering compliance, and we
will continue to monitor and augment, where necessary, our AML compliance programs. The federal banking agencies are
required, when reviewing bank and bank holding company acquisition or merger applications, to take into account the
effectiveness of the anti-money laundering activities of the applicant.
The Anti-Money Laundering Act of 2020, enacted on January 1, 2021 as part of the National Defense Authorization Act, does
not directly impose new requirements on banks, but requires the U.S. Treasury Department to issue National Anti-Money
Laundering and Countering the Financing of Terrorism Priorities, and conduct studies and issue regulations that may, over the
next few years, significantly alter some of the due diligence, recordkeeping and reporting requirements that the Bank Secrecy
Act and USA PATRIOT Act impose on banks. The Anti-Money Laundering Act of 2020 also contains provisions that promote
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increased information-sharing and use of technology, and increases penalties for violations of the Bank Secrecy Act and
includes whistleblower incentives, both of which could increase the prospect of regulatory enforcement.
Office of Foreign Assets Control Regulation
The U.S. Department of the Treasury’s Office of Foreign Assets Control, or “OFAC,” is responsible for administering
economic sanctions that affect transactions with designated foreign countries, nationals and others, as defined by various
Executive Orders and Acts of Congress. OFAC-administered sanctions take many different forms. For example, sanctions may
include: (1) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect
imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating
to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) a blocking of
assets in which the government or “specially designated nationals” of the sanctioned country have an interest, by prohibiting
transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). OFAC also
publishes lists of persons, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts, known as
Specially Designated Nationals and Blocked Persons. Blocked assets (e.g., property and bank deposits) cannot be paid out,
withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could
have serious legal and reputational consequences.
Protection of Client Information
Legal requirements concerning the use and protection of client information affect many aspects of the Company’s business, and
are continuing to evolve. They include the privacy and information safeguarding provisions of the Gramm-Leach-Bliley Act
(“GLB Act”), the Fair Credit Reporting Act (“FCRA”) and the amendments adopted by the Fair and Accurate Credit
Transactions Act of 2003, as well as state law requirements. The GLB Act requires a financial institution to disclose its privacy
policy to certain customers, and requires the financial institution to allow those customers to opt-out of some sharing of the
customers’ nonpublic personal information with nonaffiliated third persons. In accordance with these requirements, we and
each of our banks and operating subsidiaries provide a written privacy notice to each affected customer when the customer
relationship begins and on an annual basis. As described in the privacy notice, we protect the security of information about our
customers, educate our employees about the importance of protecting customer privacy, and allow affected customers to opt out
of certain types of information sharing. We and our subsidiaries also require business partners with which we share information
to have adequate security safeguards and to follow the requirements of the GLB Act. The GLB Act, as interpreted by the federal
banking regulators, and state laws require us to take certain actions, including possible notice to affected customers, in the event
that sensitive customer information is compromised. We and/or each of the banks and operating subsidiaries may need to
amend our privacy policies and adapt our internal procedures in the event that these legal requirements, or the regulators’
interpretation of them, change, or if new requirements are added.
Data privacy and data protection are areas of increasing state legislative focus. For example, in June of 2018, the Governor of
California signed into law the California Consumer Privacy Act (“CCPA”). The CCPA, which became effective on January 1,
2020, applies to for-profit businesses that conduct business in California and meet certain revenue or data collection thresholds.
The CCPA contains several exemptions, including that many, but not all, requirements of the CCPA are inapplicable to
information that is collected, processed, sold or disclosed pursuant to the GLB Act. California voters also recently passed the
California Privacy Rights Act, which will take effect on January 1, 2023 and significantly modifies the CCPA. The California
Privacy Rights Act imposes additional obligations on covered companies and expands California consumers’ rights with respect
to certain sensitive personal information, resulting in further uncertainty and potentially requiring us to incur additional costs
and expenses in an effort to comply with these requirements.
The CCPA may be interpreted or applied in a manner inconsistent with our understanding or similar laws may be adopted by
other states where we do business. The impact of the CCPA on our business is yet to be determined. The federal government
may also pass data privacy or data protection legislation.
Like other lenders, the banks and several of our operating subsidiaries use credit bureau data in their underwriting activities.
Use of such data is regulated under the FCRA, and the FCRA also regulates reporting information to credit bureaus,
prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for marketing
purposes. Similar state laws may impose additional requirements on us, the banks and our operating subsidiaries.
In December 2020, the Federal Reserve, OCC and FDIC issued a notice of proposed rulemaking that, among other things,
would require a banking organization to notify its primary federal regulators within 36 hours after identifying a “computer-
security incident” that the banking organization believes in good faith could materially disrupt, degrade or impair its business or
operations in a manner that would, among other things, jeopardize the viability of its operations, result in customers being
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unable to access their deposit and other accounts, result in a material loss of revenue, profit or franchise value, or pose a threat
to the financial stability of the United States.
Violation of these legal requirements may expose us to regulatory action and private litigation, including claims for damages
and penalties.
Broker-Dealer and Investment Adviser Regulation
Wintrust Investments and Great Lakes Advisors are subject to extensive regulation under federal and state securities laws.
Wintrust Investments is registered as a broker-dealer with the SEC and in all 50 states, the District of Columbia and the U.S.
Virgin Islands. Both Wintrust Investments and Great Lakes Advisors are registered as investment advisers with the SEC. In
addition, Wintrust Investments is a member of several self-regulatory organizations (“SROs”), including FINRA and NYSE
Chicago. In addition to SEC rules and regulations, the SROs adopt rules, subject to approval of the SEC, that govern all aspects
of business in the securities industry and conduct periodic examinations of member firms. Wintrust Investments is also subject
to regulation by state securities commissions in states in which it conducts business. Wintrust Investments and Great Lakes
Advisors are registered only with the SEC as investment advisers, but certain of their advisory personnel are subject to
regulation by state securities regulatory agencies.
As a result of federal and state registrations and SRO memberships, Wintrust Investments is subject to overlapping schemes of
regulation that cover all aspects of its securities businesses. Such regulations cover uses and safekeeping of clients’ funds;
record-keeping and reporting requirements; supervisory and organizational procedures intended to assure compliance with
securities laws and to prevent improper trading on material nonpublic information; personnel-related matters, including
qualification and licensing of supervisory and sales personnel; limitations on extensions of credit in securities transactions;
clearance and settlement procedures; “suitability” determinations as to certain customer transactions; limitations on the amounts
and types of fees and commissions that may be charged to customers; and regulation of proprietary trading activities and
affiliate transactions. Violations of the laws and regulations governing a broker-dealer’s actions can result in censures, fines, the
issuance of cease-and-desist orders, revocation of licenses or registrations, the suspension or expulsion from the securities
industry of a broker-dealer or its officers or employees, or other similar actions by both federal and state securities
administrators, as well as the SROs.
As a registered broker-dealer, Wintrust Investments is subject to the SEC’s net capital rule as well as the net capital
requirements of the SROs of which it is a member. Net capital rules, which specify minimum capital requirements, are designed
to measure general financial integrity and liquidity and require that at least a minimum amount of net assets be kept in relatively
liquid form. Rules of FINRA and other SROs also impose limitations and requirements on the transfer of member
organizations’ assets. Compliance with net capital requirements may limit the Company’s operations requiring the intensive use
of capital. These requirements restrict the Company’s ability to withdraw capital from Wintrust Investments, which in turn may
limit the Company’s ability to pay dividends, repay debt or redeem or purchase shares of the Company’s own outstanding
stock. Wintrust Investments is a member of the Securities Investor Protection Corporation (“SIPC”), which subject to certain
limitations, serves to oversee the liquidation of a member brokerage firm, and to return missing cash, stock and other securities
owed to the firm’s brokerage customers, in the event a member broker-dealer fails. The general SIPC protection for customers’
securities accounts held by a member broker-dealer is up to $500,000 for each eligible customer, including a maximum of
$250,000 for cash claims. SIPC does not protect brokerage customers against investment losses. In addition to SIPC coverage,
the clearing firm utilized by Wintrust Investments offers certain insurance coverage. In the event of the clearing firm’s
insolvency, clients whose cash and securities were not fully protected by SIPC may benefit from this additional insurance. The
policy provides coverage to each client up to $1.9 million, subject to an aggregate cap of $1 billion for all policy beneficiaries.
Wintrust Investments and Great Lakes Advisors in their capacities as investment advisers are subject to regulations covering
matters such as transactions between clients, transactions between the adviser and clients, custody of client assets and
management of mutual funds and other client accounts. The principal purpose of regulation and discipline of investment firms
is the protection of customers, clients and the securities markets rather than the protection of creditors and shareholders of
investment firms. Sanctions that may be imposed for failure to comply with laws or regulations governing investment advisers
include the suspension of individual employees, limitations on an adviser’s engaging in various asset management activities for
specified periods of time, the revocation of registrations, other censures and fines.
In June 2019, the SEC finalized Regulation Best Interest, which imposes a new standard of conduct on SEC-registered broker-
dealers when making recommendations to retail customers. In addition, the SEC finalized a new summary disclosure form that
broker-dealers and registered investment advisers must provide to retail customers. Wintrust Investments and Great Lakes
Advisors were required to comply with these requirements, as applicable, as of June 2020.
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Incentive Compensation
The federal banking agencies have issued joint guidance on incentive compensation designed to ensure that the incentive
compensation policies of banking organizations, such as us and our subsidiary banks, do not encourage imprudent risk taking
and are consistent with the safety and soundness of the organization. In addition, the Dodd-Frank Act requires the federal
banking agencies and the SEC to issue regulations or guidelines requiring covered financial institutions, including us and our
subsidiary banks, to prohibit incentive-based payment arrangements that encourage inappropriate risks by providing
compensation that is excessive or that could lead to material financial loss to the institution. A proposed rule was issued in
2016. Also pursuant to the Dodd-Frank Act, in 2015, the SEC proposed rules that would direct stock exchanges to require listed
companies to implement clawback policies to recover incentive-based compensation from current or former executive officers
in the event of certain financial restatements and would also require companies to disclose their clawback policies and their
actions under those policies. It is unclear when, if ever, the proposed rules will be finalized. The Biden Administration may
revisit these proposals.
Human Capital Resources
Since its formation, Wintrust has held the objective of aiming to differentiate itself by offering customers a highly-personalized
banking experience, through staff that is warm, friendly, and responsive. Wintrust expects each of its employees to embody that
original mission by serving as brand ambassadors each day, within each community served by our banks and other business
units.
Workforce Overview
As of December 31, 2020, Wintrust employed 5,364 people inside the US and Canada. Approximately 95% of Wintrust’s
employees are classified as full-time working greater than 30 hours per week. We typically experience year-over-year growth in
employee count and in 2020 added another 183 employees. None of our employees are represented by a collective bargaining
agreement and we consider our employee relations to be good.
Talent Recruiting and Retention
At Wintrust we recognize that attracting, motivating and retaining talent at all levels is vital to continuing our success. In 2020,
Wintrust filled approximately 1,035 positions, including external hires, internal transfers/promotions, and temporary hires. In
2020, approximately 54% of our new hires self-identified as female and approximately 34% of new hires self-identified as a
racial or ethnic minority. Wintrust promotes an employee referral program, which we believe favorably affects colleague
retention and engagement. Turnover for the entire Wintrust enterprise for the year was approximately 17% and voluntary
turnover accounted for approximately 14%.
Wintrust offers total rewards packages that are that are designed to attract, motivate and retain a talented and diverse group of
employees. In addition to competitive, performance-based compensation plans, we provide employees with comprehensive
benefits packages. Wintrust consistently monitors and adapts its total rewards program design to reflect both market changes
and employee feedback.
Diversity & Inclusion
Wintrust strives to promote a diverse and inclusive culture where each employee can be successful. Women currently represent
more than 58% of Wintrust’s workforce. In addition, ethnically diverse representation in Wintrust’s workforce is approximately
32%. To further advance diversity and inclusion across Wintrust, we have taken the following steps:
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Each year since 2018 senior executives from across the enterprise attend Wintrust’s Executive Diversity Forum to
obtain inclusive leadership continuing education and to assess progress toward goals in this area.
Nearly 10% of Wintrust’s employees have registered as members of inclusion-focused Business Resource Groups,
which include a Co-Ed Leadership Coalition, the Multicultural Professionals Network, and Career Navigation.
Formal Diversity & Inclusion Business Unit Action Plans document key goals and effective effort for advancing
diversity and inclusion across each bank charter and specialty business.
• Wintrust maintains strategic external partnerships to expand reach into diverse talent pools and enhance diverse
representation in an increasingly multicultural marketplace.
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Learning & Development
We are committed to providing all team members with development opportunities through individual and career development
planning. Our employees have access to approximately 500 Banking topics, 150 Professional Skills topics and 400 customized
training courses and resources through Wintrust University – our learning portal. In 2020, Wintrust invested more than 88,000
total hours in training by team members.
We routinely identify and recognize talented employees by performing comprehensive reviews of leadership capability,
readiness, aspiration and succession planning. To support the development of our internal talent pipeline, we’ve invested in a
number of programs to support the development of future leaders and additional training for senior leaders with strategic
accountability, including “Retail Bank Training” and “IRA Boot Camps”. To support the development of future leaders, we
offer “The Fundamentals of Wintrust Leadership” for newly minted leaders, and “Winning at Wintrust” for senior leaders with
strategic accountability.
Annually, Wintrust team members at all levels certify their completion of regulatory training based upon their roles and
responsibilities. They also are encouraged to complete a minimum of two professional development activities each year.
Pandemic Worker Health & Safety Efforts
Initiatives undertaken to keep our employees safe in the midst of the COVID-19 pandemic include:
Immediately shifted nearly all of our non-worksite essential staff to work remote.
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• Modified banking operations and branch staffing levels to limit close person-to-person contact where possible. In
addition to temporarily closing some branch lobbies and switching to drive-thru only service, retail employees were
scheduled for bi-weekly rotational shifts. Employees were paid full wages even while home on rotational schedules.
Retail employees were paid an hourly premium for all on-site hours worked while stay at home hours were in effect.
Provided an additional 80 hours of emergency paid sick time to employees to cover absences for illness, quarantine,
and care of family members.
Offered new telemedicine services through a third-party vendor for COVID-19 symptoms and illness.
Covered the full cost of COVID-19 testing for all employees and family members enrolled in Wintrust’s health
benefits.
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• Made at-home COVID-19 test kits available to limit employees’ need to leave their homes for testing.
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Enhanced childcare benefits for employees to improve work-life balance.
Enhanced employee assistance program offerings and resources designed to help employees deal with COVID-19
related mental health issues.
Implemented new safety protocols, signage and distributed personal protective equipment (“PPE”) kits to all locations.
Implemented comprehensive employee communications program regarding COVID-19 related matters.
Provided enhanced manager and employee resources relating to remote work environment.
Deployed daily health attestations for all employees reporting to branch locations and offices.
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• Made HVAC system enhancements to provide for improved air quality via upgraded filtration media and increased air
circulation.
• Deployed photohydroionization or electrostatic sanitization air purification technology at designated locations when
appropriate under the circumstances.
Available Information
The Company’s Internet address is www.wintrust.com. The Company makes available at this address, under the “Investor
Relations” tab, free of charge, its Annual Report on Form 10-K, its annual reports to shareholders, Quarterly Reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably practicable after such material is electronically
filed with, or furnished to, the SEC. These filings are also available on the SEC’s website at www.sec.gov.
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ITEM 1A. RISK FACTORS
Risk Factors Summary
The summary of risks below provides an overview of the principal risks we are exposed to in the normal course of our business
activities. This summary does not contain all of the information provided in the detailed discussion of risks that follows this
summary and should be read together with such detailed discussion.
Risks Related to Economic Conditions and Operating Environment
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Includes risks related to the COVID-19 pandemic, deterioration in economic conditions and economic declines in the
Chicago metropolitan and southern Wisconsin market areas, since our business is concentrated in these regions.
Risks Related to Competition and Reputation
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Includes risks related to our ability to compete effectively, damage to our reputation, consumers deciding not to use
banks to complete their financial transactions and the impact on us from the soundness of other financial institutions.
Risks Related to Growth and Acquisitions
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Includes risks related to our ability to identify favorable acquisitions or successfully integrate our acquisitions, our
participation in FDIC-assisted acquisitions, new lines of business and new products and services and de novo
operations that often involve significant expenses and delayed returns.
Legal and Regulatory Risks
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Includes risks related to our ability to meet regulatory capital ratios, changes in the United States’ monetary policy,
legislative and regulatory actions taken now or in the future regarding the financial services industry, financial reform
legislation and increased regulatory rigor around consumer protection mortgage-related issues, federal, state and local
consumer lending laws that may restrict our ability to originate certain mortgage loans or increase our risk of liability
with respect to such loans, regulatory initiatives regarding bank capital requirements that may require heightened
capital, any increase in our FDIC insurance premiums, any non-compliance with the USA PATRIOT Act, BSA or
other laws and regulations, claims and legal actions, examinations and challenges by tax authorities, changes in federal
and state tax laws and changes in the interpretation of existing laws, changes in accounting policies or accounting
standards and changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs.
Risks Related to Lending Operations
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Includes risks related to our allowance for credit losses and sufficiency to absorb losses that may occur in our loan
portfolio, litigation from the banks’ customers or other parties regarding the banks’ processing of loans for the SBA
Paycheck Protection Program (“PPP”) and that the SBA may not fund some or all PPP loan guaranties, the repayment
of commercial loans which are largely dependent upon the financial success and economic viability of the borrower,
our loan portfolio being secured by real estate, in particular commercial real estate, events impacting collateral
consisting of real property, any inaccurate assumptions in our analytical and forecasting models and environmental
liability risk associated with lending activities.
Risks Related to Our Niche Businesses
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Includes risks related to our premium finance business, which may involve a higher risk of delinquency or collection
than our other lending operations, widespread financial difficulties or credit downgrades among commercial and life
insurance providers and exposure to certain risks associated with the securities industry.
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Risks Related to Financial Strength and Liquidity
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Includes risks related to changes in prevailing interest rates, our liquidity position, an actual or perceived reduction in
our financial strength, our credit rating, capital not being available when it is needed or the cost of that capital being
very high, disruption in the financial markets, being a bank holding company and therefore being limited in sources of
funds, including to pay dividends, and uncertainty about the future of LIBOR.
Risks Related to General Operations
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Includes risks related to our controls and procedures, our operational or security systems or infrastructure, or those of
third parties, security risks (including denial of service attacks, hacking, social engineering attacks targeting our
colleagues and customers, malware intrusion and data corruption attempts), the failures of vendors, cybersecurity risks
associated with debit cards and debit card transactions, the accuracy and completeness of information we receive about
our customers and counterparties to make credit decisions, our ability to attract and retain experienced and qualified
personnel, losses incurred in connection with actual or projected repurchases and indemnification payments related to
mortgages that we have sold into the secondary market and the occurrence of extraordinary events, such as acts of war,
terrorist attacks, natural disasters and public health threats.
Risks Related to Ownership of Our Common Stock
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Anti-takeover provisions could negatively impact our shareholders.
Risk Factors
An investment in our securities is subject to risks inherent to our business. Certain material risks and uncertainties that
management believes affect Wintrust are described below. Before making an investment decision, you should carefully
consider the risks and uncertainties described below together with all of the other information included or incorporated by
reference in this Annual Report on Form 10-K and in our other filings with the SEC. Additional risks and uncertainties that
management is not aware of or that management currently deems immaterial may also impair Wintrust’s business operations.
This Annual Report on Form 10-K is qualified in its entirety by these risk factors. If any of the following risks actually occur,
our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the
value of our securities could decline significantly, and you could lose all or part of your investment.
Risks Related to Economic Conditions and Operating Environment
The COVID-19 pandemic is adversely affecting us and our customers, employees and third-party service providers, and the
adverse impact on our business, financial condition, results of operations and cash flows could be material.
The COVID-19 pandemic has negatively impacted us and many of our customers, and could continue to affect significantly
more households and businesses in our geographic area as well as the overall domestic and global economy. U.S. federal, state
and foreign governments have taken actions to address the pandemic, including travel bans, school and business closures and
“shelter in place” orders. Despite the partial lifting of some of these measures in some of the states in our geographic footprint
and the initial distribution of vaccines, the fluctuations in cases in the United States means that it remains unknown if any of
these measures will be reinstated and when there will be a return to normal economic activity. These actions, together with
responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity,
temporary closures of many businesses that have led to loss of revenues and a rapid increase in unemployment, material
decreases in business valuations, disruption of global supply chains, market downturns and volatility, changes in consumer
behavior and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future.
These changes may have a significant adverse effect on the markets in which we conduct our business, the demand for our
products and services, and our ability to operate in the normal course. All of our three primary business segments: community
banking, specialty finance and wealth management, have been uniquely impacted and we expect will continue to be impacted
by the COVID-19 pandemic, requiring the implementation of certain responses as circumstances evolve. In addition, the
COVID-19 pandemic may have the effect of heightening the other risks described in this Item 1A.
We have increased our allowance for loan losses in response to the COVID-19 pandemic. The effects of the pandemic could
cause us to recognize heightened credit losses in our loan portfolio and additional increases in our allowance for loan losses.
Certain portions of our lending portfolio are particularly vulnerable to the COVID-19 pandemic, including commercial and
industrial and commercial real estate loans. Until the effects of the pandemic subside, we could experience additional draws on
lines of credit, downward pressure on deposits, and increased loan delinquencies. The effects of COVID-19 may impair the
value of collateral securing our loans, especially commercial and residential real estate loans. Further, a significantly larger
amount of delinquent mortgage loans may result in us having to repurchase or substitute loans that we have sold in the
secondary market.
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Market interest rates have declined significantly during the pandemic. The lower interest rate environment has negatively
affected our interest rate margin and, especially if prolonged, could adversely affect our net interest income and profitability.
Further, the pandemic could cause us to recognize impairment of our goodwill and other financial assets, may increase our cost
of capital, may prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements, and could
result in a downgrade in our credit ratings. The economic recession caused by the COVID-19 pandemic, especially if
prolonged, may have a material adverse effect on our business, financial condition and results of operations.
To protect the health and safety of our employees and communities, many of our employees are working remotely. We may
experience increased costs of operations or other operational difficulties, including increased cybersecurity risk, due to the
remote working environments of our employees. We may also experience additional operational risk due to difficulties
experienced by our vendors. The effects of the pandemic and measures taken in response may subject us to increased risk of
litigation and governmental and regulatory scrutiny.
Given the ongoing and dynamic nature of the circumstances, it is not possible to accurately predict the extent, severity or
duration of the pandemic or when normal economic and operating conditions will resume. Even after the pandemic has
subsided, we may continue to experience adverse impacts to our business as a result of the virus’s impact on the domestic and
global economy. Accordingly, the extent to which the COVID-19 pandemic may affect our business, financial condition, results
of operations and cash flows (including without limitation our liquidity, regulatory capital ratios and credit ratings) is highly
uncertain, unpredictable and depends on factors including, among other things, new information that may emerge regarding the
COVID-19 pandemic, the duration and severity of the pandemic, the availability and efficacy of vaccines and responses to the
pandemic by the government, businesses and consumers.
Deterioration in economic conditions may materially adversely affect the financial services industry and our business,
financial condition, results of operations and cash flows.
Our business activities and earnings are affected by general business conditions in the United States and abroad, including
factors such as the level and volatility of short-term and long-term interest rates, inflation, home prices, unemployment and
underemployment levels, bankruptcies, household income, consumer spending, fluctuations in both debt and equity capital
markets, liquidity of the global financial markets, the availability and cost of capital and credit, investor sentiment and
confidence in the financial markets, and the strength of the domestic economies in which we operate. The deterioration of any
of these conditions can adversely affect our consumer and commercial businesses and securities portfolios, our level of charge-
offs and provision for credit losses, our capital levels and liquidity, and our results of operations.
As a lending institution, our business is directly affected by the ability of our borrowers to repay their loans, as well as by the
value of collateral, such as real estate, that secures many of our loans. Any economic deterioration from current levels or
slowing of current economic activity could lead to an increase in loan charge-offs and negatively affect consumer confidence as
well as the level of business activity. Net charge-offs totaled $40.3 million in 2020 from $49.5 million in 2019. Our balance of
non-performing loans and other real estate owned (“OREO”) was $127.5 million and $16.6 million, respectively, at December
31, 2020 compared to $117.6 million and $15.2 million, respectively, at December 31, 2019. Deterioration in the economy, real
estate markets or increased unemployment rates, particularly in the markets in which we operate, will likely diminish the ability
of our borrowers to repay loans that we have made to them, decrease the value of any collateral securing such loans and may
cause increases in delinquencies, problem assets, charge-offs and provision for credit losses, all of which could materially
adversely affect our financial condition and results of operations. Further, the underwriting and credit monitoring policies and
procedures that we have adopted may not prevent losses that could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Since our business is concentrated in the Chicago metropolitan and southern Wisconsin market areas, economic declines in
the economy of this region could adversely affect our business.
Except for our premium finance business and certain other niche businesses, our success depends primarily on the general
economic conditions of the specific local markets in which we operate. Unlike larger national or other regional banks that are
more geographically diversified, we provide banking and financial services to customers primarily in the Chicago metropolitan
and southern Wisconsin market areas. The local economic conditions in these areas significantly impact the demand for our
products and services as well as the ability of our customers to repay loans, the value of the collateral securing loans and the
stability of our deposit funding sources.
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In addition, the State of Illinois has experienced significant financial difficulty in recent years. To the extent that these issues
impact the economic vitality of the state and the businesses operating in Illinois, businesses may be encouraged to leave the
state or new employers may be discouraged to start or move businesses to Illinois, which could have a material adverse effect
on our financial condition and results of operations.
Risks Related to Competition and Reputation
The financial services industry is very competitive, and if we are not able to compete effectively, we may lose market share
and our business could suffer.
We face competition in attracting and retaining deposits, making loans, and providing other financial services (including wealth
management services) throughout our market area. Our competitors include national, regional and other community banks, and
a wide range of other financial institutions such as credit unions, government-sponsored enterprises, mutual fund companies,
insurance companies, factoring companies and other non-bank financial companies such as marketplace lenders and other
financial technology (“FinTech”) companies. Many of these competitors have substantially greater resources and market
presence or more advanced technology than Wintrust and, as a result of their size, may be able to offer a broader range of
products and services, better pricing for those products and services, or newer technologies to deliver those products and
services than we can. Several of our local competitors have experienced improvements in their financial condition over the past
few years and are better positioned to compete for loans, acquisitions and personnel. The financial services industry could
become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. For
example, the Economic Growth Act and its implementing regulations significantly reduce the regulatory burden of certain large
BHCs and raise the asset thresholds at which more onerous requirements apply, which could cause certain large BHCs to
become more competitive or to more aggressively pursue expansion. Also, technology has lowered barriers to entry and made it
possible for non-banks to offer products and services traditionally provided by banks, such as mobile payment and other
automatic transfer and payment systems, and for banks that do not have a physical presence in our markets to compete for
deposits. The absence of regulatory requirements may give non-bank financial companies a competitive advantage over
Wintrust.
Our ability to compete successfully depends on a number of factors, including, among other things:
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the ability to develop, maintain and build upon long-term customer relationships based on top quality service and high
ethical standards;
the scope, relevance and pricing of products and services offered to meet customer needs and demands;
the ability to expand our market position;
the ability to uphold our reputation in the marketplace;
the rate at which we introduce new products and services relative to our competitors;
customer satisfaction with our level of service; and
industry and general economic trends.
If we are unable to compete effectively, we will lose market share and income from deposits, loans and other products may be
reduced. This could adversely affect our profitability and have a material adverse effect on our business, financial condition and
results of operations.
Damage to our reputation may harm our business.
Maintaining trust in the Company is critical to our ability to attract and maintain customers, investors and employees. If our
reputation is damaged, our business could be significantly harmed. Harm to our reputation could arise from numerous sources,
including, among others, employee misconduct, security breaches, compliance failures, litigation or regulatory outcomes or
governmental investigations. Our reputation could also be harmed by the failure or perceived failure of an affiliate or a vendor
or other third party with which we do business, to comply with laws or regulations. In addition, our reputation or prospects
could be significantly damaged by adverse publicity or negative information regarding the Company, whether or not true, that
may be posted on social media, non-mainstream news services or other parts of the internet, and this risk can be magnified by
the speed and pervasiveness with which information is disseminated through those channels.
Actions by the financial services industry generally or by certain members of or individuals in the industry can also affect our
reputation. For example, the role played by financial services firms during and after the financial crisis, including concerns that
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consumers have been treated unfairly by financial institutions or that a financial institution had acted inappropriately with
respect to the methods employed in offering products to customers, have damaged the reputation of the industry as a whole.
In addition, increased focus on environmental, social and governance (“ESG”) issues, including without limitation the impact of
climate change, could damage our reputation or prospects if customers, prospective customers, investors or third parties
assigning ESG ratings to the Company are of the opinion that the Company’s practices, including without limitation our lending
practices, are not sufficiently robust from an ESG perspective.
Should any of these or other events or factors that can undermine our reputation occur, there is no assurance that the additional
costs and expenses that we may need to incur to address the issues giving rise to the damage to our reputation would not
adversely affect our earnings and results of operations, or that damage to our reputation will not impair our ability to retain our
existing customers and employees or attract new customers and employees. Harm to our reputation or the reputation of our
industry may also result in greater regulatory or legislative scrutiny, which may lead to changes in laws or regulations that
could constrain our business or operations. Events that result in damage to our reputation may also increase our litigation risk.
Consumers may decide not to use banks to complete their financial transactions, which could adversely affect our business
and results of operations.
Technology and other changes are allowing parties to complete financial transactions that historically have involved banks
through alternative methods. For example, consumers can now maintain funds that would have historically been held as bank
deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and transferring
funds directly without the assistance of banks. The process of eliminating banks as intermediaries could result in the loss of fee
income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these
revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our business, financial
condition and results of operations.
We may be adversely impacted by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have
exposure to many different industries and counterparties and routinely execute transactions with counterparties in the financial
services industry, including the Federal Home Loan Bank (“FHLB”), commercial banks, brokers and dealers, investment banks
and other institutional clients. Many of these transactions expose us to credit risk as well as market and liquidity risk in the
event of a default by a counterparty or client. In addition, our credit risk may be exacerbated when collateral held by us cannot
be realized or is liquidated at prices not sufficient to recover the full amount due to us. Any such losses could have material
adverse effect on our business, financial condition and results of operations.
Risks Related to Growth and Acquisitions
If we are unable to continue to identify favorable acquisitions or successfully integrate our acquisitions, our growth may be
limited and our results of operations could suffer.
In the past several years, we have completed numerous acquisitions of banks, other financial service related companies and
financial service related assets, including acquisitions of troubled financial institutions, as more fully described below. We
expect to continue to make such acquisitions in the future. Wintrust seeks merger or acquisition partners that are culturally
similar, have experienced management, possess either significant market presence or have potential for improved profitability
through financial management, economies of scale or expanded services. Failure to successfully identify and complete
acquisitions likely will result in Wintrust achieving slower growth.
The Economic Growth Act could result in increased competition for merger or acquisition partners, potentially resulting in
higher acquisition prices or an inability to complete desired acquisitions. Acquiring other banks, businesses or branches
involves various risks commonly associated with acquisitions, including, among other things:
(1) potential exposure to unknown or contingent liabilities or asset quality issues of the target company;
(2) failure to adequately estimate the level of loan losses at the target company;
(3) difficulty and expense of integrating the operations and personnel of the target company;
(4) potential disruption to our business, including diversion of our management's time and attention;
(5) the possible loss of key employees and customers of the target company;
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(6) difficulty in estimating the value of the target company; and
(7) potential changes in banking or tax laws or regulations that may affect the target company.
Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of
Wintrust’s tangible book value and net income per common share may occur as a result of any future acquisitions. In addition,
certain acquisitions may expose us to additional regulatory risks, including from foreign governments. Our ability to comply
with any such regulations will impact the success of any such acquisitions. Furthermore, failure to realize the expected revenue
increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could
have a material adverse effect on our financial condition and results of operations.
Our participation in FDIC-assisted acquisitions may present additional risks to our financial condition and results of
operations.
As part of our growth strategy, we have made opportunistic partial acquisitions of troubled financial institutions in transactions
facilitated by the FDIC through our bank subsidiaries. These acquisitions, and any future FDIC-assisted transactions we may
undertake, involve greater risk than traditional acquisitions because they are typically conducted on an accelerated basis,
allowing less time for us to prepare for and evaluate possible transactions, or to prepare for integration of an acquired
institution. These transactions also present risks of customer loss, strain on management resources related to collection and
management of problem loans and problems related to the integration of operations and personnel of the acquired financial
institutions. As a result, there can be no assurance that we will be able to successfully integrate the financial institutions we
acquire, or that we will realize the anticipated benefits of the acquisitions. Additionally, while the FDIC may agree to assume
certain losses in transactions that it facilitates, there can be no assurances that we would not be required to raise additional
capital as a condition to, or as a result of, participation in an FDIC-assisted transaction. Any such transactions and related
issuances of stock may have dilutive effect on earnings per share. Furthermore, we may face competition from other financial
institutions with respect to proposed FDIC-assisted transactions.
We may also be subject to certain risks relating to any future loss sharing agreements with the FDIC. Under a loss sharing
agreement, the FDIC generally agrees to reimburse the acquiring bank for a portion of any losses relating to covered assets of
the acquired financial institution. This was an important financial term of any FDIC-assisted transaction, as troubled financial
institutions often have poorer asset quality. As a condition to reimbursement, however, the FDIC requires the acquiring bank to
follow certain servicing procedures. A failure to follow servicing procedures or any other breach of a loss sharing agreement by
us would result in the loss of FDIC reimbursement. In addition, reimbursable losses and recoveries under loss sharing
agreements are based on the book value of the relevant loans and other assets as determined by the FDIC as of the effective
dates of the acquisitions. The amount that the acquiring banks realizes on these assets could differ materially from the carrying
value reflected in our financial statements, based upon the timing and amount of collections on the covered loans. Any failure to
receive reimbursement, or any material differences between the amount of reimbursements that we receive and the carrying
value reflected in our financial statements, would have a material negative effect on our financial condition and results of
operations.
New lines of business and new products and services are essential to our ability to compete but may subject us to additional
risks.
We continually implement new lines of business and offer new products and services within existing lines of business to offer
our customers a competitive array of products and services. The financial services industry is continually undergoing rapid
technological change with frequent introductions of new technology-driven products and services, such as the rapid adoption of
mobile payment platforms. The effective use of technology can increase efficiency and enable financial institutions to better
serve customers and to reduce costs. However, some new technologies needed to compete effectively result in incremental
operating costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology
to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations.
Many of our competitors, because of their larger size and available capital, have substantially greater resources to invest in
technological improvements. We may not be able to effectively implement new technology-driven products and services or be
successful in marketing these products and services to our customers. Failure to successfully keep pace with technological
change affecting the financial services industry could cause a loss of customers and have a material adverse effect on our
business.
At the same time, there can be substantial risks and uncertainties associated with these efforts, particularly in instances where
the markets for such services are still developing. In developing and marketing new lines of business and/or new products or
services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of
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business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible.
External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also
impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of
business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or
services could have a material adverse effect on our business, financial condition, and results of operations.
De novo operations often involve significant expenses and delayed returns and may negatively impact Wintrust's
profitability.
Our financial results have been and will continue to be impacted by our strategy of branch openings and de novo bank
formations. We expect to increase the opening of additional branches and may, under certain circumstances, resume de novo
bank formations. It may take longer than expected or more than the amount of time Wintrust has historically experienced for
new banks and/or banking facilities to reach profitability, and there can be no guarantee that these branches or banks will ever
be profitable. Moreover, the FDIC's enhanced supervisory period for de novo banks of three years, including higher capital
requirements during this period, could also delay a new bank's ability to contribute to the Company's earnings and impact the
Company's willingness to expand through de novo bank formation. To the extent we undertake additional de novo bank, branch
and business formations, our level of reported net income, return on average equity and return on average assets will be
impacted by startup costs associated with such operations, and it is likely to continue to experience the effects of higher
expenses relative to operating income from the new operations. These expenses may be higher than we expected or than our
experience has shown, which could have a material adverse effect on our business, financial condition and results of operations.
Legal and Regulatory Risks
If we fail to meet our regulatory capital ratios, we may be forced to raise capital or sell assets.
As a banking institution, we are subject to regulations that require us to maintain certain capital ratios, such as the ratio of our
Tier 1 capital to our risk-based assets, and in recent years these regulatory and market expectations have increased substantially.
If our regulatory capital ratios decline, as a result of decreases in the value of our loan portfolio or otherwise, we may be
required to improve such ratios by either raising additional capital or by disposing of assets. If we choose to dispose of assets,
we cannot be certain that we will be able to do so at prices that we believe to be appropriate, and our future operating results
could be negatively affected. If we choose to raise additional capital, we may accomplish this by selling additional shares of
common stock, or securities convertible into or exchangeable for common stock, which could significantly dilute the ownership
percentage of holders of our common stock and cause the market price of our common stock to decline. Additionally, events or
circumstances in the capital markets generally may increase our capital costs and impair our ability to raise capital at any given
time.
Changes in the United States’ monetary policy may restrict our ability to conduct our business in a profitable manner.
Our ability to profitably operate is dependent, in part, upon federal fiscal policies that cannot be predicted. We are particularly
affected by the monetary policies of the Federal Reserve, which influence money supply in the United States. Any change in the
United States’ monetary policy, or worsening federal budgetary pressures, could affect our access to capital. Additionally, any
trend toward inflation, economic decline, destabilizing of financial markets, or other factors beyond our control may
significantly affect consumer demand for our products and consumers’ ability to repay loans, reducing our results of operations.
For a discussion of risks associated with the Federal Reserve lowering its target for the federal funds rate to near zero in
response to the economic consequences of the COVID-19 pandemic, see the above risk factor “Changes in prevailing interest
rates could adversely affect our net interest income, which is our largest source of income.” We cannot predict the nature or
timing of future changes in monetary policies in response to the outbreak or the precise effects that they may have on our
activities and financial results.
Legislative and regulatory actions taken now or in the future regarding the financial services industry may significantly
increase our costs or limit our ability to conduct our business in a profitable manner.
We are subject to extensive federal and state regulation and supervision. The cost of compliance with such laws and regulations
can be substantial and adversely affect our ability to operate profitably. While we are unable to predict the scope or impact of
any potential legislation or regulatory action until it becomes final, it is possible that changes in applicable laws, regulations or
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interpretations thereof could significantly increase our regulatory compliance costs, impede the efficiency of our internal
business processes, negatively impact the recoverability of certain of our recorded assets, require us to increase our regulatory
capital, interfere with our executive compensation plans, or limit our ability to pursue business opportunities in an efficient
manner including our plan for de novo growth and growth through acquisitions.
Both the scope of the laws and regulations and the intensity of the supervision to which our business is subject have increased
in recent years, in response to the financial crisis as well as other factors such as technological and market changes. For
example, as cybersecurity and data privacy risks for banking organizations and the broader financial system have significantly
increased in recent years, cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory
focus. For example, in June of 2018, the Governor of California signed into law the CCPA. The CCPA, which became effective
on January 1, 2020, applies to for-profit businesses that conduct business in California and meet certain revenue or data
collection thresholds. For more information regarding data privacy laws and regulations, see “Protection of Client Information”
under Supervision and Regulation in Item 1.
Regulatory enforcement and fines have also increased across the banking and financial services sector. Many of these changes
have occurred as a result of the Dodd-Frank Act and its implementing regulations, most of which are now in place. We expect
that our business will remain subject to extensive regulation and supervision.
On May 24, 2018, the Economic Growth Act was signed into law. Among other regulatory changes, the Economic Growth Act
amends various sections of the Dodd-Frank Act, including section 165 of the Dodd-Frank Act, which was revised to raise the
asset thresholds for determining the application of enhanced prudential standards for BHCs. The effects of these changes on the
Company are expected to be limited because the Company was subject to only limited enhanced prudential standards prior to
the Economic Growth Act’s enactment. Certain of our competitors, however, will benefit from a more significant reduction in
regulatory burdens, and, as a result, may become more competitive or aggressive in pursuing expansion.
In addition, we expect that the Biden Administration and the Democratically-controlled Congress will seek to implement a
regulatory reform agenda that is significantly different than that of the Trump Administration. This reform agenda could include
a heightened focus on the regulation of loan portfolios and credit concentrations to borrowers impacted by climate change,
heightened scrutiny on Bank Secrecy Act and anti-money laundering requirements, topics related to social equity, executive
compensation, and increased capital and liquidity, as well as limits on share buybacks and dividends. In addition, mergers and
acquisitions could be dampened by increased antitrust scrutiny. We also expect reform proposals for the short-term wholesale
markets. At this time, we are unable to assess which, if any of these policies, would be implemented and what their impact on
the Company's business, financial condition or results of operations would be.
Financial reform legislation and increased regulatory rigor around consumer protection mortgage-related issues may
reduce our ability to market our products to consumers and may limit our ability to profitably operate our mortgage
business.
The CFPB has broad rulemaking authority over a wide range of federal consumer protection laws applicable to the business of
our subsidiary banks and some other operating subsidiaries, including the authority to prohibit “unfair, deceptive or abusive”
acts and practices, but examination and supervision of our subsidiary banks is carried out by the primary federal banking
agency and, where applicable, the state banking agency. Consumer protection is an area of heightened regulatory focus, and the
CFPB has promulgated a number of specific regulatory requirements in this area. These rules have increased and may further
increase the costs of doing business for all market participants, including our subsidiaries.
In particular, the mortgage-related rules issued by the CFPB have materially restructured the origination, servicing and
securitization of residential mortgages in the United States. These rules have impacted, and will continue to impact, the business
practices of mortgage lenders, including the Company. For example, in order to ensure compliance with mortgage-related rules
issued by the CFPB, the Company consolidated its consumer mortgage loan origination and loan servicing operations within
Wintrust Mortgage.
In the wake of the mortgage crisis of 2007-2008, the CFPB and federal and state banking agencies are closely examining the
mortgage and mortgage servicing activities of depository financial institutions. Should these or other agencies have serious
concerns with respect to our operations in this regard, the effect of such concerns could have a material adverse effect on our
profits.
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Federal, state and local consumer lending laws may restrict our ability to originate certain mortgage loans or increase our
risk of liability with respect to such loans and could increase our cost of doing business.
Federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered “predatory.”
These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary insurance to
borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the borrowers will be able to
repay the loans irrespective of the value of the underlying property. The CFPB has promulgated many mortgage-related rules
since it was established under the Dodd-Frank Act, including rules relating to the ability to repay loans and relating to qualified
mortgage standards. Most of these mortgage-related rules have been adopted, although portions of certain of these rules have
not yet become effective. In addition, several proposed revisions to mortgage-related rules are pending finalization. We may
find it necessary to tighten our mortgage loan underwriting standards in response to the CFPB rules, which may constrain our
ability to make loans consistent with our business strategies. It is our policy not to make predatory loans and to determine
borrowers' ability to repay, but the law and related rules create the potential for increased liability with respect to our lending
and loan investment activities. They increase our cost of doing business and, ultimately, may prevent us from making certain
loans and cause us to reduce the average percentage rate or the points and fees on loans that we do make. In addition, regulation
related to redlining, fair lending, CRA compliance and BSA compliance create significant burdens which necessitate increased
costs. Any failure to comply with any of these regulations could have a significant impact on our ability to operate, our ability
to acquire or open new banks and/or result in meaningful fines.
Regulatory initiatives regarding bank capital requirements may require heightened capital.
The U.S. Basel III Rule, as well as other aspects of current or proposed regulatory or legislative changes to laws applicable to
banking organizations, have increased our compliance costs, impacted the profitability of our business activities and may
change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make
loans, and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs.
These changes also may require us to invest significant management attention and resources to make any necessary changes to
operations in order to comply, and could therefore also materially and adversely affect our business, financial condition and
results of operations.
Our ability to engage in capital distributions, including paying dividends or repurchasing stock, may be restricted if we do not
maintain the required Capital Conservation Buffer. In addition, we anticipate that our pro forma capital ratios will be an
important factor considered by the Federal Reserve in evaluating whether proposed payments of dividends or stock repurchases
are consistent with its prudential expectations. For more information regarding capital requirements, see “Capital Requirements
of the Company and Subsidiary Banks” under Supervision and Regulation in Item 1.
Our FDIC insurance premiums may increase, which could negatively impact our results of operations.
Insured institution failures leading up to and following the financial crisis, as well as deterioration in banking and economic
conditions, significantly increased FDIC loss provisions, resulting in a decline of its deposit insurance fund to historical lows at
the peak of the crisis. In response, the Dodd-Frank Act and FDIC regulations changed the assessment base for federal deposit
insurance from the amount of insured deposits to average total consolidated assets less average tangible capital, eliminated the
maximum size of the DIF, eliminated the requirement that the FDIC pay dividends to depository institutions when the reserve
ratio exceeds certain thresholds, and increased the minimum reserve ratio of the DIF from 1.15% to 1.35%. These
developments also caused our FDIC insurance premiums to increase. There is a risk that the banks' deposit insurance premiums
will increase in the future if failures of insured depository institutions once again deplete the DIF. Any such increase may
negatively impact our financial condition and results of operations.
Non-compliance with the USA PATRIOT Act, BSA or other laws and regulations could result in fines or sanctions.
The USA PATRIOT Act and the BSA require financial institutions to develop programs to prevent financial institutions from
being used for money laundering or the funding of terrorist activities. If such activities are detected, financial institutions are
obligated to file suspicious activity reports with FinCEN. These rules require certain financial institutions to establish
procedures for identifying and verifying the identity of customers seeking to open new accounts. Failure to comply with these
regulations could result in fines or sanctions. An increasing number of banking institutions have received large fines for non-
compliance with these laws and regulations. Although we have developed policies and procedures designed to assist in
compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in
preventing violations of these laws and regulations.
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We are subject to claims and legal actions that could negatively affect our results of operations or financial condition.
Periodically, as a result of our normal course of business, we are involved in claims and related litigation from our customers,
employees or other parties. These claims and legal actions, whether meritorious or not, as well as reviews, investigations and
proceedings by governmental and self-regulatory agencies could involve large monetary claims and significant legal expense.
In addition, such actions may negatively impact our reputation in the marketplace and lessen customer demand. If such claims
and legal actions are not decided in Wintrust's favor, our results of operations and financial condition could be adversely
impacted.
We are subject to examinations and challenges by tax authorities that may impact our financial results.
In the normal course of business, we, as well as our subsidiaries, are routinely subject to examinations from federal and state tax
authorities regarding the amount of taxes due in connection with investments we have made and the businesses in which we
have engaged. Recently, federal and state tax authorities have become increasingly aggressive in challenging tax positions taken
by financial institutions. These tax positions may relate to among other things tax compliance, sales and use, franchise, gross
receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. The challenges
made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of
income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have a material
adverse effect on our financial condition and results of operations.
Changes in federal and state tax laws and changes in interpretation of existing laws can impact our financial results.
The federal government enacted the Tax Cuts and Jobs Act (the “Tax Act”) on December 22, 2017, and given the changing
economic and political environment and ongoing budgetary pressures, the enactment of further new federal or state tax
legislation may occur. The enactment of such legislation, or changes in the interpretation of existing law, including provisions
impacting tax rates, apportionment, consolidation or combination, income, expenses, credits and exemptions may have a
material adverse effect on our business, financial condition and results of operations.
Changes in accounting policies or accounting standards could materially adversely affect how we report our financial
results and financial condition.
Our accounting policies are fundamental to understanding our financial results and financial condition. Some of these policies
require use of estimates and assumptions that affect the value of our assets or liabilities and financial results. Some of our
accounting policies are critical because they require management to make difficult, subjective and complex judgments about
matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different
conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect,
we may experience material losses. From time to time, the FASB and the SEC change the financial accounting and reporting
standards that govern the preparation of our financial statements. These changes, such as the new CECL standard discussed
above, can be hard to predict and can materially impact how we record and report our financial condition and results of
operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of
prior period financial statements.
Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business,
financial condition and results of operations.
There continues to be discussion and dialogue in the U.S. government regarding potential changes to U.S. trade policies,
legislation, treaties and tariffs, including trade policies and tariffs affecting other countries, including China, the European
Union, Canada and Mexico and retaliatory tariffs by such countries. Tariffs and retaliatory tariffs have been imposed, and
additional tariffs and retaliatory tariffs have been proposed. Such tariffs, retaliatory tariffs or other trade restrictions on products
and materials that our customers import or export could cause the prices of our customers’ products to increase, which could
reduce demand for such products, or reduce our customers’ margins, and adversely impact their revenues, financial results and
ability to service debt. This in turn, could adversely affect our financial condition and results of operations. In addition, to the
extent changes in the political environment have a negative impact on us or on the markets in which we operate our business,
results of operations and financial condition could be materially and adversely impacted in the future. It remains unclear what
the U.S. government or foreign governments will or will not do with respect to tariffs already imposed, additional tariffs that
may be imposed, or international trade agreements and policies. It is also unclear what changes, if any, to U.S. trade policy will
be made by the new Biden Administration and new Congress.
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On October 1, 2018, the United States, Canada and Mexico agreed to a new trade deal, the United States-Mexico-Canada
Agreement (“USMCA”) to replace the North American Free Trade Agreement. On January 29, 2020, then-President Trump
signed the USMCA into law. The full impact of the USMCA on us, our customers and on the economic conditions in the
markets in which we operate is currently unknown. Changes to the terms upon which the United States, Mexico and Canada
trade could negatively affect our customers or the U.S. economy or certain sectors thereof and, thus, adversely impact our
business, financial condition and results of operations.
Risks Related to Lending Operations
If our allowance for credit losses is not sufficient to absorb losses that may occur in our loan portfolio, our financial
condition and liquidity could suffer.
We maintain an allowance for credit losses that is intended to absorb expected lifetime credit losses related to our loan
portfolio, off-balance sheet credit exposures and held-to-maturity debt securities portfolio. At each balance sheet date, our
management determines the amount of the allowance for credit losses based on our estimate of expected credit losses over the
life of the related asset with consideration of historical credit losses, current economic conditions and reasonable and
supportable forecasts.
Because our allowance for credit losses represents an estimate of lifetime losses, there is no certainty that it will be adequate
over time to cover credit losses in the portfolios, particularly if there are changes in expectations of general economic or market
conditions, or events that adversely affect specific customers. In 2020, we charged off $40.3 million in loans (net of recoveries)
and increased our allowance for credit losses from $158.5 million at December 31, 2019 to $380.0 million at December 31,
2020. The increase in allowance for credit losses in 2020 was primarily the result of the adoption of CECL as of January 1,
2020 and in response to deterioration in macroeconomic conditions subsequent to that date related to COVID-19. Our
allowance for loan and unfunded lending-related commitment losses represents 1.18% and 0.59% of total loans outstanding at
December 31, 2020 and 2019, respectively.
Although we believe our allowance for credits losses is adequate to absorb estimated credit losses in our loan portfolio, if our
estimates are inaccurate and our actual credit losses exceed the amount that is anticipated, or if the forecasts and assumptions
used in calculating our reserves are significantly different from those we actually experience, our financial condition and
liquidity could be materially adversely affected.
For more information regarding our allowance for loan losses, see “Loan Portfolio and Asset Quality” under Management's
Discussion and Analysis of Financial Condition and Results of Operations in Item 7.
As a participating lender in the SBA Paycheck Protection Program (“PPP”), the Company and its banks are subject to
additional risks of litigation from the banks’ customers or other parties regarding the banks’ processing of loans for the
PPP and risks that the SBA may not fund some or all PPP loan guaranties.
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into
law, which included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small
businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated
lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The SBA expanded this program in
January 2021 to allow eligible companies that obtained loans through the first round of PPP to obtain additional loans, as well
as allow eligible companies that had not yet obtained a loan under the PPP to do so. The Company’s banks are participating in
the PPP as lenders. From March 27, 2020 through the end of 2020, we have originated over 12,000 PPP loans with a carrying
balance totaling approximately $3.4 billion. As of December 31, 2020, the carrying balance of such loans was reduced to
approximately $2.7 billion primarily resulting from forgiveness by the SBA. The initial PPP program expired on August 8,
2020 but has been renewed. Our subsidiary banks are participating in the subsequent rounds of PPP loans.
Due to the short timeframe between the passing of the CARES Act and the launch of the PPP, there is some ambiguity in the
laws, rules and guidance regarding the operation of the PPP. Subsequent rounds of legislation and associated agency guidance
have not provided necessary clarity and have created potential additional inconsistencies and ambiguities. Accordingly, the
Company is exposed to financial, regulatory and other risks relating to compliance with the PPP requirements.
Additionally, since the launch of the PPP, several other larger banks have been subject to litigation regarding the process and
procedures that such banks used in processing applications for the PPP, as well as litigation regarding the alleged nonpayment
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of fees that may be due to certain agents who facilitated PPP loan applications. Although many of these lawsuits have
subsequently been dismissed, the Company and the banks may be exposed to the risk of litigation, from both customers and
non-customers that approached the banks regarding PPP loans, regarding its process and procedures used in processing
applications for the PPP. If any such litigation is filed against the Company or its banks and is not resolved in a manner
favorable to the Company or the banks, it may result in significant financial liability or adversely affect the Company’s
reputation. The Company and one of its banks were named as defendants in a putative class action, which has been dismissed
with prejudice, regarding the alleged nonpayment of agency fees. See Note 20, “Commitments and Contingencies," in the Notes
to Consolidated Financial Statements for more information.
Regardless of outcome, litigation can be costly and divert the Company’s attention and resources. Any financial liability,
litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business,
financial condition and results of operations.
PPP loans are fixed, low interest rate loans that are guaranteed by the SBA and subject to numerous other regulatory
requirements, and a borrower may apply to have all or a portion of the loan forgiven. If PPP borrowers fail to qualify for loan
forgiveness, banks face a heightened risk of holding these loans at unfavorable interest rates for an extended period of time.
While the PPP loans are guaranteed by the SBA, various regulatory requirements will apply to banks’ ability to seek recourse
under the guarantees, and related procedures are currently subject to uncertainty.
Participating banks also have credit risk with respect to PPP loans if a determination is made by the SBA that there is a
deficiency in the manner in which the loan was originated, funded, or serviced by the banks, such as an issue with the eligibility
of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding
the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there
was a deficiency in the manner in which a PPP loan was originated, funded, or serviced by the Company, the SBA may deny its
liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of
any loss related to the deficiency from the Company.
A significant portion of our loan portfolio is comprised of commercial loans, the repayment of which is largely dependent
upon the financial success and economic viability of the borrower.
The repayment of our commercial loans is dependent upon the financial success and viability of the borrower. If the economy
weakens for a prolonged period or experiences deterioration or if the industry or market in which the borrower operates
weakens, our borrowers may experience depressed or dramatic and sudden decreases in revenues that could hinder their ability
to repay their loans. Excluding PPP loans that include a guarantee from the SBA, our commercial loan portfolio totaled $9.2
billion or 29% of our total loan portfolio, at December 31, 2020, compared to $8.3 billion, or 31% of our total loan portfolio, at
December 31, 2019.
Commercial loans are secured by different types of collateral related to the underlying business, such as accounts receivable,
inventory and equipment. Should a commercial loan require us to foreclose on the underlying collateral, the unique nature of
the collateral may make it more difficult and costly to liquidate, thereby increasing the risk to us of not recovering the principal
amount of the loan. Accordingly, our business, results of operations and financial condition may be materially adversely
affected by defaults in this portfolio.
A substantial portion of our loan portfolio is secured by real estate, in particular commercial real estate. Deterioration in the
real estate markets could lead to additional losses, which could have a material adverse effect on our financial condition and
results of operations.
As of both December 31, 2020 and 2019, approximately 36% and 39%, respectively, of our total loan portfolio was secured by
real estate, the majority of which is commercial real estate. The commercial and residential real estate market continues to
experience a variety of difficulties, including the Chicago metropolitan area and southern Wisconsin, in which a majority of our
real estate loans are concentrated. Increases in commercial and consumer delinquency levels or declines in real estate market
values would require increased net charge-offs and increases in the allowance for loan and lease losses, which could have a
material adverse effect on our business, financial condition and results of operations.
Events impacting collateral consisting of real property could lead to additional losses which could have a material adverse
effect on our financial condition and results of operations.
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Many of the loans in our portfolio are secured by real estate located in the Chicago metropolitan area. Any declines in economic
conditions, including inflation, recession, unemployment, changes in securities markets or other factors impacting these local
markets could, in turn, have a material adverse effect on our financial condition and results of operations. Deterioration in the
real estate markets where collateral for our mortgage loans is located could adversely affect the borrower's ability to repay the
loan and the value of the collateral securing the loan, and in turn the value of our assets. In addition, any natural disasters or
severe weather events have the potential to damage our real estate collateral. Climate change could have an impact on longer-
term natural weather trends and increase the occurrence and severity of such adverse weather events.
Any inaccurate assumptions in our analytical and forecasting models could cause us to miscalculate our projected revenue,
capital, liquidity or losses, which could adversely affect our financial condition.
We use analytical and forecasting models to estimate the effects of economic conditions on our loan portfolio and probable loan
performance. Those models reflect certain assumptions about market forces, including interest rates and consumer behavior that
may be incorrect. If our analytical and forecasting models’ underlying assumptions are incorrect, improperly applied, or
otherwise inadequate, we may suffer deleterious effects such as higher than expected loan losses, lower than expected net
interest income, lower than expected liquidity, lower than expected capital or unanticipated charge-offs, any of which could
have a material adverse effect on our business, financial condition and results of operations.
We are subject to environmental liability risk associated with lending activities.
A significant portion of the Company's loan portfolio is secured by real property. In the ordinary course of business, the
Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic
substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for
remediation costs, as well as for personal injury and property damage. In addition, we own and operate a number of properties
that may be subject to similar environmental liability risks.
Environmental laws may require the Company to incur substantial expenses and could materially reduce the affected property's
value or limit the Company's ability to use or sell the affected property. The costs associated with investigation and remediation
activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to
common law claims by third parties based on damages and costs resulting from environmental contamination emanating from
the property. Although the Company has policies and procedures to perform an environmental review before initiating any
foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The
remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse
effect on the Company's business, financial condition and results of operations.
Risks Related to Our Niche Businesses
Our premium finance business may involve a higher risk of delinquency or collection than our other lending operations,
and could expose us to losses.
We provide financing for the payment of commercial insurance premiums and life insurance premiums on a national basis
through FIRST Insurance Funding and Wintrust Life Finance, respectively, and financing for the payment of commercial
insurance premiums in Canada through our wholly-owned subsidiary, FIFC Canada. Commercial insurance premium finance
loans involve a different, and possibly higher, risk of delinquency or collection than life insurance premium finance loans and
the loan portfolios of our bank subsidiaries because these loans are issued primarily through relationships with a large number
of unaffiliated insurance agents and because the borrowers are located nationwide. As a result, risk management and general
supervisory oversight may be difficult. As of December 31, 2020, we had $4.1 billion of commercial insurance premium
finance loans outstanding, of which $3.4 billion related to the Company's U.S. operations at FIRST Insurance Funding and
$616.4 million related to the Company's Canadian operations at FIFC Canada. Together, these loans represented 13% of our
total loan portfolio as of such date.
FIRST Insurance Funding and FIFC Canada may also be more susceptible to third party fraud with respect to commercial
insurance premium finance loans because these loans are originated and many times funded through relationships with
unaffiliated insurance agents and brokers. In the second quarter of 2010, fraud perpetrated against a number of premium finance
companies in the industry, including the property and casualty division of FIRST Insurance Funding, increased both the
Company's net charge-offs and provision for credit losses by $15.7 million. Acts of fraud are difficult to detect and deter, and
we cannot assure investors that our risk management procedures and controls will prevent losses from fraudulent activity.
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Wintrust Life Finance may be exposed to the risk of loss in our life insurance premium finance business because of fraud.
While Wintrust Life Finance maintains a policy prohibiting the known financing of stranger-originated life insurance and has
established procedures to identify and prevent the company from financing such policies, Wintrust Life Finance cannot be
certain that it will never provide loans with respect to such a policy. In the event such policies were financed, a carrier could
potentially put at risk the cash surrender value of a policy, which serves as Wintrust Life Finance's primary collateral, by
challenging the validity of the insurance contract for lack of an insurable interest.
See the below risk factor “Widespread financial difficulties or credit downgrades among commercial and life insurance
providers could lessen the value of the collateral securing our premium finance loans and impair the financial condition and
liquidity of FIRST Insurance Funding, Wintrust Life Finance and FIFC Canada” for a discussion of further risks associated
with our insurance premium finance activities.
While FIRST Insurance Funding and Wintrust Life Finance are licensed as required and carefully monitor compliance with
regulation of each of their businesses, there can be no assurance that either will not be negatively impacted by material changes
in the regulatory environment. FIFC Canada is not required to be licensed in most provinces of Canada, but there can be no
assurance that future regulations which impact the business of FIFC Canada will not be enacted.
Additionally, to the extent that affiliates of insurance carriers, banks, and other lending institutions add greater service and
flexibility to their financing practices in the future, our competitive position and results of operations could be adversely
affected. Wintrust Life Finance's life insurance premium finance business could be materially negatively impacted by changes
in the federal or state estate tax provisions. There can be no assurance that FIRST Insurance Funding and Wintrust Life Finance
will be able to continue to compete successfully in its markets.
Widespread financial difficulties or credit downgrades among commercial and life insurance providers could lessen the
value of the collateral securing our premium finance loans and impair the financial condition and liquidity of FIRST
Insurance Funding, Wintrust Life Finance and FIFC Canada.
FIRST Insurance Funding, Wintrust Life Finance and FIFC Canada's premium finance loans are primarily secured by the
insurance policies financed by the loans. These insurance policies are written by a large number of insurance companies
geographically dispersed throughout the country. Our premium finance receivables balances finance insurance policies that are
spread among a large number of insurers, however one of the insurers represents approximately 14% of such balances, and two
additional insurers represent approximately 6% and 5% each of such balances. FIRST Insurance Funding, Wintrust Life
Finance and FIFC Canada consistently monitor carrier ratings and financial performance of our carriers. While FIRST
Insurance Funding, Wintrust Life Finance and FIFC Canada can mitigate its risks as a result of this monitoring to the extent that
commercial or life insurance providers experience widespread difficulties or credit downgrades, the value of our collateral will
be reduced. FIRST Insurance Funding, Wintrust Life Finance and FIFC Canada are also subject to the possibility of insolvency
of insurance carriers in the commercial and life insurance businesses that are in possession of our collateral. If one or more
large nationwide insurers were to fail, the value of our portfolio could be significantly negatively impacted. A significant
downgrade in the value of the collateral supporting our premium finance business could impair our ability to create liquidity for
this business, which, in turn could negatively impact our ability to expand.
Our wealth management business in general, and Wintrust Investments’ brokerage operation, in particular, exposes us to
certain risks associated with the securities industry.
Our wealth management business in general, and Wintrust Investments' brokerage operations in particular, present special risks
not borne by community banks that focus exclusively on community banking. For example, the brokerage industry is subject to
fluctuations in the stock market that may have a significant adverse impact on transaction fees, customer activity and
investment portfolio gains and losses. Likewise, additional or modified regulations may adversely affect our wealth
management operations. Each of our wealth management operations is dependent on a small number of professionals whose
departure could result in the loss of a significant number of customer accounts. A significant decline in fees and commissions or
trading losses suffered in the investment portfolio could adversely affect our results of operations. In addition, we are subject to
claim arbitration risk arising from customers who claim their investments were not suitable or that their portfolios were
inappropriately traded. These risks increase when the market, as a whole, declines. The risks associated with retail brokerage
may not be supported by the income generated by our wealth management operations.
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Risks Related to Financial Strength and Liquidity
Changes in prevailing interest rates could adversely affect our net interest income, which is our largest source of income.
We are exposed to interest rate risk in our core banking activities of lending and deposit taking, since changes in prevailing
interest rates affect the value of our assets and liabilities. Such changes may adversely affect our net interest income, which is
the difference between interest income and interest expense. Our net interest income is affected by the fact that assets and
liabilities reprice at different times and by different amounts as interest rates change. Net interest income represents our largest
component of net income, and was $1.0 billion and $1.1 billion for the years ended December 31, 2020 and 2019, respectively.
Each of our businesses may be affected differently by a given change in interest rates. For example, we expect that the results of
our mortgage banking business in selling loans into the secondary market would be negatively impacted during periods of rising
interest rates, whereas falling interest rates could have a negative impact on the net interest spread earned on deposits as we
would be unable to lower the rates on many interest bearing deposit accounts of our customers to the same extent as many of
our higher yielding asset classes.
Additionally, increases in interest rates may adversely influence the growth rate of loans and deposits, the quality of our loan
portfolio, loan and deposit pricing, the volume of loan originations in our mortgage banking business and the value that we can
recognize on the sale of mortgage loans in the secondary market.
In response to the economic consequences of the COVID-19 pandemic, the Federal Reserve lowered its target for the federal
funds rate to a range of 0% to 0.25%. Such low rates increase the risk of a negative interest rate environment in the U.S. in
which interest rates drop below zero, either broadly or for some types of instruments. For example, yields on one-month and
three-month Treasuries briefly dropped below zero in March 2020. Such an occurrence would likely further reduce the interest
we earn on loans and other earning assets, while also likely requiring us to pay to maintain our deposits with the Federal
Reserve Bank. Our systems may not be able to handle adequately a negative interest rate environment and not all variable rate
instruments are designed for such a circumstance. We cannot predict the nature or timing of future changes in monetary policies
in response to the outbreak or the precise effects that they may have on our activities and financial results.
We seek to mitigate our interest rate risk through several strategies, which may not be successful. With the relatively low
interest rates that prevailed in recent years, we were able to augment the total return of our investment securities portfolio by
selling call options on fixed-income securities that we own. We recorded fee income of approximately $2.3 million, $3.7
million and $3.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. We also mitigate our interest rate
risk by entering into interest rate swaps and other interest rate derivative contracts from time to time with counterparties. To the
extent that the market value of any derivative contract moves to a negative market value, we are subject to loss if the
counterparty defaults. In the future, there can be no assurance that such mitigation strategies will be available or successful or
that we will be successful in implementing any new mitigation strategies necessary to address the current rising interest rate
environment. In addition, transactions entered into as part of mitigation strategies employed to mitigate risks associated with a
prolonged low interest rate environment could be less beneficial or result in losses if interest rates continue to rise.
Our liquidity position may be negatively impacted if economic conditions do not improve or if they decline.
Liquidity is a measure of whether our cash flows and liquid assets are sufficient to satisfy current and future financial
obligations, such as demand for loans, deposit withdrawals and operating costs. Our liquidity position is affected by a number
of factors, including the amount of cash and other liquid assets on hand, payment of interest and dividends on debt and equity
instruments that we have issued, capital we inject into our bank subsidiaries, proceeds we raise through the issuance of
securities, our ability to draw upon our revolving credit facility and dividends received from our banking subsidiaries. Our
future liquidity position may be adversely affected by multiple factors, including:
•
•
•
•
•
if our banking subsidiaries report net losses or their earnings are weak relative to our cash flow needs;
if it is necessary for us to make capital injections to our banking subsidiaries;
if changes in regulations require us to maintain a greater level of capital, as more fully described below;
if we are unable to access our revolving credit facility due to a failure to satisfy financial and other covenants; or
if we are unable to raise additional capital on terms that are satisfactory to us.
36
Weakness or worsening of the economy, real estate markets or unemployment levels may increase the likelihood that one or
more of these events will occur. If our liquidity is adversely affected, it may have a material adverse effect on our business,
results of operations and financial condition.
An actual or perceived reduction in our financial strength may cause others to reduce or cease doing business with us,
which could result in a decrease in our net interest income and fee revenues.
Our customers rely upon our financial strength and stability and evaluate the risks of doing business with us. If we experience
diminished financial strength or stability, actual or perceived, including due to market or regulatory developments, announced
or rumored business developments or results of operations, or a decline in stock price, customers may withdraw their deposits
or otherwise seek services from other banking institutions and prospective customers may select other service providers. The
risk that we may be perceived as less creditworthy relative to other market participants is increased in the current market
environment, where the consolidation of financial institutions, including major global financial institutions, is resulting in a
smaller number of much larger counterparties and competitors. As our community banks become more closely identified with
the Wintrust name, the impact of any perceived weakness or creditworthiness at either the holding company or our community
banks may be greater than in prior periods. If customers reduce their deposits with us or select other service providers for all or
a portion of the services that we provide them, net interest income and fee revenues will decrease accordingly, and could have a
material adverse effect on our results of operations.
If our credit rating is lowered, our financing costs could increase.
We have been rated by Fitch Ratings as "BBB+" and DBRS as "A (low)". A credit rating is not a recommendation to buy, sell
or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization.
Our creditworthiness is not fixed and should be expected to change over time as a result of company performance and industry
conditions. We cannot give any assurances that our credit ratings will remain at current levels, and it is possible that our ratings
could be lowered or withdrawn by Fitch Ratings or DBRS. Any actual or threatened downgrade or withdrawal of our credit
rating could affect our perception in the marketplace and our ability to raise capital, and could increase our debt financing costs.
If our growth requires us to raise additional capital, that capital may not be available when it is needed or the cost of that
capital may be very high.
We are required by regulatory authorities to maintain adequate levels of capital to support our operations (see “ - Risks Related
to Our Regulatory Environment - If we fail to meet our regulatory capital ratios, we may be forced to raise capital or sell
assets”) and as we grow, internally and through acquisitions, the amount of capital required to support our operations grows as
well. We may need to raise additional capital to support continued growth both internally and through acquisitions. Any capital
we obtain may result in the dilution of the interests of existing holders of our common stock.
Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time which are outside
our control and on our financial condition and performance. If we cannot raise additional capital when needed, or on terms
acceptable to us, our ability to further expand our operations through internal growth and acquisitions could be materially
impaired and our financial condition and liquidity could be materially and negatively affected.
Disruption in the financial markets could result in lower fair values for our investment securities portfolio.
The Company's available-for-sale debt and trading securities as well as certain equity securities are carried at fair value.
Accounting standards require the Company to categorize these securities according to a fair value hierarchy. As of December
31, 2020, approximately 96% of the Company's available-for-sale debt securities and equity securities with a readily
determinable fair value were categorized in level 1 or 2 of the fair value hierarchy (meaning that their fair values were
determined by unadjusted quoted prices in active markets for identical assets, quoted prices for similar assets or other
observable inputs). Significant prolonged reduced investor demand could manifest itself in lower fair values for these securities
and may result in recognition of an other-than-temporary or permanent impairment of available-for-sale debt securities and
unrealized losses of equity securities with a readily determinable fair value recognized in earnings, which could lead to
accounting charges and have a material adverse effect on the Company's financial condition and results of operations.
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The remaining securities in our available-for-sale debt securities and equity securities with a readily determinable fair value
portfolios were categorized as level 3 (meaning that their fair values were determined by inputs that are unobservable in the
market and therefore require a greater degree of management judgment). The determination of fair value for securities
categorized in level 3 involves significant judgment due to the complexity of factors contributing to the valuation, many of
which are not readily observable in the market. In addition, the nature of the business of the third party source that is valuing
the securities at any given time could impact the valuation of the securities. Consequently, the ultimate sales price for any of
these securities could vary significantly from the recorded fair value at December 31, 2020, especially if the security is sold
during a period of illiquidity or market disruption or as part of a large block of securities under a forced transaction.
There can be no assurance that decline in market value of available-for-sale debt securities and equity securities with a readily
determinable fair value associated with these disruptions will not result in credit or permanent impairments, and unrealized
losses, respectively, of these assets, which would lead to accounting charges which could have a material negative effect on our
business, financial condition and results of operations.
We are a bank holding company, and our sources of funds, including to pay dividends, are limited.
We are a bank holding company and our operations are primarily conducted by and through our 15 operating banks, which are
subject to significant federal and state regulation. Cash available to pay dividends to our shareholders, repurchase our shares or
repay our indebtedness is derived primarily from dividends received from our banks and our ability to receive dividends from
our subsidiaries is restricted. Various statutory provisions restrict the amount of dividends our banks can pay to us without
regulatory approval. The banks may not pay cash dividends if that payment could reduce the amount of their capital below that
necessary to meet the “adequately capitalized” level in accordance with regulatory capital requirements. It is also possible that,
depending upon the financial condition of the banks and other factors, regulatory authorities could conclude that payment of
dividends or other payments, including payments to us, is an unsafe or unsound practice and impose restrictions or prohibit
such payments. Our inability to receive dividends from our banks could adversely affect our business, financial condition and
results of operations.
Uncertainty about the future of LIBOR may adversely affect our business.
On July 27, 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR,
announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the
administrator of LIBOR after 2021. The announcement indicates that the continuation of LIBOR on the current basis cannot
and will not be guaranteed after 2021.
On November 30, 2020 the ICE Benchmark Administration, the administrator of LIBOR, announced it will consult on its
intention to cease publication of the one-week and two-month U.S. dollar LIBOR settings immediately following the LIBOR
publication on December 31, 2021, and the remaining U.S. dollar LIBOR settings immediately following the LIBOR
publication on June 30, 2023. Therefore, it is expected that publication of all U.S. dollar LIBORs will cease to exist after June
30, 2023. In addition, the U.S. federal banking agencies issued a statement in November 2020 encouraging banks to transition
away from U.S. dollar LIBOR as soon as practicable and to stop entering into new contracts that use U.S. dollar LIBOR by
December 31, 2021.
On April 3, 2018, the Federal Reserve Bank of New York commenced publication of three reference rates based on overnight
U.S. Treasury repurchase agreement transactions, including the Secured Overnight Financing Rate (“SOFR”), which has been
recommended as an alternative to U.S. dollar LIBOR by the Alternative Reference Rates Committee (“ARRC”). Further, the
Bank of England has commenced publication of a reformed Sterling Overnight Index Average (“reformed SONIA”), comprised
of a broader set of overnight Sterling money market transactions, as of April 23, 2018. Reformed SONIA has been
recommended as the alternative to Sterling LIBOR by the Working Group on Sterling Risk-Free Reference Rates.
Although SOFR appears to be the preferred replacement rate for U.S dollar LIBOR, it is unclear if other benchmarks may
emerge or if other rates will be adopted outside of the United States. We cannot predict what effect any such alternatives will
have on the value of LIBOR-based securities or financial arrangements, including the Company’s Series D Preferred Stock or
other securities or financial arrangements, given LIBOR’s role in determining market interest rates globally. Uncertainty as to
the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR
rates and other interest rates. In the event that a published LIBOR rate is unavailable after 2021, the dividend rate on the
Company’s Series D Preferred Stock, which currently is based on the LIBOR rate, will be determined as set forth in the
accompanying offering documents, and the value of such securities may be adversely affected.
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We anticipate significant operational challenges for the transition away from LIBOR including, but not limited to, amending
existing loan agreements with borrowers on loans that may have not been modified with fallback language and adding effective
fallback language to new agreements in the event that LIBOR is discontinued before maturity. In addition, the transition away
from LIBOR could prompt inquiries or other actions from regulators in respect of the Company’s preparation and readiness for
the replacement of LIBOR with an alternative reference rate, as well as result in disputes, litigation or other actions with
counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based contracts and
securities. Currently, the manner and impact of this transition and related developments, as well as the effect of these
developments on our funding costs, loan, derivative and investment portfolios, asset-liability management and business, is
uncertain.
Risks Related to General Operations
Our controls and procedures may fail or be circumvented.
Management regularly reviews and updates our internal controls over financial reporting, disclosure controls and procedures
and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in
part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.
Any circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures
could have a material adverse effect on our business, results of operations and financial condition.
Our operational or security systems or infrastructure, or those of third parties, could fail or be breached, which could
disrupt our business and adversely impact our results of operations, liquidity and financial condition, as well as cause legal
or reputational harm.
The potential for operational risk exposure exists throughout our business and, as a result of our interactions with, and reliance
on, third parties, is not limited to our own internal operational functions. Our operational and security systems and
infrastructure, including our computer systems, data management, and internal processes, as well as those of third parties, are
integral to our performance. We rely on our employees and third parties in our day-to-day and ongoing operations, who may, as
a result of human error, misconduct, malfeasance or failure, or breach of our or of third-party systems or infrastructure, expose
us to risk. For example, our ability to conduct business may be adversely affected by any significant disruptions to us or to third
parties with whom we interact or upon whom we rely. In addition, our ability to implement backup systems and other
safeguards with respect to third-party systems is more limited than with respect to our own systems. Our financial, accounting,
data processing, backup or other operating or security systems and infrastructure may fail to operate properly or become
disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control, which
could adversely affect our ability to process transactions or provide services. Such events may include sudden increases in
customer transaction volume; electrical, telecommunications or other major physical infrastructure outages; natural disasters
such as earthquakes, tornadoes, hurricanes and floods; disease pandemics; and events arising from local or larger scale political
or social matters, including wars and terrorist acts. In addition, we may need to take our systems offline if they become infected
with malware or a computer virus or as a result of another form of cyber-attack. In the event that backup systems are utilized,
they may not process data as quickly as our primary systems and some data might not have been saved to backup systems,
potentially resulting in a temporary or permanent loss of such data. We frequently update our systems to support our operations
and growth and to remain compliant with all applicable laws, rules and regulations. This updating entails significant costs and
creates risks associated with implementing new systems and integrating them with existing ones, including business
interruptions. Implementation and testing of controls related to our computer systems, security monitoring and retaining and
training personnel required to operate our systems also entail significant costs. Operational risk exposures could adversely
impact our results of operations, liquidity and financial condition, as well as cause reputational harm. In addition, we may not
have adequate insurance coverage to compensate for losses from a major interruption.
We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and
customers, malware intrusion and data corruption attempts, in addition to the resulting identity theft that could result in the
disclosure of confidential information, all of which could adversely affect our business or reputation, and create significant
legal and financial exposure.
Our computer systems and network infrastructure and those of third parties, on which we are highly dependent, are subject to
security risks and could be susceptible to cyberattacks, such as denial of service attacks, hacking, terrorist activities or identity
theft. Our business relies on the secure processing, transmission, storage and retrieval of confidential, personal, proprietary and
39
other information in our computer and data management systems and networks, and in the computer and data management
systems and networks of third parties. In addition, to access our network, products and services, our customers and other third
parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to
their own cybersecurity risks.
We, our customers, regulators and other third parties, including other financial services institutions and companies engaged in
data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include
computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper
access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities
in our systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering,
monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our employees, our customers
or of third parties, damage to our systems or other material disruption of our or our customers’ or other third parties’ network
access or business operations. As cyber threats continue to evolve, we may be required to expend significant additional
resources to continue to modify or enhance our protective measures or to investigate and remediate any information security
vulnerabilities or incidents. Despite efforts to ensure the integrity of our systems and implement controls, processes, policies
and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement
guaranteed preventive measures against such security breaches. Cyber threats are rapidly evolving and we may not be able to
anticipate or prevent all such attacks and could be held liable for any security breach or loss.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of
new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For
example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based
product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have
significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates,
terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties,
including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to
compromise. Targeted social engineering attacks and "spear phishing" attacks are becoming more sophisticated and are
extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, customers or other
users of our systems to disclose sensitive information in order to gain access to its data or that of its clients. Persistent attackers
may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber criminals change
frequently, may not be recognized until launched or until well after a breach has occurred. The risk of a security breach caused
by a cyber-attack at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of
cyber-attacks or security breaches at third-party vendors with access to our data may not be disclosed to us in a timely manner.
We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties
with whom we do business or upon whom we rely to facilitate or enable our business activities, including, for example,
financial counterparties, regulators and providers of critical infrastructure such as internet access and electrical power. As a
result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology
failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or
data of one or more financial entities could have a material impact on counterparties or other market participants, including us.
This consolidation, interconnectivity and complexity increases the risk of operational failure, on both individual and industry-
wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber-
attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability
to effect transactions, service our clients, manage our exposure to risk or expand our business.
Cyber-attacks or other information or security breaches, whether directed at us or third parties, may result in a material loss or
have material consequences. Furthermore, the public perception that a cyber-attack on our systems has been successful, whether
or not this perception is correct, may damage our reputation with customers and third parties with whom we do business.
Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful
penetration or circumvention of system security could cause us serious negative consequences, including our loss of customers
and business opportunities, significant disruption to our operations and business, misappropriation or destruction of our
confidential information and/or that of our customers, or damage to our or our customers’ and/or third parties’ computers or
systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties
or intervention, remediation costs, loss of confidence in our security measures, reputational damage, reimbursement or other
compensatory costs, remediation costs, additional compliance costs, and could adversely impact our results of operations,
liquidity and financial condition.
40
Our vendors may be responsible for failures that adversely affect our operations.
We use and rely upon many external vendors to provide us with day-to-day products and services essential to our operations.
We are thus exposed to risk that such vendors will not perform as contracted or at agreed-upon service levels. The failure of our
vendors to perform as contracted or at necessary service levels for any reason could disrupt our operations, which could
adversely affect our business. In addition, if any of our vendors experience insolvency or other business failure, such failure
could affect our ability to obtain necessary products or services from a substitute vendor in a timely and cost-effective manner
or prevent us from effectively pursuing certain business objectives entirely. Our failure to implement business objectives due to
vendor nonperformance could adversely affect our financial condition and results of operations.
We issue debit cards, and debit card transactions pose a particular cybersecurity risk that is outside of our control.
Debit card numbers are susceptible to theft at the point of sale via the physical terminal through which transactions are
processed and by other means of hacking. The security and integrity of these transactions are dependent upon retailers’
vigilance and willingness to invest in technology and upgrades. Despite third-party security risks that are beyond our control,
we offer our customers protection against fraud and attendant losses for unauthorized use of debit cards in order to stay
competitive in the marketplace. Offering such protection to our customers exposes us to potential losses which, in the event of a
data breach at one or more retailers of considerable magnitude, may adversely affect our business, financial condition, and
results of operations.
We depend on the accuracy and completeness of information we receive about our customers and counterparties to make
credit decisions.
We rely on information furnished by or on behalf of customers and counterparties in deciding whether to extend credit or enter
into other transactions. This information could include financial statements, credit reports, and other financial information. We
also rely on representations of those customers, counterparties, or other third parties, such as independent auditors, as to the
accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports, or
other financial information could have a material adverse impact on our business, financial condition and results of operations.
If we are unable to attract and retain experienced and qualified personnel, our ability to provide high quality service will be
diminished, we may lose key customer relationships, and our results of operations may suffer.
We believe that our future success depends, in part, on our ability to attract and retain experienced personnel, including our
senior management and other key personnel. Our business model is dependent upon our ability to provide high quality and
personal service. In addition, as a holding company that conducts its operations through our subsidiaries, we are focused on
providing entrepreneurial-based compensation to the chief executives of each our business units. As a Company with start-up
and growth oriented operations, we are cognizant that to attract and retain the managerial talent necessary to operate and grow
our businesses we often have to compensate our executives with a view to the business we expect them to manage, rather than
the size of the business they currently manage. Accordingly, any executive compensation restrictions may negatively impact
our ability to retain and attract senior management. The departure of a senior manager or other key personnel may damage
relationships with certain customers, or certain customers may choose to follow such personnel to a competitor. The loss of any
of our senior managers or other key personnel, or our inability to identify, recruit and retain such personnel, could materially
and adversely affect our business, results of operations and financial condition.
Losses incurred in connection with actual or projected repurchases and indemnification payments related to mortgages that
we have sold into the secondary market may exceed our financial statement reserves and we may be required to increase
such reserves in the future. Increases to our reserves and losses incurred in connection with actual loan repurchases and
indemnification payments could have a material adverse effect on our business, financial condition, results of operations or
cash flows.
We engage in the origination and purchase of residential mortgages for sale into the secondary market. In connection with such
sales, we make certain representations and warranties, which, if breached, may require us to repurchase such loans, substitute
other loans or indemnify the purchasers of such loans for actual losses incurred in respect of such loans. Due, in part, to
increased mortgage payment delinquency rates and declining housing prices during the post 2007 period, we have been
receiving such requests for loan repurchases and indemnification payments relating to the representations and warranties with
respect to such loans. We have been able to reach settlements with a number of purchasers, and believe that we have established
appropriate reserves with respect to indemnification requests. It is possible that the number of such requests will increase or that
41
we will not be able to reach settlements with respect to such requests in the future. Accordingly, it is possible that losses
incurred in connection with loan repurchases and indemnification payments may be in excess of our financial statement
reserves, and we may be required to increase such reserves and may sustain additional losses associated with such loan
repurchases and indemnification payments in the future. Increases to our reserves and losses incurred by us in connection with
actual loan repurchases and indemnification payments in excess of our reserves could have a material adverse effect on our
business, financial condition, results of operations or cash flows.
Our business could be adversely affected by the occurrence of extraordinary events, such as acts of war, terrorist attacks,
natural disasters and public health threats.
An act of war, terrorist activity, including acts of domestic terrorism, a major epidemic or pandemic, natural disaster, or the
threat of such an event or other public health threat, could adversely affect our customers and our business. Such events could
significantly impact the demand for our products and services as well as the ability of our customers to repay loans, affect the
stability of our deposit base, impair the value of the collateral securing loans, adversely impact our employee base, cause
significant property damage, result in loss of revenue, and cause us to incur additional expenses. The occurrence or threat of
any such extraordinary event could result in a material negative effect on our business and results of operations.
Risks Related to Ownership of Our Common Stock
Anti-takeover provisions could negatively impact our shareholders.
Certain provisions of our articles of incorporation, by-laws and Illinois law may have the effect of impeding the acquisition of
control of Wintrust by means of a tender offer, a proxy fight, open-market purchases or otherwise in a transaction not approved
by our board of directors. For example, our board of directors may issue additional authorized shares of our capital stock to
deter future attempts to gain control of Wintrust, including the authority to determine the terms of any one or more series of
preferred stock, such as voting rights, conversion rates and liquidation preferences. As a result of the ability to fix voting rights
for a series of preferred stock, the board has the power, to the extent consistent with its fiduciary duty, to issue a series of
preferred stock to persons friendly to management in order to attempt to block a merger or other transaction by which a third
party seeks control, and thereby assist the incumbent board of directors and management to retain their respective positions. In
addition, our articles of incorporation expressly elect to be governed by the provisions of Section 7.85 of the Illinois Business
Corporation Act, which would make it more difficult for another party to acquire us without the approval of our board of
directors.
The ability of a third party to acquire us is also limited under applicable banking regulations. The BHC Act requires any “bank
holding company” (as defined in the BHC Act) to obtain the approval of the Federal Reserve prior to acquiring more than 5%
of our outstanding common stock. Any person other than a bank holding company is required to obtain prior approval of the
Federal Reserve to acquire 10% or more of our outstanding common stock under the Change in Bank Control Act of 1978. Any
holder of 25% or more of our outstanding common stock, other than an individual, is subject to regulation as a “bank holding
company” under the BHC Act. For purposes of calculating ownership thresholds under these banking regulations, bank
regulators would likely at least take the position that the minimum number of shares, and could take the position that the
maximum number of shares, of Wintrust common stock that a holder is entitled to receive pursuant to securities convertible into
or settled in Wintrust common stock, including pursuant to any warrants to purchase Wintrust common stock held by such
holder, must be taken into account in calculating a shareholder's aggregate holdings of Wintrust common stock.
These provisions may have the effect of discouraging a future takeover attempt that is not approved by our board of directors
but which our individual shareholders may deem to be in their best interests or in which our shareholders may receive a
substantial premium for their shares over then-current market prices. As a result, shareholders who might desire to participate in
such a transaction may not have an opportunity to do so. Such provisions will also render the removal of our current board of
directors or management more difficult.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
42
ITEM 2. PROPERTIES
The Company’s executive offices are located at 9700 W. Higgins Road, Rosemont, Illinois as well as additional nearby
corporate office locations at 9701 W. Higgins Road, Rosemont, Illinois and 9801 W. Higgins Road, Rosemont, Illinois. The
Company also leases office locations and retail space at 231 S. LaSalle Street in downtown Chicago and at 731 N. Jackson
Street in downtown Milwaukee. The Company’s community banking segment operates through 181 banking facilities, the
majority of which are owned. The Company owns 229 automatic teller machines, the majority of which are housed at banking
locations. The banking facilities are located in communities throughout the Chicago metropolitan area, southern Wisconsin and
northwest Indiana as well as one banking location in Naples, Florida. Excess space in certain properties is leased to third
parties. Wintrust Mortgage, also of our banking segment, is headquartered in our corporate headquarters in Rosemont, Illinois
and has 39 locations in 10 states, all of which are leased, as well as office locations at several of our banks.
The Company’s wealth management subsidiaries have one locations in downtown Chicago, one in Appleton, Wisconsin, and
one in Tampa, Florida, all of which are leased, as well as office locations at several of our banks. FIRST Insurance Funding and
Wintrust Life Finance have one location in Northbrook, Illinois which is owned and locations at 231 S. LaSalle Street in
downtown Chicago, Newark, New Jersey, Long Island, New York and Newport Beach, California, all of which are leased.
FIFC Canada has three locations in Canada that are leased, located in Toronto, Ontario; Wainwright, Alberta; and Vancouver,
British Columbia. Wintrust Asset Finance is located in our corporate headquarters in Rosemont, Illinois and has locations in
Frisco, Texas, Mishawaka, Indiana, and Irvine, California, all of which are leased. Tricom has one location in Menomonee
Falls, Wisconsin which is owned. In addition, the Company owns other real estate acquired for further expansion that, when
considered in the aggregate, is not material to the Company’s financial position.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is set forth in Part II, Item 8, Financial Statements and Supplementary Data, under Note
20, “Commitments and Contingencies”.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
43
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is traded on The NASDAQ Global Select Stock Market under the symbol WTFC.
Performance Graph
The following performance graph compares the five-year percentage change in the Company’s cumulative shareholder return
on common stock compared with the cumulative total return on composites of (1) all NASDAQ Global Select Market stocks for
United States companies (broad market index) and (2) all NASDAQ Global Select Market bank stocks (peer group index).
Cumulative total return is computed by dividing the sum of the cumulative amount of dividends for the measurement period
and the difference between the Company’s share price at the end and the beginning of the measurement period by the share
price at the beginning of the measurement period. The NASDAQ Global Select Market for United States companies’ index
comprises all domestic common shares traded on the NASDAQ Global Select Market and the NASDAQ Small-Cap Market.
The NASDAQ Global Select Market bank stocks index comprises all banks traded on the NASDAQ Global Select Market and
the NASDAQ Small-Cap Market.
This graph and other information furnished in the section titled “Performance Graph” under this Part II, Item 5 of this Annual
Report on Form 10-K shall not be deemed to be “soliciting” materials or to be “filed” with the SEC or subject to Regulation
14A or 14C, or to the liabilities of Section 18 of the Exchange Act, as amended.
Wintrust Financial Corporation
NASDAQ — Total US
NASDAQ — Bank Index
2015
100.00
100.00
100.00
2016
151.04
113.01
126.54
2017
172.74
137.17
149.82
2018
140.68
129.71
125.25
2019
152.17
170.14
171.82
2020
134.26
206.32
149.83
44
Period EndingIndex ValueTotal Return PerformanceWintrust Financial CorporationNASDAQ - Total USNASDAQ - Bank Index12/31/1512/31/1612/31/1712/31/1812/31/1912/31/2020100120140160180200 Approximate Number of Equity Security Holders
As of February 9, 2021, there were approximately 1,643 shareholders of record of the Company’s common stock.
Dividends on Common Stock
The Company’s Board of Directors approved the first semi-annual dividend on the Company’s common stock in January 2000
and continued to approve a semi-annual dividend until quarterly dividends were approved starting in 2014. The payment of
dividends is subject to statutory restrictions and restrictions arising under the terms of the Company's Fixed-to-Floating Non-
Cumulative Perpetual Preferred Stock, Series D (the “Series D Preferred Stock”), the terms of the Company’s Non-Cumulative
Perpetual Preferred Stock, Series E (the “Series E Preferred Stock”), the terms of the Company’s Trust Preferred Securities
offerings and under certain financial covenants in the Company’s revolving and term facilities. Under the terms of these
separate facilities entered into on September 18, 2018, the Company is prohibited from paying dividends on any equity
interests, including its common stock and preferred stock, if such payments would cause the Company to be in default under its
facilities or exceed a certain threshold.
The following is a summary of the cash dividends paid in 2020 and 2019:
Record Date
November 12, 2020
August 6, 2020
May 7, 2020
February 6, 2020
November 7, 2019
August 8, 2019
May 9, 2019
February 7, 2019
Payable Date
November 27, 2020
August 20, 2020
May 21, 2020
February 20, 2020
November 21, 2019
August 22, 2019
May 23, 2019
February 21, 2019
Dividend per Share
$0.28
$0.28
$0.28
$0.28
$0.25
$0.25
$0.25
$0.25
On January 28, 2021, Wintrust Financial Corporation announced that the Company’s Board of Directors approved a quarterly
cash dividend of $0.31 per share of outstanding common stock. The dividend was paid on February 25, 2021 to shareholders of
record as of February 11, 2021.
The final determination of timing, amount and payment of dividends is at the discretion of the Company's Board of Directors
and will depend on the Company's earnings, financial condition, capital requirements and other relevant factors. Because the
Company’s consolidated net income consists largely of net income of the banks and certain wealth management subsidiaries,
the Company’s ability to pay dividends generally depends upon its receipt of dividends from these entities. The Company's and
the banks’ ability to pay dividends is subject to banking laws, regulations and policies. See “Supervision and Regulation -
Payment of Dividends and Share Repurchases” in Item 1 of this Annual Report on Form 10-K. During 2020, 2019 and 2018,
the banks and certain wealth management subsidiaries paid $253.0 million, $139.0 million and $111.0 million, respectively, in
dividends to the Company.
Reference is also made to Note 19 to the Consolidated Financial Statements, and “Liquidity and Capital Resources” contained
in Item 7 of this Annual Report on Form 10-K for a description of the restrictions on the ability of certain subsidiaries to
transfer funds to the Company in the form of dividends.
45
Issuer Purchases of Equity Securities
On October 24, 2019, the Company’s Board of Directors authorized the Company to repurchase up to $125 million of its
outstanding shares of common stock. In 2020, the Company repurchased approximately $92.1 million of the Company's
common stock on the open market.
The table below provides information of such repurchases by month in 2020.
Month Period
Total Number of
Shares Purchased
Average Price Paid Per
Share
January 1, 2020 to January 31, 2020
February 1, 2020 to February 29, 2020
March 1, 2020 to March 31, 2020
April 1, 2020 to April 30, 2020
May 1, 2020 to May 31, 2020
June 1, 2020 to June 30, 2020
July 1, 2020 to July 31, 2020
August 1, 2020 to August 31, 2020
September 1, 2020 to September 30, 2020
October 1, 2020 to October 31, 2020
November 1, 2020 to November 30, 2020
December 1, 2020 to December 31, 2020
Total
139,494
$
452,378
—
—
—
—
—
—
—
—
550,776
432,067
1,574,715
$
63.96
64.19
—
—
—
—
—
—
—
—
55.00
58.29
59.33
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Dollar
Value that May Yet Be
Purchased Under the
Plans or Programs (in
thousands)
138,089
$
116,096
438,380
—
—
—
—
—
—
—
—
550,776
423,374
1,550,619
$
87,884
87,884
87,884
87,884
87,884
87,884
87,884
87,884
87,884
57,594
32,944
32,944
46
ITEM 6.
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
Selected Financial Condition Data (at end of year):
Total assets
Total loans, excluding loans held-for-sale and covered loans
Total deposits
Junior subordinated debentures
Total shareholders’ equity
Selected Statements of Income Data:
Net interest income
Net revenue (1)
Net income
Pre-tax income, excluding provision for credit losses (non-GAAP) (2)
Net income per common share – Basic
Net income per common share – Diluted
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin
Net interest margin - fully taxable equivalent (non-GAAP) (2)
Non-interest income to average assets
Non-interest expense to average assets
Net overhead ratio (3)
Return on average assets
Return on average common equity
Return on average tangible common equity (non-GAAP) (2)
Average total assets
Average total shareholders’ equity
2020
2019
2018
2017
2016
Years Ended December 31,
$
45,080,768
$
36,620,583
$
31,244,849
$
27,915,970
$
25,668,553
32,079,073
37,092,651
253,566
4,115,995
26,800,290
30,107,138
253,566
3,691,250
23,820,691
26,094,678
253,566
3,267,570
21,640,797
23,183,347
253,566
2,976,939
19,703,172
21,658,632
253,566
2,695,617
$
1,039,907
$
1,054,919
$
964,903
$
832,076
$
722,193
1,644,096
1,462,091
1,321,053
1,151,582
1,047,623
292,990
604,001
4.72
4.68
355,697
533,965
6.11
6.03
343,166
494,965
5.95
5.86
257,682
419,765
4.53
4.40
206,875
365,938
3.83
3.66
2.72 %
3.45 %
3.59 %
3.41 %
3.24 %
2.73
1.46
2.51
1.05
0.71
7.50
9.54
3.47
1.23
2.79
1.57
1.07
10.41
13.22
3.61
1.23
2.85
1.62
1.18
11.26
13.95
3.44
1.21
2.78
1.56
0.98
9.26
11.63
3.26
1.34
2.81
1.47
0.85
8.37
10.90
$
41,371,339
$
33,232,083
$
29,028,420
$
26,369,702
$
24,292,231
3,926,688
3,461,535
3,098,740
2,842,081
2,549,929
Average loans to average deposits ratio (excluding covered loans)
Average loans to average deposits ratio (including covered loans)
88.8 %
88.8
91.4 %
91.4
93.7 %
93.7
92.7 %
92.9
Common Share Data at end of year:
Market price per common share
Book value per common share (2)
Tangible book value per common share (non-GAAP) (2)
Common shares outstanding
Other Data at end of year: (5)
Tier 1 leverage ratio
Tier 1 capital ratio
Common Equity Tier 1 capital ratio
Total capital ratio
Allowance for credit losses (4)
Non-performing loans
90.9 %
91.4
72.57
47.12
37.08
$
$
61.09
65.24
53.23
$
70.90
61.68
49.70
$
66.49
55.71
44.67
$
82.37
50.96
41.68
56,769,625
57,821,891
56,407,558
55,965,207
51,880,540
8.1 %
10.0
8.8
12.6
8.7 %
9.6
9.2
12.2
9.1 %
9.7
9.3
11.6
9.3 %
9.9
9.4
12.0
8.9 %
9.7
8.6
11.9
$
379,969
$
158,461
$
154,164
$
139,174
$
123,964
127,513
117,588
113,234
90,162
87,454
Allowance for loan and unfunded lending-related commitment losses
to total loans, excluding covered loans
Non-performing loans to total loans, excluding covered loans
Number of:
Bank subsidiaries
Banking offices
1.18 %
0.40
15
181
0.59 %
0.44
15
187
0.65 %
0.48
15
167
0.64 %
0.42
15
157
0.63 %
0.44
15
155
(1) Net revenue includes net interest income and non-interest income.
(2)
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures/Ratios,” for
a reconciliation of this performance measure/ratio to GAAP.
(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) 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. Effective January 1, 2020, the allowance for credit losses also includes the allowance for investment
securities as a result of the adoption of Accounting Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses.
(5) Asset quality ratios exclude covered loans.
47
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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,” “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. 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 and uncertainties, including those discussed in the Risk Factors and summary
thereof disclosed under Item 1A of this Annual Report on 10-K and in any of the Company’s subsequent SEC filings.
Therefore, there can be no assurances that future actual results will correspond to any 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 this Annual Report on Form 10-K. Persons are advised, however, to consult further disclosures management makes on
related subjects in its reports filed with the SEC and in its press releases.
48
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion highlights the significant factors affecting the operations and financial condition of Wintrust for the
three years ended December 31, 2020. The detailed financial discussion focuses on 2020 results compared to 2019. This
discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and Notes
thereto, and Selected Financial Highlights appearing elsewhere within this Annual Report on Form 10-K.
For a discussion of 2019 results compared to 2018, refer to Part II, Item 7, “Management's Discussion and Analysis of Financial
Condition and Results of Operations” of the Wintrust Annual Report on Form 10-K for the year ended December 31, 2019 filed
on February 28, 2020.
OPERATING SUMMARY
Wintrust’s key measures of profitability and balance sheet changes are shown in the following table:
(Dollars in thousands, except per share data)
Net income
Pre-tax income, excluding provision for
credit losses(non- GAAP) (2)
Net income per common share — Diluted
Net revenue (1)
Net interest income
Net interest margin
Net interest margin - fully taxable
equivalent (non-GAAP) (2)
Net overhead ratio (3)
Return on average assets
Return on average common equity
Return on average tangible common equity
(non-GAAP) (2)
At end of period
Total assets
Total loans, excluding loans held-for-sale
Total deposits
Total shareholders’ equity
Book value per common share (2)
Tangible book value per common share
(non-GAAP) (2)
Market price per common share
Allowance for loan and unfunded lending-
related commitment losses to total loans
Non-performing loans to total loans
2020
$ 292,990
Years Ended
December 31,
2019
$ 355,697
Percentage % or
Basis Point (bp)
Change
Percentage % or
Basis Point (bp)
Change
2018
$ 343,166
2019 to 2020
(18)%
2018 to 2019
4%
604,001
4.68
533,965
6.03
494,965
5.86
1,644,096
1,039,907
1,462,091
1,054,919
1,321,053
964,903
13
(22)
12
(1)
8
3
11
9
2.72 %
3.45 %
3.59 %
(73) bp
(14) bp
2.73
1.05
0.71
7.50
9.54
3.47
1.57
1.07
10.41
13.22
3.61
1.62
1.18
11.26
13.95
$ 45,080,768
32,079,073
37,092,651
4,115,995
65.24
$ 36,620,583
26,800,290
30,107,138
3,691,250
61.68
$ 31,244,849
23,820,691
26,094,678
3,267,570
55.71
53.23
61.09
1.18 %
0.40
49.70
70.90
0.59 %
0.44
44.67
66.49
(74)
(52)
(36)
(291)
(368)
23%
20
23
12
6
7
(14)
(14)
(5)
(11)
(85)
(73)
17%
13
15
13
11
11
7
0.65 %
0.48
59 bp
(4)
(6) bp
(4)
(1) Net revenue is net interest income plus non-interest income.
(2) See “Non-GAAP 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 and dividing by
that period’s total average assets. A lower ratio indicates a higher degree of efficiency.
Please refer to the Consolidated Results of Operations section later in this discussion for an analysis of the Company’s
operations for the past three years.
49
NON-GAAP 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 book value per common share, return on average tangible
common equity and pre-tax income, excluding provision for credit losses. 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. Management considers pre-tax income, excluding provision for credit losses,
as a useful measurement of the Company's core net income.
50
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
years.
(Dollars and shares in thousands, except per share data)
Reconciliation of Non-GAAP Net Interest Margin and Efficiency Ratio:
(A) Interest Income (GAAP)
Taxable-equivalent adjustment:
-Loans
-Liquidity management assets
-Other earning assets
(B) Interest Income (non-GAAP)
(C) Interest Expense (GAAP)
(D) Net Interest Income (GAAP) (A minus C)
(E) Net interest Income (non-GAAP) (B minus C)
Net interest margin (GAAP)
Net interest margin, fully taxable equivalent (non-GAAP)
(F) Non-interest income
(G) (Losses) gains on investment securities, net
(H) Non-interest expense
Efficiency ratio (H/(D+F-G))
Efficiency ratio (non-GAAP) (H/(E+F-G))
Reconciliation of Non-GAAP Tangible Common Equity Ratio:
Total shareholders' equity (GAAP)
(I) Less: Convertible preferred stock (GAAP)
Less: Non-convertible preferred stock (GAAP)
Less: Goodwill and other intangible assets (GAAP)
(J) Total tangible common shareholders’ equity (non-GAAP)
(K) Total assets (GAAP)
Less: Goodwill and other intangible assets (GAAP)
(L) Total tangible assets (non-GAAP)
Common equity to assets ratio (GAAP) (M/K)
Tangible common equity ratio (non-GAAP) (J/L)
Tangible common equity ratio, assuming full conversion of preferred
stock (non-GAAP) ((J-I)/L)
Reconciliation of Non-GAAP Tangible Book Value per Common Share:
Total shareholders’ equity (GAAP)
Less: Preferred stock (GAAP)
(M) Total common equity
(N) Actual common shares outstanding
Book value per common share (M/N)
Tangible book value per common share (Non-GAAP) (J/N)
Reconciliation of Non-GAAP Return on Average Tangible Common Equity:
(O) Net income applicable to common shares
Add: Intangible asset amortization
Less: Tax effect of intangible asset amortization
After-tax intangible asset amortization
(P) Tangible net income applicable to common shares (non-GAAP)
Total average shareholders' equity
Less: Average preferred stock
(Q) Total average common shareholders' equity
Less: Average intangible assets
2020
2019
2018
2017
2016
Years Ended December 31,
$
1,293,020
$
1,385,142
$
1,170,810
$
946,468
$
812,457
$
2,241
2,165
9
1,297,435
253,113
1,039,907
1,044,322
$
3,935
2,280
9
1,391,366
330,223
1,054,919
1,061,143
$
3,403
2,258
11
1,176,482
205,907
964,903
970,575
$
3,760
3,713
14
953,955
114,392
832,076
839,563
$
2,282
3,630
40
818,409
90,264
722,193
728,145
2.72 %
2.73
3.45 %
3.47
3.59 %
3.61
3.41 %
3.44
3.24 %
3.26
$
604,189
$
407,172
$
356,150
$
319,506
$
325,430
(1,926)
1,040,095
63.19 %
63.02
3,525
928,126
63.63 %
63.36
(2,898)
826,088
62.40 %
62.13
45
731,817
63.55 %
63.14
7,645
681,685
65.55 %
65.18
$
4,115,995
$
3,691,250
$
3,267,570
$
2,976,939
$
2,695,617
—
(412,500)
(681,747)
—
(125,000)
(692,277)
—
(125,000)
(622,565)
—
(125,000)
(519,505)
(126,257)
(125,000)
(520,438)
$
3,021,748
$
2,873,973
$
2,520,005
$
2,332,434
$
1,923,922
$ 45,080,768
$ 36,620,583
$ 31,244,849
$ 27,915,970
$ 25,668,553
(681,747)
(692,277)
(622,565)
(519,505)
(520,438)
$ 44,399,021
$ 35,928,306
$ 30,622,284
$ 27,396,465
$ 25,148,115
8.2 %
6.8
6.8
9.7 %
8.0
8.0
10.1 %
10.2 %
8.2
8.2
8.5
8.5
9.5 %
7.7
8.2
$
$
$
4,115,995
(412,500)
3,703,495
56,770
65.24
53.23
$
$
$
3,691,250
(125,000)
3,566,250
57,822
61.68
49.70
$
$
$
3,267,570
(125,000)
3,142,570
56,408
55.71
44.67
$
$
$
2,976,939
(125,000)
2,851,939
55,965
50.96
41.68
$
$
$
2,695,617
(251,257)
2,444,360
51,881
47.12
37.08
$
271,613
$
347,497
$
334,966
$
247,904
$
192,362
11,018
(2,732)
8,286
11,844
(3,068)
8,776
4,571
(1,164)
3,407
4,401
(1,494)
2,907
4,789
(1,803)
2,986
$
$
279,899
3,926,688
$
$
356,273
3,461,535
$
$
338,373
3,098,740
$
$
250,811
2,842,081
$
$
195,348
2,549,929
(306,455)
(125,000)
(125,000)
(165,114)
(251,258)
$
3,620,233
$
3,336,535
$
2,973,740
$
2,676,967
$
2,298,671
(686,064)
(641,802)
(548,223)
(519,910)
(506,241)
(R) Total average tangible common shareholders’ equity (non-GAAP)
$
2,934,169
$
2,694,733
$
2,425,517
$
2,157,057
$
1,792,430
Return on average common equity (O/Q)
Return on average tangible common equity (non-GAAP) (P/R)
7.50 %
9.54
10.41 %
13.22
11.26 %
13.95
9.26 %
11.63
8.37 %
10.90
Reconciliation of Non- GAAP Pre-Tax, Pre- Provision Income:
Income before taxes
Add: Provision for credit losses
Pre-tax income, excluding provision for credit losses (non-GAAP)
$
389,781
$
480,101
$
460,133
$
389,997
$
331,854
214,220
53,864
34,832
29,768
34,084
$
604,001
$
533,965
$
494,965
$
419,765
$
365,938
51
OVERVIEW AND STRATEGY
Impact of COVID-19
In March 2020, the outbreak of COVID-19 was recognized as a global pandemic by the World Health Organization, resulting in
unprecedented uncertainty and volatility in world-wide financial markets. Governments' actions calling for shelter in place and
social distancing have led to rapid changes in business revenues, increased unemployment, and have impacted consumer
activity, all of which have impacted and may continue to impact the Company's current and future results.
The Company activated its pandemic response plan in early March, as well as applicable elements of its business continuity
plan. In order to protect the health of our customers and employees, and in accordance with applicable government directives,
we modified certain of our business protocols to direct employees to work from home unless their role required them to be on
site, in which case we have implemented enhanced safety measures including social distancing, enhanced cleaning and
sanitization, and certain personal protective equipment. With the phased reopening of certain state and municipal areas, the
Company has developed a comprehensive plan that permits certain remote employees to return to their respective workplaces,
where enhanced safety measures also have been implemented. At present, however, the majority of the Company’s workforce
continues to work remotely on a nearly daily basis.
On March 27, 2020, the CARES Act was enacted. The CARES Act includes appropriations and other measures designed to
address the impact of the COVID-19 pandemic, including the Paycheck Protection Program (“PPP”), which is designed to aid
eligible small and medium-sized businesses through federally-guaranteed loans distributed through certain financial institutions,
under the administration of the Small Business Administration (“SBA”). From the date the Company began accepting
applications, April 3, 2020, through the end of 2020, the Company secured authorization from the SBA and funded over 12,000
PPP loans for our customers with a carrying balance of approximately $3.4 billion. PPP loans are forgivable under certain
circumstances, including the borrower’s use of certain loan proceeds to fund employee payroll during a specific period (e.g.,
eight weeks, 24 weeks) following disbursement of the borrower’s PPP loan. The Company generated net fees of $91.9 million
to be recognized over the life of the PPP loans adjusted for estimated prepayments. As of December 31, 2020, the carrying
balance of such loans was reduced to approximately $2.7 billion primarily resulting from forgiveness by the SBA.
All of our three primary business segments (community banking, specialty finance and wealth management), have been
uniquely impacted and we expect will continue to be impacted by the COVID-19 pandemic, requiring the implementation of
certain responses as circumstances evolve. As non-exclusive examples of such impacts, our community banking business,
including our mortgage business, has received borrower requests for temporary payment relief including payment deferrals. As
of December 31, 2020, loans totaling approximately $344.8 million were modified as a result of COVID-19 disruption to our
borrowers. Our insurance premium finance business is impacted by certain state legislation prohibiting canceling of insurance
policies for designated periods. Our wealth management business is impacted by increased stock market volatility.
Given the continued uncertainty regarding future economic conditions, the Company has taken a number of actions to help
ensure that it has adequate liquidity and capital to manage through the COVID-19 pandemic, including issuing fixed-rate reset
non-cumulative perpetual preferred stock, Series E, liquidation preference $25,000 per share (the “Series E Preferred Stock”) as
part of a public offering of depositary shares, each representing a 1/1,000th interest in a share of Series E Preferred Stock (the
“Depositary Shares”). We believe the Company currently has adequate liquidity and capital to effectively manage through the
COVID-19 pandemic. However, we will continue to prudently evaluate liquidity sources, including the possible utilization of
the PPP liquidity facility, if necessary.
We continue to monitor the impact of COVID-19 closely; however, the extent to which the COVID-19 pandemic will impact
our operations and financial conditions remains highly uncertain. Please refer to Part I, Item 1A, “Risk Factors” of this Form
10-K for additional information.
2020 Highlights
The Company recorded net income of $293.0 million for the year of 2020 compared to $355.7 million and $343.2 million for
the years of 2019 and 2018, respectively. The results for 2020 demonstrate challenges from compression in net interest margin
and increased provision for credit losses primarily related to the implementation of the Current Expected Credit Losses
("CECL") accounting standard and the economic conditions created by the COVID-19 pandemic, offset by continued operating
strengths including strong loan and deposit growth driven by the Company's participation in PPP and significant production by
the Company’s mortgage banking business in the low interest rate environment during the year.
52
The Company increased its loan portfolio from $26.8 billion at December 31, 2019 to $32.1 billion at December 31, 2020. This
increase was primarily due to participation in PPP lending as well as growth in several portfolios, including the commercial,
industrial and other, commercial real estate, commercial premium finance receivables and life insurance premium finance
receivables portfolios. For more information regarding changes in the Company’s loan portfolio, see “Analysis of Financial
Condition – Interest Earning Assets” and Note 4 “Loans” to the Consolidated Financial Statements presented under Item 8 of
this Annual Report on Form 10-K.
The Company recorded net interest income of $1.0 billion in 2020 compared to $1.1 billion and $964.9 million in 2019 and
2018, respectively. The lower level of net interest income recorded in 2020 compared to 2019 resulted primarily from a 73 basis
point decrease in the net interest margin in 2020 due to lower market rates on loans, partially offset by a $7.7 billion increase in
average earning assets (see “Net Interest Margin” section later in this Item 7 for further detail).
Non-interest income totaled $604.2 million in 2020, increasing $197.0 million, or 48%, compared to 2019. The increase in non-
interest income in 2020 compared to 2019 was primarily attributable to increases in mortgage banking revenues due to higher
production in 2020 from demand associated with historically low long-term interest rates in the market (see “Non-Interest
Income” section later in this Item 7 for further detail).
Non-interest expense totaled $1.0 billion in 2020, increasing $112.0 million, or 12%, compared to 2019. The increase compared
to 2020 was primarily attributable to a $79.7 million increase in salaries and employee benefits, $16.2 million increase in
equipment expense, higher operating lease equipment depreciation, higher occupancy expense, higher FDIC insurance and
higher contingent consideration expense related to the previous acquisition of mortgage operations. The increase in salaries and
employee benefits was primarily attributable to the addition of employees from acquisitions, increased staffing to support
mortgage operations and the Company’s growth and higher commissions and incentive compensation due to increased
origination volume associated with the Company's mortgage business (see “Non-Interest Expense” section later in this Item 7
for further detail).
Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during
2020, the Company continued its practice of maintaining appropriate funding capacity to provide the Company with adequate
liquidity for its ongoing operations. In this regard, the Company benefited from its strong deposit base, a liquid short-term
investment portfolio and its access to funding from a variety of external funding sources. The Company had overnight liquid
funds and interest-bearing deposits with banks of $5.1 billion and $2.5 billion at December 31, 2020 and 2019, respectively.
Economic Environment
The economic environment in 2020 was characterized by compression in net interest margin, and continued competition as
banks have experienced improvements in their financial condition allowing them to be more active in the lending market. The
Company has employed certain strategies to manage net income in the current rate environment, including those discussed
below.
Net Interest Income
The Company has leveraged its operating strengths as well as its participation in PPP to grow its earning assets base, partially
offsetting compression in net interest margin in 2020. In 2020, the Company's net interest margin decreased to 2.72% (2.73%
on a fully tax-equivalent basis) as compared to 3.45% (3.47% on a fully tax-equivalent basis) in 2019, primarily as a result of
falling rates in the market and the positioning of our balance sheet. As a result of the reduced net interest margin, partially offset
by growth in earning assets, the Company’s net interest income decreased by $15.0 million in 2020 compared to 2019.
The Company has continued its practice of writing call options against certain investment securities to economically hedge the
securities positions and receive fee income to compensate for net interest margin compression. In 2020, the Company
recognized $2.3 million in fees on covered call options compared to $3.7 million in 2019.
The Company utilizes “back to back” interest rate derivative transactions, primarily interest rate swaps, to receive floating rate
interest payments related to customer loans. In these arrangements, the Company makes a floating rate loan to a borrower who
prefers to pay a fixed rate. To accommodate the risk management strategy of certain qualified borrowers, the Company enters a
swap with its borrower to effectively convert the borrower's variable rate loan to a fixed rate. However, in order to minimize
the Company's exposure on these transactions and continue to receive a floating rate, the Company simultaneously executes an
offsetting mirror-image swap with various third parties.
53
Non-Interest Income
The interest rate environment impacts the profitability and mix of the Company's mortgage banking business which generated
revenues of $346.0 million in 2020 and $154.3 million in 2019, representing 21% and 11% of total net revenue in 2020 and
2019, respectively. Mortgage banking revenue is primarily comprised of gains on sales of mortgage loans originated for new
home purchases as well as mortgage refinancing. Mortgage revenue is also impacted by changes in the fair value of mortgage
servicing rights (“MSRs”). Mortgage originations for sale and purchases totaled $8.0 billion and $4.5 billion in 2020 and 2019,
respectively. In 2020, approximately 35% of originations were mortgages associated with new home purchases, while 65% of
originations were related to refinancing of mortgages. In 2019, approximately 52% of originations were mortgages associated
with new home purchases, while 48% of originations were related to refinancing of mortgages.
Non-Interest Expense
Management believes expense management is important to enhance profitability amid the low interest rate environment and
increased competition. Cost control and an efficient infrastructure should position the Company appropriately as it continues its
growth strategy. Management continues to be disciplined in its approach to growth and plans to leverage the Company's
existing expense infrastructure to expand its presence in existing and complimentary markets. Potentially impacting the cost
control strategies discussed above, the Company anticipates increased costs resulting from the regulatory environment in which
we operate as well as continued investment in technology.
Credit Quality
The Company continues to actively address non-performing assets and remains disciplined in its approach to grow without
sacrificing asset quality.
In particular:
•
•
•
•
The Company’s 2020 provision for credit losses, totaled $214.2 million, compared to $53.9 million in 2019 and $34.8
million in 2018. The increased provision in 2020 was primarily the result of the adoption of CECL, specifically continued
change to macroeconomic conditions throughout 2020 created by the COVID-19 pandemic, and the impact on the
Company's macroeconomic forecasts of key model inputs (Commercial Real Estate Price Index, Baa corporate credit
spreads, gross domestic product and Dow Jones Total Stock Market Index) as well as changes in the Company's loan
portfolios. Net charge-offs decreased to $40.3 million in 2020 (of which $27.3 million related to commercial and
commercial real estate loans), compared to $49.5 million in 2019 (of which $35.9 million related to commercial and
commercial real estate loans) and $19.7 million in 2018 (of which $8.8 million related to commercial and commercial
real estate loans).
The Company's allowance for loan and unfunded lending-related commitment losses increased to $379.9 million at
December 31, 2020, reflecting an increase of $221.4 million, or 139.7%, when compared to 2019. The increase in the
allowance for credit losses was primarily the result of the adoption of CECL as of January 1, 2020 and deterioration in
macroeconomic conditions subsequent to that date related to COVID-19. At December 31, 2020, approximately $243.6
million, or 64%, of the allowance for loan and unfunded lending-related commitment losses was associated with
commercial real estate loans and an additional $94.2 million, or 25%, was associated with commercial loans.
The Company has significant exposure to commercial real estate. At December 31, 2020, $8.5 billion, or 26%, of our
loan portfolio was commercial real estate, with approximately 82.7% located in our market area. The commercial real
estate loan portfolio was comprised of $1.4 billion in construction and development loans, and $7.1 billion in non-
construction loans. In analyzing the commercial real estate market, the Company does not rely upon the assessment of
broad market statistical data, in large part because the Company’s market area is diverse and covers many communities,
each of which is impacted differently by economic forces affecting the Company’s general market area. As such, the
extent of the decline in real estate valuations can vary meaningfully among the different types of commercial and other
real estate loans made by the Company. The Company uses its multi-chartered structure and local management
knowledge to analyze and manage the local market conditions at each of its banks.
Total non-performing loans (loans on non-accrual status and loans more than 90 days past due and still accruing interest)
were $127.5 million (of which $46.1 million, or 36%, was related to commercial real estate) at December 31, 2020, an
increase of $9.9 million compared to December 31, 2019. Non-performing loans as a percentage of total loans were
0.40% at December 31, 2020 compared to 0.44% at December 31, 2019.
54
•
The Company’s other real estate owned increased by $1.4 million to $16.6 million during 2020, from $15.2 million at
December 31, 2019. The $16.6 million of other real estate owned as of December 31, 2020 was comprised of $12.5
million of commercial real estate property, $2.3 million of residential real estate property and $1.7 million of residential
real estate development property.
During 2020, management continued its efforts to aggressively resolve problem loans through liquidation, rather than retention
of loans or real estate acquired as collateral through the foreclosure process. Management believes these actions will serve the
Company well in the future by providing some protection for the Company from further valuation deterioration and permitting
management to spend less time on resolution of problem loans and more time on growing the Company’s core business and the
evaluation of other opportunities.
Management continues to direct significant attention toward the prompt identification, management and resolution of problem
loans. The Company has restructured certain loans by providing economic concessions to borrowers to better align the terms of
their loans with their current ability to pay. At December 31, 2020, approximately $68.2 million in loans had terms modified
representing troubled debt restructurings (“TDRs”), with $47.0 million of these TDRs continuing in accruing status. See Note 5,
“Allowance for Credit Losses,” to the Consolidated Financial Statements presented under Item 8 of this Annual Report on Form
10-K for additional discussion of TDRs.
The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. The
Company’s practice is generally not to retain long-term fixed-rate mortgages on its balance sheet in order to mitigate interest
rate risk, and consequently sells most of such mortgages into the secondary market. These agreements provide recourse to
investors through certain representations concerning credit information, loan documentation, collateral and insurability.
Investors request the Company to indemnify them against losses on certain loans or to repurchase loans which the investors
believe do not comply with applicable representations. An increase in requests for loss indemnification can negatively impact
mortgage banking revenue as additional recourse expense. The liability for estimated losses on repurchase and indemnification
claims for residential mortgage loans previously sold to investors was $0.8 million at December 31, 2020 and $2.4 million at
December 31, 2019.
Community Banking
Through our community banking franchise, we provide banking and financial services primarily to individuals, small to mid-
sized businesses, local governmental units and institutional clients residing primarily in the local areas we service. Profitability
of this franchise is primarily driven by our net interest income and margin, our funding mix and related costs, the measurement
of the allowance for credit losses and the impact of current and forecasted macroeconomic conditions on such measurement, the
level of non-performing loans and other real estate owned, the amount of mortgage banking revenue and our history of
acquiring banking operations and establishing de novo banking locations.
Net interest income and margin. The primary source of our revenue is net interest income. Net interest income is the difference
between interest income and fees on earning assets, such as loans and securities, and interest expense on liabilities to fund those
assets, including deposits and other borrowings. Net interest income can change significantly from period to period based on
general levels of interest rates, customer prepayment patterns, the mix of interest-earning assets and the mix of interest-bearing
and non-interest bearing deposits and borrowings.
Funding mix and related costs. The most significant source of funding in community banking is core deposits, which are
comprised of non-interest bearing deposits, non-brokered interest-bearing transaction accounts, savings deposits and domestic
time deposits. Our branch network is the principal source of core deposits, which generally carry lower interest rates than
wholesale funds of comparable maturities. Community banking profitability has been favorably impacted in recent years as the
Company funded strong loan growth with a more desirable blend of funds.
Measurement of the allowance for credit losses. The Company adopted CECL as of January 1, 2020, which requires the
estimate of expected credit losses over the entire life of financial assets measured at amortized cost. To measure lifetime
expected credit losses, the Company adjusts credit loss estimates for reasonable and supportable forecasts of macroeconomic
conditions. Such forecasts can significantly impact the profitability of our community banks as changing estimates of lifetime
losses from period to period can result in significant fluctuations in provision for credit losses during those periods. In 2020,
such fluctuations in provision for credit losses unfavorably impacted the profitability of our community banks, primarily as a
result of forecasted deterioration in macroeconomic conditions from COVID-19.
Level of non-performing loans and other real estate owned. The level of non-performing loans and other real estate owned can
significantly impact our profitability as these loans and other real estate owned do not accrue any income, can be subject to
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charge-offs and write-downs due to deteriorating market conditions and generally result in additional legal and collections
expenses. The Company's credit quality measures have remained at historically low levels in recent years.
Mortgage banking revenue. Our community banking franchise is also influenced by the level of fees generated by the
origination of residential mortgages and the sale of such mortgages into the secondary market by Wintrust Mortgage. The
Company recognized an increase of $191.7 million in mortgage banking revenue in 2020 compared to 2019 as a result of higher
origination volumes in 2020, higher margins on sales and increased servicing fees. Mortgage originations for sale totaled $8.0
billion and $4.5 billion in 2020 and 2019, respectively, increasing primarily as a result of demand associated with the
historically low long-term interest rates in the market.
Expansion of banking operations. Our historical financial performance has been affected by costs associated with growing
market share in deposits and loans, establishing and acquiring banks, opening new branch facilities and building an experienced
management team. Our financial performance generally reflects the improved profitability of our banking subsidiaries as they
mature, offset by the costs of establishing and acquiring banks and opening new branch facilities.
In determining the timing of the opening of additional branches of existing banks, and the acquisition of additional banks, we
consider many factors, particularly our perceived ability to obtain an adequate return on our invested capital driven largely by
the then existing cost of funds and lending margins, the general economic climate and the level of competition in a given
market. See discussion of acquisition activity in the “Recent Acquisition Transactions” section below.
In addition to the factors considered above, before we engage in expansion through de novo branches we must first make a
determination that the expansion fulfills our objective of enhancing shareholder value through potential future earnings growth
and enhancement of the overall franchise value of the Company. Generally, we believe that, in normal market conditions,
expansion through de novo growth is a better long-term investment than acquiring banks because the cost to bring a de novo
location to profitability is generally substantially less than the premium paid for the acquisition of a healthy bank. Each
opportunity to expand is unique from a cost and benefit perspective. Both FDIC-assisted and non-FDIC-assisted acquisitions
offer a unique opportunity for the Company to expand into new and existing markets in a non-traditional manner. Potential
acquisitions are reviewed in a similar manner as a de novo branch opportunities, however, FDIC-assisted and non-FDIC-
assisted acquisitions have the ability to immediately enhance shareholder value. Factors including the valuation of our stock,
other economic market conditions, the size and scope of the particular expansion opportunity and competitive landscape all
influence the decision to expand via de novo growth or through acquisition.
Specialty Finance
Through our specialty finance segment, we offer financing of insurance premiums for businesses and individuals; lease
financing and other direct leasing opportunities; accounts receivable financing, value-added, out-sourced administrative
services; and other specialty finance businesses.
Financing of Commercial Insurance Premiums
The primary driver of profitability related to the financing of commercial insurance premiums is the net interest spread that
FIRST Insurance Funding and FIFC Canada can produce between the yields on the loans generated and the cost of funds
allocated to the business unit. The commercial insurance premium finance business is a competitive industry and yields on
loans are influenced by the market rates offered by our competitors. The majority of loans originated by FIRST Insurance
Funding are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the
banks with higher yields than alternative investments. We fund these loans primarily through our deposits, the cost of which is
influenced by competitors in the retail banking markets in our market area.
Financing of Life Insurance Premiums
The primary driver of profitability related to the financing of life insurance premiums is the net interest spread that Wintrust
Life Finance can produce between the yields on the loans generated and the cost of funds allocated to the business unit.
Profitability of financing both commercial and life insurance premiums is also meaningfully impacted by leveraging
information technology systems, maintaining operational efficiency and increasing average loan size, each of which allows us
to expand our loan volume without significant capital investment.
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Wealth Management
We offer a full range of wealth management services including trust and investment services, tax-deferred like-kind exchange
services, asset management solutions, securities brokerage services, and 401(k) and retirement plan services through four
separate subsidiaries (Wintrust Investments, CTC, Great Lakes Advisors and CDEC).
The primary drivers of profitability of the wealth management business can be associated with the level of commission received
related to the trading performed by the brokerage customers for their accounts and the amount of assets under management in
which the unit receives a management fee for advisory, administrative and custodial services. As such, revenues are influenced
by a rise or fall in the debt and equity markets and the resulting increase or decrease in the value of our client accounts on which
our fees are based. The commissions received by the brokerage unit are not as directly influenced by the directionality of the
debt and equity markets but rather the desire of our customers to engage in trading based on their particular situations and
outlooks of the market or particular stocks and bonds. Profitability in the brokerage business is impacted by commissions which
fluctuate over time.
Financial Regulatory Reform
Our business is heavily regulated by both federal and state agencies. Both the scope of the laws and regulations and the
intensity of the supervision to which our business is subject have increased in recent years, in response to the financial crisis as
well as other factors such as technological and market changes. Many of these changes have occurred as a result of the Dodd-
Frank Act and its implementing regulations, most of which are now in place. While the regulatory environment has entered a
period of rebalancing of the post financial crisis framework, we expect that our business will remain subject to extensive
regulation and supervision.
The exact impact of the changing regulatory environment on our business and operations depends upon legislative or regulatory
changes to reform the financial regulatory framework and the actions of our competitors, customers, and other market
participants. Legislative and regulatory changes could have a significant impact on us by, for example, requiring us to change
our business practices; requiring us to meet more stringent capital, liquidity and leverage ratio requirements; limiting our ability
to pursue business opportunities; imposing additional costs and compliance obligations on us; limiting fees we can charge for
services; impacting the value of our assets; or otherwise adversely affecting our businesses and our earnings’ capabilities. We
have already experienced significant increases in compliance related costs in recent years, and we are now subject to more
stringent risk-based capital and leverage ratio requirements than we were prior to the adoption of the U.S. Basel III Rules. We
are also now subject to many mortgage-related rules promulgated by the CFPB that materially restructured the origination,
services and securitization of residential mortgages in the United States. We will continue to monitor the impact that the
implementation of applicable rules, regulations and policies arising out of any legislative or regulatory changes may have on
our organization. For further discussion of the laws and regulations applicable to us and our subsidiary banks, please refer to
“Business-Supervision and Regulation.”
Recent Transactions
Acquisition of SBC
On November 1, 2019, the Company completed its acquisition of SBC. SBC was the parent company of Countryside Bank.
Through this business combination, the Company acquired Countryside Bank’s six banking offices located in Countryside,
Burbank, Darien, Homer Glen, Oak Brook and Chicago, Illinois. As of the acquisition date, the Company acquired
approximately $619.8 million in assets, including approximately $423.0 million in loans, and approximately $507.8 million in
deposits. The Company recorded goodwill of approximately $40.3 million related to the acquisition.
Acquisition of STC
On October 7, 2019, the Company completed its acquisition of STC Bancshares Corp. (“STC”). STC was the parent company
of STC Capital Bank. Through this business combination, the Company acquired STC Capital Bank’s five banking offices
located in the communities of St. Charles, Geneva and South Elgin, Illinois. As of the acquisition date, the Company acquired
approximately $250.1 million in assets, including approximately $174.3 million in loans, and approximately $201.2 million in
deposits. The Company recorded goodwill of approximately $19.1 million related to the acquisition.
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Acquisition of ROC
On May 24, 2019, the Company completed its acquisition of ROC. ROC was the parent company of Oak Bank. Through this
business combination, the Company acquired Oak Bank’s one banking location in Chicago, Illinois. As of the acquisition date,
the Company acquired approximately $223.4 million in assets, including approximately $124.7 million in loans, and
approximately $161.2 million in deposits. The Company recorded goodwill of approximately $11.7 million related to the
acquisition.
Acquisition of CDEC
On December 14, 2018, the Company acquired Elektra, the parent company of CDEC. CDEC is a provider of Qualified
Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind
exchanges under Internal Revenue Code Section 1031. CDEC has successfully facilitated more than 8,000 like-kind exchanges
in the past decade for taxpayers nationwide. These transactions typically generate customer deposits during the period following
the sale of the property until such proceeds are used to purchase a replacement property. The Company recorded goodwill of
approximately $37.3 million related to the acquisition.
Acquisition of certain assets and assumption of certain liabilities of AEB
On December 7, 2018, the Company completed its acquisition of certain assets and the assumption of certain liabilities of
American Enterprise Bank (“AEB”). Through this asset acquisition, the Company acquired approximately $164.0 million in
assets, including approximately $119.3 million in loans, and approximately $150.8 million in deposits.
Acquisition of Chicago Shore Corporation
On August 1, 2018, the Company completed its acquisition of CSC. CSC was the parent company of Delaware Place Bank.
Through this business combination, the Company acquired Delaware Place Bank’s one banking location in Chicago, Illinois.
As of the acquisition date, the Company acquired approximately $282.8 million in assets, including approximately $152.7
million in loans, and approximately $213.1 million in deposits. Additionally, the Company recorded goodwill of approximately
$26.6 million related to the acquisition.
Acquisition of iFreedom Direct Corporation DBA Veterans First Mortgage
On January 4, 2018, the Company acquired certain assets, including mortgage servicing rights, and assumed certain liabilities
of the mortgage banking business of iFreedom Direct Corporation DBA Veterans First Mortgage (“Veterans First”), in a
business combination. The Company recorded goodwill of approximately $9.1 million related to the acquisition.
Other Completed Transactions
Series E Preferred Stock
In May 2020, the Company issued 11,500 shares of fixed-rate reset non-cumulative perpetual preferred stock, Series E,
liquidation preference $25,000 per share (the “Series E Preferred Stock”) as part of a $287.5 million public offering of
11,500,000 depositary shares, each representing a 1/1,000th interest in a share of Series E Preferred Stock. When, as and if
declared, dividends on the Series E Preferred Stock are payable quarterly in arrears at a fixed rate of 6.875% per annum after
October 15, 2020.
Issuance of Subordinated Notes Due 2029
In June 2019, the Company completed a public offering of $300.0 million aggregate principal amount of its 4.85%
Subordinated Notes due 2029. The Company received proceeds prior to expenses of approximately $296.7 million from the
offering, after deducting underwriting discounts and commissions, which were intended to be used for general corporate
purposes.
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Expiration of Common Stock Warrants
On December 19, 2018, the Company’s publicly traded warrants to purchase shares of the Company’s common stock expired.
Warrants not exercised prior to this date totaling 409 warrant shares expired and became void, and the holders did not receive
any shares of the Company’s common stock.
Termination of Loss Share Agreements
On October 16, 2017, the Company entered into agreements with the FDIC that terminated all existing loss share agreements
with the FDIC. Under the 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 to write off the remaining loss share asset, relieve the claw-back liability and recognize the payment to the FDIC.
Mandatory Conversion of Series C Preferred Stock
On April 27, 2017, the Company caused a mandatory conversion of its remaining 124,184 shares of 5.00% Non-Cumulative
Perpetual Convertible Preferred Stock, Series C (the "Series C Preferred Stock") (issued in March 2012) 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.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
The Company’s Consolidated Financial Statements are prepared in accordance with GAAP in the United States and prevailing
practices of the banking industry. Application of these principles requires management to make estimates, assumptions, and
judgments that affect the amounts reported in the financial statements and accompanying notes. Certain policies and accounting
principles inherently have a greater reliance on the use of estimates, assumptions and judgments, and as such have a greater
possibility that changes in those estimates and assumptions could produce financial results that are materially different than
originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required or elected to be
recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an
impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent
upon a future event, and are based on information available as of the date of the financial statements; accordingly, as
information changes, the financial statements could reflect different estimates and assumptions.
A summary of the Company’s significant accounting policies is presented in Note 1 to the Consolidated Financial Statements in
Item 8. These policies, along with the disclosures presented in the other financial statement notes and in this Management’s
Discussion and Analysis section, provide information on how significant assets and liabilities are valued in the financial
statements and how those values are determined. Management views critical accounting policies to be those which are highly
dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and
assumptions could have a significant impact on the financial statements. Management views critical accounting policies to
include the determination of the allowance for credit losses, estimations of fair value, the valuations required for impairment
testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that
require the most subjective and complex judgments, and as such could be most subject to revision as new information becomes
available.
Allowance for Credit Losses, including the Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments
and Allowance for Held-to-Maturity Debt Securities
The allowance for credit losses represents management’s estimate of expected credit losses over the life of a financial asset
carried at amortized cost. Determining the amount of the allowance for credit losses is considered a critical accounting estimate
because it requires significant judgment and the use of estimates related to the fair value of the underlying collateral and amount
and timing of expected future cash flows on individually assessed financial assets, estimated credit losses on pools of loans with
similar risk characteristics, and consideration of reasonable and supportable forecasts of macroeconomic conditions, all of
which are susceptible to significant change. The loan and held-to-maturity debt securities portfolios represent 72% of total
assets on the Company’s consolidated balance sheet. The Company also maintains an allowance for lending-related
commitments, specifically unfunded loan commitments and letters of credit, which relates to certain amounts the Company is
committed to lend (not unconditionally cancelable) but for which funds have not yet been disbursed. See Note 1, “Summary of
Significant Accounting Policies,” to the Consolidated Financial Statements in Item 8 and the section titled “Loan Portfolio and
Asset Quality” in Item 7 for a description of the methodology used to determine the allowance for credit losses.
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Estimations of Fair Value
A portion of the Company’s assets and liabilities are carried at fair value on the Consolidated Statements of Condition, with
changes in fair value recorded either through earnings or other comprehensive income in accordance with applicable accounting
principles generally accepted in the United States. These include the Company’s trading account securities, available-for-sale
debt securities, equity securities with a readily determinable fair value, derivatives, mortgage loans held-for-sale, certain loans
held-for-investment and mortgage servicing rights (“MSRs”). The determination of fair value is important for certain other
assets, including goodwill and other intangible assets, loans individually assessed when measuring a related allowance for credit
loss, and other real estate owned that are periodically evaluated for impairment using fair value estimates.
Fair value is generally defined as the amount at which an asset or liability could be exchanged in a current transaction between
willing, unrelated parties, other than in a forced or liquidation sale. Fair value is based on quoted market prices in an active
market, or if market prices are not available, is estimated using models employing techniques such as matrix pricing or
discounting expected cash flows. The significant assumptions used in the models, which include assumptions for interest rates,
discount rates, prepayments and credit losses, are independently verified against observable market data where possible. Where
observable market data is not available, the estimate of fair value becomes more subjective and involves a high degree of
judgment. In this circumstance, fair value is estimated based on management’s judgment regarding the value that market
participants would assign to the asset or liability. This valuation process takes into consideration factors such as market
illiquidity. Imprecision in estimating these factors can impact the amount recorded on the balance sheet for a particular asset or
liability with related impacts to earnings or other comprehensive income. See Note 22, “Fair Value of Assets and Liabilities,” to
the Consolidated Financial Statements in Item 8 for a further discussion of fair value measurements.
Impairment Testing of Goodwill
The Company performs impairment testing of goodwill for each of its reporting units on an annual basis or more frequently
when events warrant, using a qualitative or quantitative approach. Using a qualitative approach, the Company reviews any
recent events or circumstances that would indicate it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. These events and circumstances include the performance of the Company, the condition of the related industry
in which the reporting unit operates and general economic environment and other factors. If the Company determines it is not
more likely than not that there is impairment based on an evaluation of these events and circumstances, the Company may forgo
the two-step quantitative approach.
Using a quantitative approach, the goodwill impairment analysis involves a two-step process. The first step is a comparison of
the reporting unit’s fair value to its carrying value. If the carrying value of a reporting unit was determined to have been higher
than its fair value, the second step would have to be performed to measure the amount of impairment loss. The second step
measures goodwill impairment by recognizing an impairment according to the excess of the carrying amount of the reporting
unit over the calculated fair value of such unit. Valuations are estimated in good faith by management through the use of
publicly available valuations of comparable entities and discounted cash flow models using internal financial projections in the
reporting unit’s business plan.
Under both a qualitative and quantitative approach, the goodwill impairment analysis requires management to make subjective
judgments in determining if an indicator of impairment has occurred. Events and factors that may significantly affect the
analysis include: a significant decline in the Company’s expected future cash flows, a substantial increase in the discount rate, a
sustained, significant decline in the Company’s stock price and market capitalization, a significant adverse change in legal
factors or in the business climate. Other factors might include changing competitive forces, customer behaviors and attrition,
revenue trends, cost structures, along with specific industry and market conditions. Adverse change in these factors could have
a significant impact on the recoverability of intangible assets and could have a material impact on the Company’s consolidated
financial statements.
As of December 31, 2020, the Company had three reporting units: Community Banking, Specialty Finance and Wealth
Management. Based on the Company’s 2020 goodwill impairment testing, no goodwill impairment was indicated for any of the
reporting units on their respective annual testing dates.
Derivative Instruments
The Company utilizes derivative instruments to manage risks such as interest rate risk or market risk. The Company’s policy
prohibits using derivatives for speculative purposes.
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Accounting for derivatives differs significantly depending on whether a derivative is designated as an accounting hedge, which
is a transaction intended to reduce a risk associated with a specific asset or liability or future expected cash flow at the time it is
purchased. In order to qualify as an accounting hedge, a derivative must be designated as such at inception by management and
meet certain criteria. Management must also continue to evaluate whether the instrument effectively reduces the risk associated
with that item. To determine if a derivative instrument continues to be an effective hedge, the Company must make assumptions
and judgments about the continued effectiveness of the hedging strategies and the nature and timing of forecasted transactions.
If the Company’s hedging strategy were to become ineffective, hedge accounting would no longer apply and the reported
results of operations or financial condition could be materially affected. See Note 21, “Derivative Financial Instruments,” to the
Consolidated Financial Statements in Item 8 for a further discussion of derivative accounting.
Income Taxes
The Company is subject to the income tax laws of the United States, its states, Canada and other jurisdictions where it conducts
business. These laws are complex and subject to potentially different interpretations by the taxpayer and the various taxing
authorities. In determining the provision for income taxes, management must make judgments and estimates about the
application of these inherently complex laws, related regulations and case law. In the process of preparing the Company’s tax
returns, management attempts to make reasonable interpretations of the tax laws. These interpretations are subject to challenge
by the tax authorities upon audit or to reinterpretation based on management’s ongoing assessment of facts and evolving case
law. Management reviews its uncertain tax positions and recognition of the benefits of such positions on a regular basis.
On a quarterly basis, management assesses the reasonableness of its effective tax rate based upon its current best estimate of net
income and the applicable taxes expected for the full year. Deferred tax assets and liabilities are reassessed on a quarterly basis,
if business events or circumstances warrant. Additionally, any enactment of new tax rates such as the enactment of the Tax Act
in December 2017 requires the Company to re-measure its existing deferred tax assets and liabilities to reflect the new tax rate,
with such adjustments recognized in current year earnings. See Note 17, “Income Taxes,” to the Consolidated Financial
Statements in Item 8 for a further discussion of income taxes.
The COVID-19 pandemic, specifically the uncertainty related to the ultimate magnitude of impact on the economy and banking
industry, is expected to impact many of the estimates, assumptions and judgments noted above that are used by management.
This could result in volatility in the related accounting estimates, which will directly impact the Company's financial results.
CONSOLIDATED RESULTS OF OPERATIONS
The following discussion of Wintrust’s results of operations requires an understanding that a majority of the Company’s bank
subsidiaries have been started as de novo banks since December 1991. Wintrust has a strategy of continuing to build its
customer base and securing broad product penetration in each marketplace that it serves. The Company has expanded its
banking franchise from three banks with five offices in 1994 to 15 banks with 181 offices at the end of 2020. FIRST Insurance
Funding and Wintrust Life Finance have matured into separate divisions that generated, on a national basis, $10.0 billion in
total premium finance receivables in 2020 within the United States. FIFC Canada, acquired in 2012, originated $1.3 billion in
Canadian commercial premium finance receivables in 2020. In addition, the wealth management companies have been building
a team of experienced professionals who are located within a majority of the banks.
Earnings Summary
Net income for the year ended December 31, 2020, totaled $293.0 million, or $4.68 per diluted common share, compared to
$355.7 million, or $6.03 per diluted common share, in 2019, and $343.2 million, or $5.86 per diluted common share, in 2018.
During 2020, net income decreased by $62.7 million and earnings per diluted common share decreased by $1.35. Net income in
2020 was significantly impacted by disruption from COVID-19. Net interest income decreased in 2020 compared to 2019
primarily as a result of the reduction in the net interest margin primarily due to the low rate environment driven by monetary
policy in response to disruption from the pandemic. This decrease was partially offset by significant growth in earning assets
primarily driven by the Company’s participation in PPP, a part of the CARES Act, which was enacted in response to
COVID-19. The Company’s provision for credit losses increased significantly in 2020 primarily due to deterioration from the
expected impact of COVID-19 of forecasted macroeconomic conditions used in the measurement of the allowance for credit
losses after the adoption of CECL. Partially offsetting the reduction to net income from lower net interest income and higher
provisions for credit losses, mortgage banking revenue increased in 2020 primarily as a result of the impact of COVID-19 on
interest rates in the market. The Company’s mortgages originated for sale increased significantly in 2020 compared to 2019
primarily due to historically low long-term interest rates, resulting in such increase in mortgage banking revenue during the
period. Additionally, the reduction in net interest income and higher provision for credit losses were also offset by lower
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advertising and marketing costs, primarily due to lower sponsorship costs from shortened or canceled sports seasons and other
events due to COVID-19.
Other items impacting net income in 2020 compared to 2019 include higher salaries and benefits to support mortgage
operations and growth in the Company, increased equipment expenses and higher FDIC insurance expense, partially offset by
higher service charges on deposit accounts as the Company’s deposit balances increased during the period and higher interest
rate swap fees due to higher customer activity.
Net Interest Income
The primary source of the Company’s revenue is net interest income. Net interest income is the difference between interest
income and fees on earning assets, such as loans and securities, and interest expense on the liabilities to fund those assets,
including interest bearing deposits and other borrowings. The amount of net interest income is affected by both changes in the
level of interest rates, and the amount and composition of earning assets and interest bearing liabilities.
Net interest income in 2020 totaled $1.0 billion, down from $1.1 billion in 2019 and up from $964.9 million in 2018,
representing a decrease of $15.0 million, or 1%, in 2020 and an increase of $90.0 million, or 9%, in 2019. The table presented
later in this section, titled “Changes in Interest Income and Expense,” presents the dollar amount of changes in interest income
and expense, by major category, attributable to changes in the volume of the balance sheet category and changes in the rate
earned or paid with respect to that category of assets or liabilities for 2020 and 2019. Average earning assets increased $7.7
billion, or 25%, in 2020 and $3.7 billion, or 14%, in 2019. Loans are the most significant component of the earning asset base
as they earn interest at a higher rate than the other earning assets. Average loans increased $5.2 billion, or 21%, in 2020 and
$2.5 billion, or 11%, in 2019. Total average loans as a percentage of total average earning assets were 79%, 82% and 84% in
2020, 2019 and 2018, respectively. The average yield on loans was 3.84% in 2020, 4.93% in 2019 and 4.66% in 2018,
reflecting a decrease of 109 basis points in 2020 and an increase of 27 basis points in 2019. The lower loan yields in 2020
compared to 2019 is primarily a result of the decline interest rate environment during 2020. The average yield on liquidity
management assets was 1.60% in 2020, 2.79% in 2019 and 2.78% in 2018, reflecting a decrease of 119 basis points in 2020 and
an increase of one basis points in 2019. The average rate paid on interest bearing deposits, the largest component of the
Company’s interest bearing liabilities, was 0.77% in 2020, 1.35% in 2019 and 0.95% in 2018, representing a decrease of 58
basis points in 2020 and an increase of 40 basis points in 2019. The lower level of interest bearing deposits rates in 2020
compared to 2019 is primarily due to downward re-pricing of retail deposits as a result of declining interest rates. As a result of
the above, net interest margin decreased to 2.72% (2.73% on a fully tax-equivalent basis) in 2020 compared to 3.45% (3.47%
on a fully tax-equivalent basis) in 2019.
Net interest income and net interest margin were also affected by amortization of valuation adjustments to earning assets and
interest-bearing liabilities of acquired businesses. Assets and liabilities of acquired businesses are required to be recognized at
their estimated fair value at the date of acquisition. These valuation adjustments represent the difference between the estimated
fair value and the carrying value of assets and liabilities acquired. These adjustments are amortized into interest income and
interest expense based upon the estimated remaining lives of the assets and liabilities acquired.
Average Balance Sheets, Interest Income and Expense, and Interest Rate Yields and Costs
The following table sets forth the average balances, the interest earned or paid thereon, and the effective interest rate, yield or
cost for each major category of interest-earning assets and interest-bearing liabilities for the years ended December 31, 2020,
2019 and 2018. The yields and costs include loan origination fees and certain direct origination costs that are considered
adjustments to yields. Interest income on non-accruing loans is reflected in the year that it is collected, to the extent it is not
applied to principal. Such amounts are not material to net interest income or the net change in net interest income in any year.
Non-accrual loans are included in the average balances. Net interest income and the related net interest margin have been
adjusted to reflect tax-exempt income, such as interest on municipal securities and loans, on a tax-equivalent basis. This table
should be referred to in conjunction with discussion of the financial condition and results of operations of the Company.
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(Dollars in thousands)
Assets
Interest bearing deposits with banks and cash
equivalents
Investment securities
FHLB and FRB stock
Total liquidity management assets (1) (6)
Other earning assets (1) (2) (6)
Mortgage loans held-for-sale
Loans, net of unearned income (1) (3) (6)
Total earning assets (6)
Allowance for loan losses
Cash and due from banks
Other assets
Total assets
Liabilities and Shareholders’ Equity
Deposits — interest bearing:
NOW and interest bearing demand
deposits
Wealth management deposits
Money market accounts
Savings accounts
Time deposits
Average Balance
for the year ended December 31,
Interest
for the year ended December 31,
Yield/Rate
for the year ended December 31,
2020
2019
2018
2020
2019
2018
2020
2019
2018
$ 3,117,075
4,101,136
$ 1,494,418
3,651,091
$
888,671
3,045,555
$
8,655
101,799
$ 30,503
110,326
$ 17,091
89,640
0.28 %
2.48
2.04 %
3.02
1.92 %
2.94
130,360
96,924
101,681
6,891
5,416
5,331
5.29
5.59
5.24
$ 7,348,571
$ 5,242,433
$ 4,035,907
$ 117,345
$ 146,245
$ 112,062
1.60 %
2.79 %
2.78 %
17,863
707,147
16,385
308,645
20,681
523
714
777
332,863
20,077
11,992
15,738
30,181,204
24,986,736
22,500,482
1,159,490
1,232,415
1,047,905
2.94
2.84
3.84
4.36
3.89
4.93
3.75
4.73
4.66
$ 38,254,785
$ 30,554,199
$ 26,889,933
$ 1,297,435 $ 1,391,366 $ 1,176,482
3.39 %
4.55 %
4.38 %
(264,516)
(164,587)
(148,342)
341,116
292,807
266,086
3,039,954
2,549,664
2,020,743
$ 41,371,339
$ 33,232,083
$ 29,028,420
$ 3,298,554
$ 2,903,441
$ 2,436,791
$
7,642
$ 20,079
$
9,773
0.23 %
0.69 %
0.40 %
3,882,975
2,761,936
2,356,145
8,874,488
6,659,376
5,105,244
3,354,662
2,834,381
2,684,661
29,277
46,488
12,507
31,121
91,940
20,975
5,142,938
5,467,192
4,872,590
93,264
114,777
27,839
42,973
11,444
74,524
0.75
0.52
0.37
1.81
1.13
1.38
0.74
2.10
1.18
0.84
0.43
1.53
Total interest bearing deposits
$ 24,553,617
$ 20,626,326
$ 17,455,431
$ 189,178
$ 278,892
$ 166,553
0.77 %
1.35 %
0.95 %
FHLB advances
Other borrowings
Subordinated notes
Junior subordinated notes
Total interest-bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
1,156,106
496,693
436,275
253,566
658,669
428,834
309,178
253,566
713,539
289,615
139,140
253,566
18,193
12,773
21,961
11,008
9,878
13,897
15,555
12,001
12,412
8,599
7,121
11,222
1.57
2.57
5.03
4.27
1.50
3.24
5.03
4.67
1.74
2.97
5.12
4.37
$ 26,896,257
$ 22,276,573
$ 18,851,291
$ 253,113
$ 330,223
$ 205,907
0.94 %
1.48 %
1.09 %
9,432,090
6,711,298
6,545,251
1,116,304
782,677
533,138
3,926,688
3,461,535
3,098,740
Total liabilities and shareholders’ equity
$ 41,371,339
$ 33,232,083
$ 29,028,420
Interest rate spread (4) (6)
Less: Fully taxable-equivalent adjustment
Net free funds/contribution (5)
Net interest income/margin (6) (GAAP)
Fully taxable-equivalent adjustment
Net interest income/margin (6), fully taxable-
equivalent (non-GAAP)
$ 11,358,528
$ 8,277,626
$ 8,038,642
0.28
$
(4,415) $
(6,224) $
(5,672)
(0.01)
(0.02)
0.40
(0.02)
0.32
2.45 %
3.07 %
3.29 %
$ 1,039,907 $ 1,054,919 $ 964,903
2.72 %
3.45 %
3.59 %
4,415
6,224
5,672
0.01
0.02
0.02
$ 1,044,322 $ 1,061,143 $ 970,575
2.73 %
3.47 %
3.61 %
(1)
Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on a marginal
federal corporate tax rate in effect as of the applicable period. The total adjustments for the years ended December 31, 2020, 2019 and 2018 were
$4.4 million, $6.2 million and $5.7 million, respectively.
(2) Other earning assets include brokerage customer receivables and trading account securities.
(3) Loans, net of unearned income, include non-accrual loans.
(4)
(5) Net free funds is the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net
Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
See“Non-GAAP Financial Measures/Ratios” for additional information on this performance ratio.
(6)
63
Changes In Interest Income and Expense
The following table shows the dollar amount of changes in interest income and expense by major categories of interest-earning
assets and interest-bearing liabilities attributable to changes in volume or rate for the periods indicated:
Years Ended December 31,
(Dollars in thousands)
Interest income:
Interest bearing deposits with banks and cash
equivalents
Investment securities
FHLB and FRB stock
Total liquidity management assets
Other earning assets
Mortgage loans held-for-sale
Loans, net of unearned income
Total interest income
Interest Expense:
Deposits — interest bearing:
$
$
NOW and interest bearing demand deposits $
Wealth management deposits
Money market accounts
Savings accounts
Time deposits
Total interest expense — deposits
FHLB advances
Other borrowings
Subordinated notes
Junior subordinated notes
Total interest expense
Net interest income (GAAP)
Fully taxable-equivalent adjustment
Net interest income, fully-taxable
equivalent (non-GAAP)
2020 Compared to 2019
Change
Due to
Volume
Change
Due to
Rate
Total
Change
2019 Compared to 2018
Change
Due to
Volume
Change
Due to
Rate
Total
Change
(38,831) $
(17,254)
16,983 $
8,842
(21,848) $
(8,412)
1,217 $ 12,195 $ 13,412
20,664
2,816
17,848
(307)
(56,392) $
(253)
(3,981)
(305,123)
1,782
27,607 $
62
12,066
233,892
$ (365,749) $ 273,627 $
343
(258)
85
1,475
4,376 $ 29,785 $ 34,161
(28,785) $
(61)
(191)
(3,746)
8,085
183,978
(71,231)
(92,122) $ 66,151 $ 148,181 $ 214,332
111
(2,658)
64,322
(172)
(1,088)
119,656
(16,264) $
(14,082)
(69,794)
(11,884)
(15,227)
$ (127,251) $
482
(2,952)
—
(993)
$ (130,714) $
(235,035)
452 $
$
3,827 $
12,238
24,342
3,416
(6,286)
37,537 $
7,833
1,828
6,406
—
53,604 $
220,023
(2,261) $
33,870
8,852
30,382
1,069 $ 9,237 $ 10,306
(12,437) $
3,282
4,025
(743)
(1,844)
48,967
15,097
(45,452)
9,531
679
(8,468)
(21,513)
40,253
9,871
(89,714) $ 73,430 $ 38,909 $ 112,339
(2,534)
5,298
8,434
779
(77,110) $ 73,198 $ 51,118 $ 124,316
90,016
(7,047) 97,063
(15,012) $
552
3,484 $ (2,932) $
(1,809) $
8,315
(1,124)
6,406
(993)
(1,627)
743
(127)
779
(907)
4,555
8,561
—
$ (238,784) $ 221,963 $
(16,821) $
(3,563) $ 94,131 $ 90,568
The changes in net interest income are created by changes in both interest rates and volumes. In the table above, volume
variances are computed using the change in volume multiplied by the previous year’s rate. Rate variances are computed using
the change in rate multiplied by the previous year’s volume. The change in interest due to both rate and volume has been
allocated between factors in proportion to the relationship of the absolute dollar amounts of the change in each. The change in
interest due to an additional day resulting from the 2020 leap year has been allocated entirely to the change due to volume.
64
Non-Interest Income
The following table presents non-interest income by category for 2020, 2019 and 2018:
Years ended December 31,
2020 compared to 2019
2019 compared to 2018
(Dollars in thousands)
Brokerage
Trust and asset management
Total wealth management
Mortgage banking
Service charges on deposit
accounts
(Losses) gains on investment
securities, net
Fees from covered call options
Trading (losses) gains, net
Operating lease income, net
Other:
Interest rate swap fees
BOLI
Administrative services
Foreign currency measurement
(loss) gain
Early pay-offs of capital leases
Miscellaneous
Total Other
Total Non-Interest Income
NM—Not Meaningful
$
2020
18,731 $
81,605
$ 100,336 $
346,013
2018
2019
18,825 $ 22,391 $
78,289
97,114 $ 90,963 $
154,293
136,990
68,572
$ Change
% Change
$ Change
(94)
3,316
3,222
191,720
0 % $
4
3 % $
124
(3,566)
9,717
6,151
17,303
% Change
(16) %
14
7 %
13
45,023
39,070
36,404
5,953
15
2,666
7
(1,926)
2,292
(1,004)
47,604
3,525
3,670
(158)
47,041
(2,898)
3,519
11
38,451
20,718
4,730
4,385
13,072
4,947
4,197
11,027
4,982
4,625
(5,451)
(1,378)
(846)
563
7,646
(217)
188
NM
(38)
NM
1
58
(4)
4
6,423
151
(169)
8,590
2,045
(35)
(428)
(621)
632
36,007
65,851 $
(1,404)
597
(3,576)
$
3,234
$ 604,189 $ 407,172 $ 356,150 $ 197,017
783
35
39,583
62,617 $ 52,710 $
(1,673)
601
33,148
NM
NM
2,456
(566)
6,435
(9)
5 % $
9,907
48 % $ 51,022
NM
4
NM
22
19
(1)
(9)
NM
(94)
19
19 %
14 %
Notable contributions to the change in non-interest income are as follows:
Wealth management revenue is comprised of the trust and asset management revenue of the CTC and Great Lakes Advisors,
the brokerage commissions, managed money fees and insurance product commissions at Wintrust Investments and fees from
tax-deferred like-kind exchange services provided by CDEC.
Trust and asset management revenue totaled $81.6 million in 2020, an increase of $3.3 million, or 4%, compared to 2019. Trust
and asset management fees are based primarily on the market value of the assets under management or administration as well as
volume of tax-deferred like-kind exchange services provided during a period. Such revenue increased from 2019 to 2020
primarily as a result of market appreciation related to managed money accounts with fees based on assets under management
and higher asset levels from new customers and new financial advisors.
Mortgage banking revenue totaled $346.0 million in 2020 compared to $154.3 million in 2019 reflecting an increase of $191.7
million, or 124%, in 2020. The increase in 2020 as compared 2019 was a result of an increase in loans originated for sale and
higher production revenue. Mortgage banking revenue includes revenue from activities related to originating, selling and
servicing residential real estate loans for the secondary market. A main factor in the mortgage banking revenue recognized by
the Company is the volume of mortgage loans originated or purchased for sale. Mortgage originations for sale totaled $8.0
billion for the year ended 2020 compared to $4.5 billion for the same period of 2019. The increase in originations was primarily
due to demand associated with historically low long-term interest rates. The percentage of origination volume from refinancing
activities was 65% in 2020 as compared to 48% in 2019. Mortgage revenue is also impacted by changes in the fair value of
MSRs. The Company records MSRs at fair value on a recurring basis.
During 2020, the fair value of the MSRs portfolio increased as retained servicing rights led to capitalization of $71.1
million, partially offset by negative fair value adjustments of $30.8 million and a reduction in value due to payoffs and
paydowns of the existing portfolio. Starting in 2019, the Company purchased options and entered into interest rate swaps to
economically hedge a portion of the fair value changes recorded in earnings related to its MSRs portfolio. During the second
65
quarter of 2020, the Company terminated these interest rate swaps. There were no such options or interest rate swaps
outstanding as of December 31, 2020. See Note 6, “Mortgage Servicing Rights,” to the Consolidated Financial Statements in
Item 8 for a summary of the changes in the carrying value of MSRs.
The table below presents additional selected information regarding mortgage banking for the respective periods.
(Dollars in thousands)
Originations:
Retail originations
Correspondent originations
Veterans First originations
Total originations for sale (A)
Originations for investment
Total originations
Years Ended December 31,
2020
2019
2018
$
$
$
5,709,868
—
2,294,862
8,004,730
396,499
8,401,229
$
$
$
2,730,865
385,729
1,381,327
4,497,921
460,734
4,958,655
$
$
$
2,412,232
848,997
694,209
3,955,438
258,930
4,214,368
Purchases as a percentage of originations for sale
Refinances as a percentage of originations for sale
Total
35 %
65
100 %
52 %
48
100 %
75 %
25
100 %
Production Margin:
Production revenue (B) (1)
Production margin (B / A)
Mortgage servicing:
Loans serviced for others (C)
Mortgage servicing rights, at fair value (D)
Percentage of mortgage servicing rights to loans serviced
for others (D/C)
Servicing income
Components of Mortgage Servicing Rights (MSR):
MSR - current period capitalization
MSR - collection of expected cash flows - paydowns
MSR - collection of expected cash flows - payoffs
Valuation:
MSR - changes in fair value model assumptions
Gain (loss) on derivative contract held as an economic
hedge, net
MSR valuation adjustment, net of gain/(loss) on
derivative contract held as an economic hedge
Summary of Mortgage Banking Revenue:
Production revenue (1)
Servicing income
MSR activity
Other
$
307,794
$
122,047
$
3.85 %
2.71 %
92,250
2.33 %
$
10,833,135
92,081
$
8,243,251
85,638
$
6,545,870
75,183
0.85 %
31,886
1.04 %
23,156
1.15 %
15,269
$
$
$
$
71,077
(2,244)
(30,335)
(30,764)
4,749
$
44,943
(1,901)
(18,217)
(14,778)
519
(26,015)
$
(14,259)
$
$
307,794
31,886
12,483
(6,150)
$
122,047
23,156
10,566
(1,476)
154,293
33,071
(2,267)
(2,772)
(331)
—
(331)
92,250
15,269
27,701
1,770
136,990
Total mortgage banking revenue
$
346,013
(1) Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on
loans sold and fees from originations, changes in derivative activity, processing and other related activities, and excludes
servicing fees, changes in fair value of servicing rights and changes to the mortgage recourse obligation and other non-
production revenue.
66
Service charges on deposit accounts totaled $45.0 million in 2020 and $39.1 million in 2019, reflecting an increase of 15%
in 2020. The increase in 2020 was primarily a result of higher account analysis fees on deposit accounts which increased as a
result of the Company's commercial banking initiative as well as additional service charges on deposit accounts from acquired
institutions.
The Company recognized $1.9 million in net losses in 2020 compared to $3.5 million in net gains on investment securities in
2019. The Company did not recognize any credit-related write-downs or other-than-temporary impairment charges in 2020 or
2019, respectively.
Fees from covered call option transactions totaled $2.3 million in 2020, compared to $3.7 million in 2019. The Company has
typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its
portfolio for liquidity and other purposes. Management has effectively entered into these transactions with the goal of
economically hedging security positions and enhancing its overall return on its investment portfolio by using fees generated
from these options to compensate for net interest margin compression. These option transactions are designed to mitigate
overall interest rate risk and to increase the total return associated with holding certain investment securities and do not qualify
as hedges pursuant to accounting guidance. There were no outstanding call option contracts at December 31, 2020 and 2019.
The Company recognized $1.0 million of trading losses in 2020 compared to trading losses of $158,000 in 2019. Trading gains
and losses recorded by the Company primarily result from fair value adjustments related to interest rate derivatives not
designated as hedges.
Operating lease income totaled $47.6 million in 2020 compared to $47.0 million in 2019. The increase in 2020 was primarily
related to growth in business from the Company's leasing divisions.
Interest rate swap fee revenue totaled $20.7 million in 2020 and $13.1 million in 2019. Swap fee revenues result from interest
rate swap transactions related to both customer-based trades and the related matched trades with inter-bank dealer
counterparties. The revenue recognized on this customer-based activity is sensitive to the pace of organic loan growth, the
shape of the yield curve and the customers’ expectations of interest rates. The fluctuations in swap fee revenue in 2020
primarily results from fluctuations in interest rate swap transactions related to both customer-based trades and the related
matched trades with inter-bank dealer counterparties.
Bank owned life insurance (“BOLI”) generated non-interest income of $4.7 million in 2020 compared to $4.9 million in 2019.
This income typically represents adjustments to the cash surrender value of BOLI policies and proceeds received from death
benefits. The Company initially purchased BOLI to consolidate existing term life insurance contracts of executive officers and
to mitigate the mortality risk associated with death benefits provided for in executive employment contracts and in connection
with certain deferred compensation arrangements. The Company has also assumed additional BOLI policies as the result of the
acquisition of certain banks. The cash surrender value of BOLI totaled $154.6 million at December 31, 2020 and $187.5 million
at December 31, 2019, and is included in other assets.
Administrative services revenue generated by Tricom was $4.4 million in 2020 and $4.2 million in 2019. This revenue
comprises income from administrative services, such as data processing of payrolls, billing and cash management services, to
temporary staffing service clients located throughout the United States. Tricom also earns interest and fee income from
providing high-yielding, short-term accounts receivable financing to this same client base, which is included in the net interest
income category.
The Company realized income of $632,000 and $35,000 in 2020 and 2019, respectively, representing gains realized from the
early pay-off of leases originated and managed by the Company's leasing division.
Miscellaneous other non-interest income totaled $36.0 million in 2020 compared to $39.6 million in 2019. Miscellaneous
income includes loan servicing fees, income from other investments, service charges and other fees. The decrease in
miscellaneous other income for 2020 compared to 2019 was the result of a decrease in partnership income.
67
Non-Interest Expense
The following table presents non-interest expense by category for 2020, 2019 and 2018:
(Dollars in thousands)
Salaries and employee benefits:
Salaries
Years ended December 31,
2019
2018
2020
2020 compared to 2019
$ Change % Change
2019 compared to 2018
$ Change % Change
$ 351,775 $ 310,352 $ 266,563 $ 41,423
13 % $ 43,789
16 %
Commissions and incentive compensation
Benefits
178,584
148,600
135,558
95,717
87,468
77,956
29,984
8,249
20
9
13,042
9,512
10
12
Total salaries and employee benefits
$ 626,076 $ 546,420 $ 480,077 $ 79,656
15 % $ 66,343
14 %
Equipment
Operating lease equipment depreciation
Occupancy, net
Data processing
Advertising and marketing
Professional fees
Amortization of other intangible assets
FDIC insurance
OREO expenses, net
Other:
Commissions — 3rd party brokers
Postage
Miscellaneous
Total other
68,496
37,915
69,957
30,196
36,296
27,426
11,018
25,004
(921)
3,114
6,918
52,328
35,760
64,289
27,820
48,595
27,471
11,844
9,199
3,628
2,918
9,597
42,949
29,305
57,814
35,027
41,140
32,306
4,571
17,209
6,120
16,168
2,155
5,668
2,376
(12,299)
(45)
(826)
15,805
(4,549)
4,264
8,685
196
(2,679)
98,600
88,257
66,621
10,343
31
6
9
9
(25)
0
(7)
9,379
6,455
6,475
(7,207)
7,455
(4,835)
7,273
NM
(8,010)
NM
(2,492)
22
22
11
(21)
18
(15)
NM
(47)
(41)
7
(28)
12
(1,346)
(32)
912
21,636
11
32
27 %
12 %
$ 108,632 $ 100,772 $
79,570 $
7,860
8 % $ 21,202
Total Non-Interest Expense
$ 1,040,095 $ 928,126 $ 826,088 $ 111,969
12 % $ 102,038
NM—Not Meaningful
Notable contributions to the change in non-interest expense are as follows:
Salaries and employee benefits is the largest component of non-interest expense, accounting for 60% of the total in 2020
compared to 59% in 2019. For the year ended December 31, 2020, salaries and employee benefits totaled $626.1 million and
increased $79.7 million, or 15%, compared to 2019. This increase was primarily attributed to increased salaries and
commissions and incentive compensation expense. Salaries increased $41.4 million as a result of increased staffing costs to
support mortgage origination and investment in technology related services to satisfy customer demands and create efficiencies
in operations. Commissions and incentive compensation increased $30.0 million primarily due to increased commissions
expense from higher levels of mortgage loan originations in the current year.
Equipment expense totaled $68.5 million in 2020 compared to $52.3 million in 2019, reflecting an increase of 31% in 2020.
The increase in equipment expense in 2020 was primarily related to increased software licensing expenses. Equipment expense
includes furniture, equipment and computer software, depreciation and repairs and maintenance costs.
Operating lease equipment expense totaled $37.9 million in 2020 and $35.8 million in 2019. The increase in 2020 was primarily
related to growth in business from the Company's leasing divisions.
Occupancy expense for the years 2020 and 2019 was $70.0 million and $64.3 million, respectively, reflecting an increase of 9%
in 2020. The increase in 2020 was primarily associated with an impairment charge of $1.4 million related to the planned closure
of 10 bank branches, increased real estate tax assessment estimates and a higher level of utility charges. Occupancy expense
includes depreciation on premises, real estate taxes and insurance, utilities and maintenance of premises, as well as net rent
expense for leased premises.
Data processing expenses totaled $30.2 million in 2020 compared to $27.8 million in 2019, representing an increase of 9% in
2020. The amount of data processing expenses incurred increased based on the overall growth of loan and deposit accounts and
68
conversion costs related to previously completed acquisitions. No additional material conversion charges are anticipated related
to any completed acquisitions.
Advertising and marketing expenses totaled $36.3 million for 2020 compared to $48.6 million for 2019. Marketing costs are
incurred to promote the Company’s brand, commercial banking capabilities, the Company’s MaxSafe® suite of products,
community-based 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 decrease in 2020 was primarily as a result of decreased sponsorship costs due to the
cancellation of events, including sports sponsorships, as a result of the COVID-19 pandemic. The level of marketing
expenditures depends on the type of marketing programs utilized which are determined based on the market area, targeted
audience, competition and various other factors. Management continues to utilize mass market media promotions as well as
targeted marketing programs in certain market areas. In 2019, the Company incurred increased advertising and marketing costs
to increase Wintrust's name recognition associated with the overall goal of becoming recognized as “Chicago’s Bank” and
“Wisconsin’s Bank.”
FDIC insurance expense totaled $25.0 million in 2020 compared to $9.2 million in 2019 reflecting an increase of $15.8 million
in 2020. The increase in 2020 as compared to 2019 was a result of assessment credits received from the FDIC in 2019 as well
as higher assessment rates impacted by declines in the Tier 1 Leverage Ratio at the Company's bank affiliates as a result of asset
growth, including PPP loans.
The Company recorded a $1.3 million gain on sale of an OREO property in 2020 resulting in net OREO income of $921,000 in
2020, compared to net OREO expense of $3.6 million in 2019. OREO expenses include all costs associated with obtaining,
maintaining and selling other real estate owned properties as well as valuation adjustments.
Miscellaneous non-interest expense increased $10.3 million, or 12%, in 2020 compared to 2019. The increase in 2020 as
compared to 2019 was primarily a result of an increase of $15.1 million of contingent consideration expense related to the
previous acquisition of mortgage operations. The liability for contingent consideration expense related to the previous
acquisition of mortgage operations is based upon forward looking mortgage origination volumes and the estimated profitability
of that operation. Should those assumptions change going forward, the liability may need to be increased or decreased. The
contractual period covering this contingent consideration ends in January 2023 and the final two years of the contract
contemplate a lower ratio of contingent consideration relative to financial performance. As a result, the Company does not
expect to have material adjustments to the contingent consideration liability in future periods. Miscellaneous non-interest
expense includes ATM expenses, correspondent banking charges, directors’ fees, telephone and communication, travel and
entertainment, corporate insurance, dues and subscriptions, problem loan expenses, operating losses and lending origination
costs that are not deferred.
Income Taxes
The Company recorded income tax expense of $96.8 million in 2020 compared to $124.4 million in 2019 and $117.0 million in
2018. The effective tax rates were 24.8% in 2020, 25.9% in 2019 and 25.4% in 2018. The effective tax rate in 2020 benefited
from $9.1 million in state income tax settlements related to uncertain tax positions. Net of the federal tax impact, the reduction
to income tax expense was $7.2 million. Income tax expense was also impacted by the tax effects related to the issuance of
shares in share-based compensation plans. These tax effects fluctuate based on the Company’s stock price and timing of
employee stock option exercises and vesting of other share based awards. The Company recorded additional tax expense related
to share-based compensation of $618,000 in 2020, and tax benefits of $1.8 million and $3.9 million in 2019 and 2018,
respectively, the majority of which were recognized in the first quarter of each year. Please refer to Note 17 to the Consolidated
Financial Statements in Item 8 for further discussion and analysis of the Company’s tax position, including a reconciliation of
the tax expense computed at the statutory tax rate to the Company’s actual tax expense.
Operating Segment Results
As described in Note 24 to the Consolidated Financial Statements in Item 8, the Company’s operations consist of three primary
segments: community banking, specialty finance and wealth management. The Company’s profitability is primarily dependent
on the net interest income, provision for credit losses, non-interest income and operating expenses of its community banking
segment. For purposes of internal segment profitability, management allocates certain intersegment and parent company
balances. Management allocates a portion of revenues to the specialty finance segment related to loans and leases originated by
the specialty finance segment and sold or assigned to the community banking segment. Similarly, for purposes of analyzing the
contribution from the wealth management segment, management allocates a portion of the net interest income earned by the
community banking segment on deposit balances of customers of the wealth management segment to the wealth management
69
segment. Finally, expenses incurred at the Wintrust parent company are allocated to each segment based on each segment's risk-
weighted assets.
The community banking segment’s net interest income for the year ended December 31, 2020 totaled $808.4 million as
compared to $841.6 million for the same period in 2019, a decrease of $33.2 million, or 4%. The decrease in 2020 compared to
2019 was primarily attributable to compression of the net interest margin attributable to the decrease in interest rates in the
environment and the impact of COVID-19 on macroeconomic conditions. The community banking segment's provision for
credit losses totaled $206.8 million in 2020 compared to $47.9 million in 2019. The provision for credit losses increased in
2020 compared to 2019 primarily due to the implementation of CECL and the macroeconomic conditions created by the
COVID-19 pandemic. Non-interest income for the community banking segment increased $194.5 million, or 71%, in 2020
when compared to 2019. The increase in 2020 compared to 2019 was primarily attributable to an increase in mortgage banking
revenue from significantly increased mortgage originations during 2020. The community banking segment’s net income for the
year ended December 31, 2020 totaled $163.6 million, a decrease of $74.9 million, compared to net income of $238.5 million in
2019. The decrease was primarily attributable to a higher provision for credit losses in 2020 due to the implementation of
CECL and the macroeconomic conditions created by the COVID-19 pandemic.
The specialty finance segment’s net interest income totaled $177.0 million for the year ended December 31, 2020, compared to
$161.7 million in the same period of 2019, an increase of $15.3 million, or 9%. The increase in 2020 compared to 2019 was
primarily attributable to growth in earnings assets on the premium finance receivables portfolios. The specialty finance
segment's provision for credit losses totaled $7.4 million in 2020 compared to $6.0 million in 2019. The specialty finance
segment’s non-interest income totaled $86.3 million for the year ended December 31, 2020 compared to $79.5 million in 2019.
The increase in non-interest income in 2020 is primarily a result of higher originations and increased balances related to the
commercial premium finance portfolio and growth in business from the Company's leasing division. For 2020, our commercial
premium finance operations, life insurance premium finance operations, leasing operations and accounts receivable finance
operations accounted for 42%, 31%, 23% and 4%, respectively, of the total revenues of our specialty finance business. Net
income of the specialty finance segment totaled $100.3 million and $89.4 million for the years ended December 31, 2020 and
2019, respectively.
The wealth management segment reported net interest income of $30.6 million for 2020 and $30.1 million for 2019. Net
interest income for this segment is primarily comprised of an allocation of net interest income earned by the community
banking segment on non-interest bearing and interest-bearing wealth management customer account balances on deposit at the
banks. Wealth management customer account balances on deposit at the banks averaged $2.0 billion and $1.7 billion in 2020
and 2019, respectively. This segment recorded non-interest income of $103.4 million for 2020 as compared to $100.1 million
for 2019. This increase is primarily due to growth in assets from new and existing customers and market appreciation.
Distribution of wealth management services through each bank continues to be a focus of the Company as the number of
brokers in its banks continues to increase. The Company is committed to growing the wealth management segment in order to
better service its customers and create a more diversified revenue stream. The wealth management segment reported net income
of $29.0 million for 2020 compared to $27.8 million for 2019.
Analysis of Financial Condition
Total assets were $45.1 billion at December 31, 2020, representing an increase of $8.5 billion, or 23%, when compared to
December 31, 2019. Total funding, which includes deposits, all notes and advances, including secured borrowings and junior
subordinated debentures, was $39.5 billion at December 31, 2020 and $31.9 billion at December 31, 2019. See Notes 3, 4, and
10 through 14 to the Consolidated Financial Statements in Item 8 for additional period-end detail on the Company’s interest-
earning assets and funding liabilities.
70
Interest-Earning Assets
The following table sets forth, by category, the composition of average earning assets and the relative percentage of each
category to total average earning assets for the periods presented:
(Dollars in thousands)
Mortgage loans held-for-sale
Loans:
Commercial, excluding PPP
Commercial - PPP
Commercial real estate
Home equity
Residential real estate
Premium finance receivables
Other loans
Total loans, net of unearned income (1)
Liquidity management assets (2)
Other earning assets (3)
Total average earning assets
Total average assets
Total average earning assets to total average
assets
2020
Years Ended December 31,
2019
2018
Balance
Percent
Balance
Percent
Balance
Percent
$
707,147
2 % $
308,645
1 % $
332,863
1 %
8,663,290
2,290,913
8,279,217
466,801
1,192,788
9,214,797
73,398
$ 30,181,204
7,348,571
23
6
22
1
8,056,731
—
7,325,865
526,853
26
—
24
2
7,223,368
—
6,655,352
602,258
1,042,997
3
7,920,379
24
0
113,911
79 % $ 24,986,736
5,242,433
19
849,766
4
7,035,390
26
0
134,348
82 % $ 22,500,482
4,035,907
17
17,863
0
16,385
0
20,681
27
—
25
2
3
26
1
84 %
15
0
$ 38,254,785
100 % $ 30,554,199
100 % $ 26,889,933
100 %
$ 41,371,339
$ 33,232,083
$ 29,028,420
92 %
92 %
93 %
(1) Includes non-accrual loans.
(2) Liquidity management assets include investment securities, other securities, interest-earning deposits with banks,
federal funds sold and securities purchased under resale agreements.
(3) Other earning assets include brokerage customer receivables and trading account securities.
Total average earning assets increased $7.7 billion, or 25%, in 2020. Average earning assets comprised 92% of average total
assets in 2020 and 2019.
Mortgage loans held-for-sale. Average mortgage loans held-for-sale totaled $707.1 million in 2020, compared to $308.6
million in 2019. These balances represent mortgage loans awaiting subsequent sale in the secondary market with such sales
eliminating the interest-rate risk associated with these loans, as they are predominantly long-term fixed rate loans, and provides
a source of non-interest revenue. The increase in average balance from 2019 to 2020 was primarily due to higher mortgage
production in 2020 due to the low rate environment as well as higher balances repurchased by the Company under the early
buyout option available for loans sold to GNMA with servicing retained. See “Loan Portfolio and Asset Quality” section later
in this Item 7 for additional discussion of these early buyout options.
Loans. Average total loans, net of unearned income, totaled $30.2 billion and increased $5.2 billion, or 21%, in 2020. Average
commercial loans, excluding PPP loans, totaled $8.7 billion in 2020, and increased $606.6 million, or 8%, over the average
balance in 2019. Average commercial PPP loans totaled $2.3 billion in 2020. Average commercial real estate loans totaled $8.3
billion in 2020, increasing $953.4 million, or 13%, since 2019. Combined, these categories comprised 64% and 62% of the
average loan portfolio in 2020 and 2019, respectively. The growth realized in these categories for 2020 is primarily attributable
to Company’s participation in funding PPP loans, increased business development efforts and various acquisitions occurring in
2019.
Home equity loans averaged $466.8 million in 2020, and decreased $60.1 million, or 11%, when compared to the average
balance in 2019. Unused commitments on home equity lines of credit totaled $756.2 million at December 31, 2020 and $800.6
million at December 31, 2019. The Company has been actively managing its home equity portfolio to ensure that diligent
pricing, appraisal and other underwriting activities continue to exist.
71
Residential real estate loans averaged $1.2 billion in 2020, and increased $149.8 million, or 14%, from the average balance in
2019. The increase in average balance was partially due to the Company deciding to allocate more balances from its mortgage
production for investment instead of for subsequent sale and servicing in the secondary market.
Average premium finance receivables totaled $9.2 billion in 2020, and accounted for 31% of the Company’s average total
loans. In 2020, average premium finance receivables increased $1.3 billion, or 16%, compared to 2019. The increase during
2020 was the result of continued originations within the portfolio due to hardening insurance market conditions driving a higher
average size of new commercial insurance premium finance receivables as well as effective marketing and customer servicing.
Approximately $11.3 billion of premium finance receivables were originated in 2020 compared to approximately $9.4 billion in
2019.
Other loans represent a wide variety of personal and consumer loans to individuals as well as high-yielding short-term accounts
receivable financing to clients in the temporary staffing industry located throughout the United States. Consumer loans
generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk due to the type
and nature of the collateral. Additionally, short-term accounts receivable financing may also involve greater credit risks than
generally associated with the loan portfolios of more traditional community banks depending on the marketability of the
collateral.
Covered loans represented loans acquired through the nine FDIC-assisted transactions, all of which occurred prior to 2013.
These loans were subject to loss sharing agreements with the FDIC. The FDIC agreed to reimburse the Company for 80% of
losses incurred on the purchased loans, foreclosed real estate, and certain other assets. On October 16, 2017, the Company
entered into agreements with the FDIC that terminated all existing loss share agreements with the FDIC. The Company will be
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.
Liquidity Management Assets. Funds that are not utilized for loan originations are used to purchase investment securities and
short-term money market investments, to sell as federal funds and to maintain in interest-bearing deposits with banks. Average
liquidity management assets accounted for 19% and 17% of total average earning assets in 2020 and 2019, respectively.
Average liquidity management assets increased $2.1 billion in 2020 compared to 2019. The balances of these assets can
fluctuate based on management’s ongoing effort to manage liquidity and for asset liability management purposes. In response to
the COVID-19 pandemic, the Company will continue to prudently evaluate and utilize liquidity sources as needed, including
the management of availability with the FHLB and FRB and utilization of the revolving credit facility with unaffiliated banks.
Other earning assets. Other earning assets include brokerage customer receivables and trading account securities. In the normal
course of business, Wintrust Investments activities involve the execution, settlement, and financing of various securities
transactions. Wintrust Investments customer securities activities are transacted on either a cash or margin basis. In margin
transactions, Wintrust Investments, under an agreement with the out-sourced securities firm, extends credit to its customer,
subject to various regulatory and internal margin requirements, collateralized by cash and securities in customer’s accounts. In
connection with these activities, Wintrust Investments executes and the out-sourced firm clears customer transactions relating to
the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual
exchange regulations. Such transactions may expose Wintrust Investments to off-balance-sheet risk, particularly in volatile
trading markets, in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event
a customer fails to satisfy its obligations, Wintrust Investments under an agreement with the out-sourced securities firm, may be
required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations. Wintrust
Investments seeks to control the risks associated with its customers’ activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal guidelines. Wintrust Investments monitors required margin levels
daily and, pursuant to such guidelines, requires customers to deposit additional collateral or to reduce positions when necessary.
Investment Securities Portfolio
Supplemental Statistical Data
The following statistical information is provided in accordance with the requirements of The Securities Act Industry Guide 3,
Statistical Disclosure by Bank Holding Companies, which is part of Regulation S-K as promulgated by the SEC. This data
should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto, and Management’s
Discussion and Analysis which are contained in Item 8 and Item 7, respectively, of this Annual Report on Form 10-K.
72
The following table presents the amortized cost and fair value of the Company’s investment securities portfolios, by investment
category, as of December 31, 2020, 2019 and 2018:
(Dollars in thousands)
2020
2019
2018
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Municipal
Corporate notes:
Financial issuers
Other
Mortgage-backed: (1)
Mortgage-backed securities
Collateralized mortgage obligations
Total available-for-sale securities
Held-to-maturity securities
U.S. Government agencies
Municipal
Mortgage-backed securities
Total held-to-maturity securities
Less: Allowance for credit losses(2)
Held-to-maturity securities, net of
allowance for credit losses
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
304,956 $ 304,971 $ 120,275 $ 121,088 $
80,074
141,244
84,513
146,910
365,639
141,701
365,442
145,318
126,199 $
139,420
136,831
126,404
140,307
138,490
91,786
1,000
90,385
1,020
97,051
1,000
93,810
1,031
97,079
1,000
90,045
1,000
2,330,332
10,689
1,586,339
43,496
$ 2,960,081 $ 3,055,839 $ 3,086,824 $ 3,106,214 $ 2,185,494 $ 2,126,081
1,641,146
43,819
2,417,038
11,002
2,328,383
32,775
2,346,610
32,915
$
$
787,429
177,959 $ 180,511 $ 902,974 $ 899,673 $
248,667
200,707
200,531
—
579,197 $ 593,767 $ 1,134,400 $ 1,138,396 $ 1,067,439 $ 1,036,096
814,864 $
252,575
—
212,725
200,531
231,426
—
238,723
—
(59)
$
579,138
Equity securities with readily determinable
fair value
$
87,618 $
90,862 $
48,044 $
50,840 $
34,410 $
34,717
(1) Consisting entirely of residential mortgage-backed securities, none of which are subprime.
(2) As of January 1, 2020, the Company adopted ASU 2016-13 related to credit losses on financial assets held at
amortized cost. As a result of such adoption, the Company measured an allowance for credit losses related to lifetime
expected credit losses on held-to-maturity investment securities.
73
Tables presenting the carrying amounts and gross unrealized gains and losses for securities at December 31, 2020 and 2019 are
included by reference to Note 3 to the Consolidated Financial Statements presented under Item 8 of this Annual Report on Form
10-K. The following table presents the carrying value of the investment securities portfolios as of December 31, 2020, by
maturity distribution. Carrying value represents the fair value of investment securities classified as available-for-sale, the
amortized cost of those classified as held-to-maturity and the fair value of equity securities with readily determinable fair
values.
(Dollars in thousands)
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Municipal
Corporate notes:
Financial issuers
Other
Mortgage-backed: (1)
Mortgage-backed securities
Collateralized mortgage obligations
Total available-for-sale securities
Held-to-maturity securities
U.S. Government agencies
Municipal
Mortgage-backed securities
Total held-to-maturity securities
Less: Allowance for credit losses
Held-to-maturity securities, net of
allowance for credit losses
Equity securities with readily
determinable fair value
Within 1
year
From 1 to
5 years
From 5 to
10 years
After 10
years
Mortgage-
backed
Equity
Securities
Total
$ 304,971 $
— $
—
38,875
—
—
—
—
5,161
50,931
13,222
1,020
—
—
— $
—
—
—
—
— $
—
35,015
— $
79,352
22,089
77,163
—
—
—
—
—
—
—
2,417,038
11,002
$ 343,846 $
70,334 $ 112,178 $ 101,441 $ 2,428,040 $
$
$
— $
7,138
—
7,138 $
1,639 $
20,578
—
36,746 $ 139,574 $
113,875
—
59,116
—
— $
—
200,531
22,217 $ 150,621 $ 198,690 $ 200,531 $
— $ 304,971
84,513
—
146,910
—
—
—
90,385
1,020
—
2,417,038
—
11,002
— $ 3,055,839
— $ 177,959
200,707
—
—
200,531
— $ 579,197
(59)
$
$ 579,138
$
— $
— $
— $
— $
— $
90,862 $
90,862
(1) Consisting entirely of residential mortgage-backed securities, none of which are subprime.
The weighted average yield for each range of maturities of securities, on a tax-equivalent basis, is shown below as of
December 31, 2020:
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Municipal
Corporate notes:
Financial issuers
Other
Mortgage-backed: (1)
Mortgage-backed securities
Collateralized mortgage obligations
Total available-for-sale securities
Held-to-maturity securities
U.S. Government agencies
Municipal
Mortgage-backed securities
Total held-to-maturity securities
Equity securities with readily
determinable fair value
Within
1 year
From 1
to 5 years
From 5 to
10 years
After
10 years
Mortgage-
backed
Equity
Securities
Total
0.10 %
—
1.71
—
—
—
—
— %
3.81
2.85
2.56
1.26
—
—
— %
—
2.74
1.05
—
—
—
— %
3.38
2.95
—
—
—
—
— %
—
—
—
—
2.41
2.02
— %
—
—
—
—
—
—
0.10 %
3.41
2.54
1.27
1.26
2.41
2.02
0.28 %
2.84 %
1.58 %
3.29 %
2.41 %
— %
2.18 %
— %
2.99
—
2.99 %
2.43 %
3.27
—
3.21 %
3.93 %
3.36
—
3.50 %
2.95 %
3.56
—
3.13 %
— %
—
1.43
1.43 %
— %
—
—
— %
3.15 %
3.40
1.43
2.64 %
— %
— %
— %
— %
— %
0.21 %
0.21 %
(1) Consisting entirely of residential mortgage-backed securities, none of which are subprime.
74
Loan Portfolio and Asset Quality
Loan Portfolio
The following table shows the Company’s loan portfolio by category as of December 31 for each of the five previous fiscal
years:
(Dollars in thousands)
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables—
commercial
Premium finance receivables—
life insurance
Consumer and other
Total loans, net of unearned
income, excluding
covered loans
Covered loans
Total loans
2020
2019
2018
2017
2016
% of
% of
% of
% of
Amount
$ 11,955,967
8,494,132
425,263
1,259,598
Amount
Total
37 % $ 8,285,920
8,020,276
26
1
513,066
1,354,221
5
Amount
Total
31 % $ 7,828,538
6,933,252
30
552,343
2
1,002,464
5
Amount
Total
33 % $ 6,787,677
6,580,618
29
663,045
2
832,120
4
Amount
Total
31 % $ 6,005,422
6,196,087
30
725,793
3
705,221
4
% of
Total
30 %
31
4
4
4,054,489
13
3,442,027
13
2,841,659
12
2,634,565
12
2,478,581
12
5,857,436
32,188
18
0
5,074,602
110,178
19
0
4,541,794
120,641
19
1
4,035,059
107,713
19
1
3,470,027
122,041
18
1
$ 32,079,073
—
$ 32,079,073
100 % $ 26,800,290
—
—
100 % $ 26,800,290
100 % $ 23,820,691
—
—
100 % $ 23,820,691
100 % $ 21,640,797
—
—
100 % $ 21,640,797
100 % $ 19,703,172
—
58,145
100 % $ 19,761,317
100 %
0
100 %
Commercial and commercial real estate loans. Our commercial and commercial real estate loan portfolios are comprised
primarily of commercial real estate loans and lines of credit for working capital purposes. The table below sets forth
information regarding the types, amounts and performance of our loans within these portfolios as of December 31, 2020 and
2019:
(Dollars in thousands)
Commercial:
As of December 31, 2020
As of December 31, 2019
Balance
% of
Total
Balance
Allowance
For Credit
Losses Allocation
Balance
% of
Total
Balance
Allowance
For Credit
Losses Allocation
Commercial, industrial and other, excluding PPP
Commercial PPP
$ 9,240,046
2,715,921
45.2 % $
13.3
94,210 $ 8,285,920
—
2
50.9 % $
—
Total commercial
Commercial Real Estate:
Construction and development
Non-construction
Total commercial real estate
$ 11,955,967
58.5 % $
94,212 $ 8,285,920
50.9 % $
$ 1,371,802
7,122,330
6.7 % $
34.8
78,833 $ 1,283,449
6,736,827
164,770
$ 8,494,132
41.5 % $
243,603 $ 8,020,276
7.8 % $
41.3
49.1 % $
64,920
—
64,920
14,785
53,726
68,511
Total commercial and commercial real estate
$ 20,450,099
100.0 % $
337,815 $ 16,306,196
100.0 % $
133,431
Commercial real estate—collateral location by state:
Illinois
Wisconsin
Total primary markets
Indiana
Florida
Arizona
California
Texas
Other (no individual state greater than 0.8%)
Total
$ 6,243,651
779,390
$ 7,023,041
301,177
131,259
63,494
85,624
79,406
810,131
$ 8,494,132
73.5 %
9.2
82.7 %
3.5
1.5
0.8
1.0
0.9
9.6
100.0 %
$ 6,176,353
744,975
$ 6,921,328
218,963
114,629
64,022
64,345
29,586
607,403
$ 8,020,276
77.0 %
9.3
86.3 %
2.7
1.4
0.8
0.8
0.4
7.6
100.0 %
We make commercial loans for many purposes, including working capital lines, which are generally renewable annually and
supported by business assets, personal guarantees and additional collateral. Such loans may vary in size based on customer
need. In addition, the Company has participated in the PPP program starting in 2020. Commercial business lending is generally
considered to involve a slightly higher degree of risk than traditional consumer bank lending. Primarily as a result of the
adoption of CECL and deterioration in macroeconomic conditions related to COVID-19, our allowance for credit losses in our
75
commercial loan portfolio increased to $94.2 million as of December 31, 2020 compared to $64.9 million as of December 31,
2019.
Our commercial real estate loans are generally secured by a first mortgage lien and assignment of rents on the property. Since
most of our bank branches are located in the Chicago metropolitan area and southern Wisconsin, 82.7% of our commercial real
estate loan portfolio is located in this region as of December 31, 2020. We have been able to effectively manage our total non-
performing commercial real estate loans. As of December 31, 2020, our allowance for credit losses related to this portfolio was
$243.6 million compared to $68.5 million as of December 31, 2019. Similar to the commercial loan portfolio, the increase in
the allowance for credit losses is primarily due to the adoption of CECL and deterioration in macroeconomic conditions related
to COVID-19, specifically as reflected by the Commercial Real Estate Price Index.
The Company also participates in mortgage warehouse lending which is included above within commercial, industrial and
other, by providing interim funding to unaffiliated mortgage bankers to finance residential mortgages originated by such
bankers for sale into the secondary market. The Company’s loans to the mortgage bankers are secured by the business assets of
the mortgage companies as well as the specific mortgage loans funded by the Company, after they have been pre-approved for
purchase by third party end lenders. The Company may also provide interim financing for packages of mortgage loans on a
bulk basis in circumstances where the mortgage bankers desire to competitively bid on a number of mortgages for sale as a
package in the secondary market. Amounts advanced with respect to any particular mortgage loan are usually required to be
repaid within 21 days.
Home equity loans. Our home equity loans and lines of credit are originated by each of our banks in their local markets where
we have a strong understanding of the underlying real estate value. Our banks monitor and manage these loans, and we conduct
an automated review of all home equity loans and lines of credit at least twice per year. This review collects current credit
performance for each home equity borrower and identifies situations where the credit strength of the borrower is declining, or
where there are events that may influence repayment, such as tax liens or judgments. Our banks use this information to manage
loans that may be higher risk and to determine whether to obtain additional credit information or updated property valuations.
The rates we offer on new home equity lending are based on several factors, including appraisals and valuation due diligence, in
order to reflect inherent risk, and we place additional scrutiny on larger home equity requests. In a limited number of cases, we
issue home equity credit together with first mortgage financing, and requests for such financing are evaluated on a combined
basis. It is not our practice to advance more than 85% of the appraised value of the underlying asset, which ratio we refer to as
the loan-to-value ratio, or LTV ratio, and a majority of the credit we previously extended, when issued, had an LTV ratio of less
than 80%. Our home equity loan portfolio has performed well in light of the ongoing volatility in the overall residential real
estate market.
Residential real estate. Our residential real estate portfolio predominantly includes one- to four-family adjustable rate
mortgages, construction loans to individuals and bridge financing loans for qualifying customers. As of December 31, 2020, our
residential loan portfolio totaled $1.3 billion, or 5% of our total outstanding loans.
Our adjustable rate mortgages relate to properties located principally in the Chicago metropolitan area and southern Wisconsin
or vacation homes owned by local residents. These adjustable rate mortgages are often non-agency conforming. Adjustable rate
mortgage loans decrease the interest rate risk we face on our mortgage portfolio. However, this risk is not eliminated due to the
fact that such loans generally provide for periodic and lifetime limits on the interest rate adjustments among other features.
Additionally, adjustable rate mortgages may pose a higher risk of delinquency and default because they require borrowers to
make larger payments when interest rates rise. As of December 31, 2020, $26.1 million of our residential real estate mortgages,
or 2.1% of our residential real estate loan portfolio were classified as nonaccrual, no balances were 90 or more days past due
and still accruing, $14.2 million were 30 to 89 days past due or 1.1% and $1.2 billion were current or 96.8%. We believe that
since our loan portfolio consists primarily of locally originated loans, and since the majority of our borrowers are longer-term
customers with lower LTV ratios, we face a relatively low risk of borrower default and delinquency.
Due to interest rate risk considerations, we generally sell in the secondary market loans originated with long-term fixed rates,
for which we receive fee income. We may also selectively retain certain of these loans within the banks’ own portfolios where
they are non-agency conforming, or where the terms of the loans make them favorable to retain. A portion of the loans we sold
into the secondary market were sold with the servicing of those loans retained. The amount of loans serviced for others as of
December 31, 2020 and 2019 was $10.8 billion and $8.2 billion, respectively. All other mortgage loans sold into the secondary
market were sold without the retention of servicing rights.
The Government National Mortgage Association (“GNMA”) optional repurchase programs allow financial institutions acting as
servicers to buyout individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the
76
institution was the original transferor of such loans. At the option of the servicer and without prior authorization from GNMA,
the servicer may repurchase such delinquent loans for an amount equal to the remaining principal balance of the loan. Under
FASB ASC Topic 860, “Transfers and Servicing,” this early buyout option is considered a conditional option until the
delinquency criteria are met, at which time the option becomes unconditional. When the Company is deemed to have regained
effective control over these loans under the unconditional repurchase option and the expected benefit of the potential repurchase
is more than trivial, the loans can no longer be reported as sold and must be brought back onto the balance sheet as loans at fair
value, regardless of whether the Company intends to exercise the early buyout option. These rebooked loans are reported as
loans held-for-investment, part of the residential real estate portfolio, with the offsetting liability being reported in accrued
interest payable and other liabilities. Rebooked GNMA loans held-for-investment amounted to $44.9 million at December 31,
2020, compared to $123.1 million at December 31, 2019. The decrease in balance from December 31, 2019 to December 31,
2020 was the result of the Company increasing its exercise of such early buyout options in 2020. When the early buyout option
on these rebooked GNMA loans is exercised, the repurchased loans continue to be carried at fair value. Additionally, such loans
typically transfer to mortgage loans held-for-sale at the time of early buyout as the Company’s intent is to cure and resell such
loans subsequent to repurchase from GNMA. As of December 31, 2020, early buyout exercised mortgage loans held-for-sale
totaled $344.8 million compared to $16.0 million as of December 31, 2019.
It is not our current practice to underwrite, and we have no plans to underwrite, subprime, Alt A, no or little documentation
loans, or option ARM loans. As of December 31, 2020, approximately $1.0 million of our mortgage loans consist of interest-
only loans.
Premium finance receivables — commercial. FIRST Insurance Funding and FIFC Canada originated approximately $9.9 billion
in commercial insurance premium finance receivables during 2020 as compared to approximately $8.3 billion in 2019. FIRST
Insurance Funding and FIFC Canada make loans to businesses to finance the insurance premiums they pay on their commercial
insurance policies. The loans are originated by working through independent medium and large insurance agents and brokers
located throughout the United States and Canada. The insurance premiums financed are primarily for commercial customers’
purchases of liability, property and casualty and other commercial insurance.
This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. Because of the
indirect nature of this lending through third party agents and brokers and because the borrowers are located nationwide and in
Canada, this segment is more susceptible to third party fraud than relationship lending. The Company performs ongoing credit
and other reviews of the agents and brokers, and performs various internal audit steps to mitigate against the risk of any fraud.
The majority of these loans are purchased by the banks in order to more fully utilize their lending capacity as these loans
generally provide the banks with higher yields than alternative investments.
Premium finance receivables — life insurance. Wintrust Life Finance originated approximately $1.4 billion in life insurance
premium finance receivables in 2020 as compared to $1.1 billion in 2019. The Company continues to experience a high level of
competition and pricing pressure within the current market. These loans are originated directly with the borrowers with
assistance from life insurance carriers, independent insurance agents, financial advisors and legal counsel. The life insurance
policy is the primary form of collateral. In addition, these loans often are secured with a letter of credit, marketable securities or
certificates of deposit. In some cases, Wintrust Life Finance may make a loan that has a partially unsecured position.
Consumer and other. Included in the consumer and other loan category is a wide variety of personal and consumer loans to
individuals. The banks originate consumer loans in order to provide a wider range of financial services to their customers.
Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit
risk than mortgage loans due to the type and nature of the collateral.
Foreign. The Company had approximately $616.4 million of loans to businesses with operations in foreign countries as of
December 31, 2020 compared to $456.4 million at December 31, 2019 and $337.1 million at December 31, 2018. This balance
as of December 31, 2020 consists of loans originated by FIFC Canada.
77
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table classifies the loan portfolio at December 31, 2020 by date at which the loans reprice or mature, and the type
of rate exposure:
(Dollars in thousands)
Commercial
Fixed rate
Fixed rate -PPP
Variable rate
Total commercial
Commercial real estate
Fixed rate
Variable rate
Total commercial real estate
Home equity
Fixed rate
Variable rate
Total home equity
Residential real estate
Fixed rate
Variable rate
Total residential real estate
Premium finance receivables - commercial
Fixed rate
Variable rate
Total premium finance receivables - commercial
Premium finance receivables - life insurance
Fixed rate
Variable rate
Total premium finance receivables - life insurance
Consumer and other
Fixed rate
Variable rate
Total consumer and other
Total per category
Fixed rate
Fixed rate -PPP
Variable rate
Total loans, net of unearned income
Variable Rate Loan Pricing by Index:
Prime
One- month LIBOR
Three- month LIBOR
Twelve- month LIBOR
Other
Total variable rate
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
One year or
less
From one to
five years
Over five
years
Total
372,909 $
—
6,180,119
6,553,028 $
1,878,763 $
2,715,921
3,735
4,598,419 $
804,397 $
—
123
804,520 $
3,056,069
2,715,921
6,183,977
11,955,967
557,819 $
5,435,402
5,993,221 $
2,087,351 $
35,781
2,123,132 $
377,779 $
—
377,779 $
3,022,949
5,471,183
8,494,132
14,710 $
401,646
416,356 $
31,179 $
60,121
91,300 $
3,967,351 $
—
3,967,351 $
12,424 $
5,526,441
5,538,865 $
8,696 $
17,069
25,765 $
8,882 $
—
8,882 $
11,061 $
319,347
330,408 $
87,138 $
—
87,138 $
299,640 $
—
299,640 $
5,031 $
—
5,031 $
25 $
—
25 $
384,420 $
453,470
837,890 $
— $
—
— $
18,931 $
—
18,931 $
1,392 $
—
1,392 $
4,965,088 $
—
17,620,798
22,585,886 $
4,377,866 $
2,715,921
358,863
7,452,650 $
1,586,944 $
—
453,593
2,040,537 $
$
$
23,617
401,646
425,263
426,660
832,938
1,259,598
4,054,489
—
4,054,489
330,995
5,526,441
5,857,436
15,119
17,069
32,188
10,929,898
2,715,921
18,433,254
32,079,073
2,324,385
9,338,592
394,592
6,112,979
262,706
18,433,254
78
Past Due Loans and Non-Performing Assets
Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so,
the Company operates a credit risk rating system under which our credit management personnel assign a credit risk rating to
each loan at the time of origination and review loans on a regular basis to determine each loan’s credit risk rating on a scale of 1
through 10 with higher scores indicating higher risk. The credit risk rating structure used is shown below:
1 Rating
—
Minimal Risk (Loss Potential — none or extremely low) (Superior asset quality, excellent
liquidity, minimal leverage)
2 Rating
—
Modest Risk (Loss Potential demonstrably low) (Very good asset quality and liquidity, strong
leverage capacity)
3 Rating
—
Average Risk (Loss Potential low but no longer refutable) (Mostly satisfactory asset quality and
liquidity, good leverage capacity)
4 Rating
—
Above Average Risk (Loss Potential variable, but some potential for deterioration) (Acceptable
asset quality, little excess liquidity, modest leverage capacity)
5 Rating
—
Management Attention Risk (Loss Potential moderate if corrective action not taken) (Generally
acceptable asset quality, somewhat strained liquidity, minimal leverage capacity)
6 Rating
—
Special Mention (Loss Potential moderate if corrective action not taken) (Assets in this category
are currently protected, potentially weak, but not to the point of substandard classification)
7 Rating
—
Substandard Accrual (Loss Potential distinct possibility that the bank may sustain some loss, but
no discernible impairment) (Must have well defined weaknesses that jeopardize the liquidation of
the debt)
8 Rating
—
Substandard Non-accrual (Loss Potential well documented probability of loss, including potential
impairment) (Must have well defined weaknesses that jeopardize the liquidation of the debt)
9 Rating
—
Doubtful (Loss Potential extremely high) (These assets have all the weaknesses in those classified
“substandard” with the added characteristic that the weaknesses make collection or liquidation in
full, on the basis of current existing facts, conditions, and values, highly improbable)
10 Rating
—
Loss (fully charged-off) (Loans in this category are considered fully uncollectible.)
Each loan officer is responsible for monitoring his or her loan portfolio, recommending a credit risk rating for each loan in his
or her portfolio and ensuring the credit risk ratings are appropriate. These credit risk ratings are then ratified by the bank’s chief
credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors including, a
borrower’s financial strength, cash flow coverage, collateral protection and guarantees. The Company maintains an internal
loan review function as well as utilizes a third party loan review provider to independently review a portion of the loan portfolio
to evaluate the appropriateness of the management-assigned credit risk ratings. These ratings are subject to further review at
each of our bank subsidiaries by the applicable regulatory authority, including the FRB of Chicago and the OCC, and are also
reviewed by our loan review and internal audit staff.
The Company’s Problem Loan Reporting system includes all loans with credit risk ratings of 6 through 9. This system is
designed to provide an on-going detailed tracking mechanism for each problem loan. Once management determines that a loan
has deteriorated to a point where it has a credit risk rating of 6 or worse, the Company’s Managed Asset Division performs an
overall credit and collateral review. As part of this review, all underlying collateral is identified and the valuation methodology
is analyzed and tracked. As a result of this initial review by the Company’s Managed Asset Division, the credit risk rating is
reviewed and a portion of the outstanding loan balance may be deemed uncollectible and, as a result, no longer share similar
risk characteristics as its related pool. If that is the case, the individual loan is considered collateral dependent and individually
assessed for an allowance for credit loss. The Company’s individual assessment utilizes an independent re-appraisal of the
collateral (unless such a third-party evaluation is not possible due to the unique nature of the collateral, such as a closely-held
79
business or thinly traded securities). In the case of commercial real estate collateral, an independent third party appraisal is
ordered by the Company’s Real Estate Services Group to determine if there has been any change in the underlying collateral
value. These independent appraisals are reviewed by the Real Estate Services Group and sometimes by independent third party
valuation experts and may be adjusted depending upon market conditions.
Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original
contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the
Company, including a downgrade in the credit risk rating, movement to non-accrual status or a charge-off. If the Company
determines that a loan amount or portion thereof is uncollectible, the loan’s credit risk rating is immediately downgraded to an 8
or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk
rating of an 8 or 9 for the duration of time that a balance remains outstanding. The Company undertakes a thorough and
ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the
credit to minimize actual losses. In determining the appropriate charge-off for collateral-dependent loans, the Company
considers the results of appraisals for the associated collateral.
The Company’s approach to workout plans and restructuring loans is built on the credit-risk rating process. A modification of a
loan with an existing credit risk rating of 6 or worse or a modification of any other credit, which will result in a restructured
credit risk rating of 6 or worse must be reviewed for TDR classification. In that event, our Managed Assets Division conducts
an overall credit and collateral review. A modification of a loan is considered to be a TDR if both (1) the borrower is
experiencing financial difficulty and (2) for economic or legal reasons, the bank grants a concession to a borrower that it would
not otherwise consider. The modification of a loan where the credit risk rating is 5 or better both before and after such
modification is not considered to be a TDR. Based on the Company’s credit risk rating system, it considers that borrowers
whose credit risk rating is 5 or better are not experiencing financial difficulties and therefore, are not considered TDRs.
TDRs are individually assessed at the time of the modification and on a quarterly basis to measure an allowance for credit loss.
The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan's original rate, or
for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a reserve.
For non-TDR loans, if based on current information and events, it is probable that the Company will be unable to collect all
amounts due to it according to the contractual terms of the loan agreement, a loan is individually assessed for measuring the
allowance for credit losses and if necessary, a reserve is established. In determining the appropriate reserve for collateral-
dependent loans, the Company considers the results of appraisals for the associated collateral..
80
Non-Performing Assets
The following table sets forth the Company’s non-performing assets and TDRs performing under the contractual terms of the
loan agreement as of the dates shown. Prior to January 1, 2020, PCI loans were aggregated into pools by common risk
characteristics for accounting purposes, including recognition of interest income on a pool basis. As a result of the
implementation of CECL, beginning in the first quarter of 2020, PCI loans transitioned to a classification of PCD loan, which
no longer maintains the prior pools and related accounting concepts. Recognition of interest income on PCD loan is considered
at the individual asset level following the Company's accrual policies, instead of based upon the entire pool of loans. Due to the
adoption of CECL, the Company included $22.6 million in PCD loans in total non-performing loans as of December 31, 2020.
(Dollars in thousands)
Loans past due greater than 90 days and still
accruing(2):
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables – commercial
Premium finance receivables – life insurance
Consumer and other
Total loans past due greater than 90 days and still
accruing
Non-accrual loans(3):
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables – commercial
Premium finance receivables – life insurance
Consumer and other
Total non-accrual loans
Total non-performing loans(4):
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables – commercial
Premium finance receivables – life insurance
Consumer and other
Total non-performing loans
Other real estate owned
Other real estate owned – from acquisitions
Other repossessed assets
Total non-performing assets
Accruing TDRs not included within non-performing
assets
Total non-performing loans by category as a percent
of its own respective category’s period-end balance:
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables – commercial
Premium finance receivables – life insurance
Consumer and other
Total non-performing loans
Total non-performing assets, as a percentage of total
assets
Allowance for credit losses as a percentage of
nonaccrual loans
2020
2019
2018
2017 (1)
2016
$
$
307
—
—
—
12,792
—
264
$
$
—
—
—
—
11,517
—
163
—
—
—
—
7,799
—
109
$
—
—
—
3,278
9,242
—
40
174
—
—
—
7,962
3,717
144
$
13,363
$
11,680
$
7,908
$
12,560
$
11,997
$
$
$
$
$
$
$
$
$
$
21,743
46,107
6,529
26,071
13,264
—
436
114,150
22,050
46,107
6,529
26,071
26,056
—
700
127,513
9,711
6,847
—
144,071
47,023
0.18 %
0.54
1.54
2.07
0.64
—
2.17
0.40 %
0.32 %
37,224
26,113
7,363
13,797
20,590
590
231
105,908
37,224
26,113
7,363
13,797
32,107
590
394
117,588
5,208
9,963
4
132,763
36,725
50,984
19,129
7,147
16,383
11,335
—
348
105,326
50,984
19,129
7,147
16,383
19,134
—
457
113,234
11,968
12,852
280
138,334
33,281
$
$
$
$
$
15,696
22,048
8,978
17,977
12,163
—
740
77,602
15,696
22,048
8,978
21,255
21,405
—
780
90,162
20,244
20,402
153
130,961
39,683
$
$
$
$
$
15,875
21,924
9,761
12,749
14,709
—
439
75,457
16,049
21,924
9,761
12,749
22,671
3,717
583
87,454
17,699
22,583
581
128,317
29,911
$
$
$
$
$
0.45 %
0.33
1.44
1.02
0.93
0.01
0.36
0.44 %
0.36 %
0.65 %
0.28
1.29
1.63
0.67
—
0.38
0.48 %
0.44 %
0.23 %
0.34
1.35
2.55
0.81
—
0.72
0.42 %
0.47 %
0.27 %
0.35
1.34
1.81
0.91
0.11
0.48
0.44 %
0.50 %
332.82 %
149.62 %
146.37 %
179.34 %
164.28 %
(1)
(2)
(3)
(4)
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.
As of the dates shown no TDRs were past due greater than 90 days and still accruing interest.
Non-accrual loans included TDRs totaling $21.2 million, $27.1 million, $32.8 million, $10.1 million and $11.8 million as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
Includes PCD loans. As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020.
81
At this time, management believes reserves are appropriate to absorb losses that are expected upon the ultimate resolution of
these credits. While the ultimate effect of the COVID-19 pandemic on non-performing assets remains unknown, significant
increases may occur in subsequent periods. Management will continue to actively review and monitor its loan portfolios, in an
effort to identify problem credits in a timely manner. Please refer to Management's Discussion and Analysis of Financial
Condition and Results of Operation -Overview section of this report for additional discussion of the impact of the COVID-19
pandemic.
Loan Portfolio Aging
The tables below show the aging of the Company’s loan portfolio at December 31, 2020 and 2019:
As of December 31, 2020
(Dollars in thousands)
Loan Balances:
Commercial:
Non-accrual
90+ days
and still
accruing
60-89
days past
due
30-59
days past
due
Current
Total Loans
Commercial, industrial and other, excluding
PPP loans
$
21,743 $
307 $
6,900 $
44,345 $
9,166,751 $
9,240,046
Commercial PPP loans
Commercial real-estate:
Construction and development
Non-construction
Home equity
Residential real estate
Premium finance receivables:
Commercial insurance loans
Life insurance loans
Consumer and other
—
5,633
40,474
6,529
26,071
—
—
—
—
—
13,264
12,792
—
436
—
264
—
—
5,178
47
1,635
6,798
21,003
24
36
2,715,885
2,715,921
5,344
26,772
637
12,584
18,809
30,465
136
1,360,825
7,049,906
418,050
1,219,308
4,002,826
5,805,968
31,328
1,371,802
7,122,330
425,263
1,259,598
4,054,489
5,857,436
32,188
Total loans, net of unearned income
$
114,150 $
13,363 $
41,585 $
139,128 $
31,770,847 $
32,079,073
As of December 31, 2019
(Dollars in thousands)
Loan Balances:
Commercial:
Commercial, industrial and other, excluding
PPP loans
Commercial PPP loans
Commercial real-estate:
Construction and development
Non-construction
Home equity
Residential real estate
Premium finance receivables:
Commercial insurance loans
Life insurance loans
Consumer and other
Non-accrual
90+ days
and still
accruing
60-89
days past
due
30-59
days past
due
Current
Total Loans
$
37,224 $
1,855 $
3,275 $
77,324 $
8,166,242 $
8,285,920
—
—
—
—
—
—
2,112
24,001
7,363
13,797
3,514
11,432
—
5,771
5,292
26,254
454
3,089
20,590
11,517
12,119
590
231
—
287
—
40
48,964
48,603
3,533
18,041
18,783
32,559
344
1,223,567
6,626,537
501,716
1,313,523
3,379,018
5,041,453
109,276
1,283,449
6,736,827
513,066
1,354,221
3,442,027
5,074,602
110,178
Total loans, net of unearned income
$
105,908 $
34,376 $
50,523 $
248,151 $
26,361,332 $
26,800,290
(1)
Includes PCD loans and, for periods prior to the adoption of ASU 2016-13, purchased credit impaired ("PCI") loans. PCI loans represented loans
acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings disclosed in comparative
periods are based upon contractually required payments. As a result of the adoption of ASU 2016-13, the Company transitioned all previously
classified PCI loans to PCD loans effective January 1, 2020.
As of December 31, 2020, $41.6 million of all loans, or 0.1%, were 60 to 89 days past due and $139.1 million, or 0.4%, were
30 to 59 days (or one payment) past due. As of December 31, 2019, $50.5 million of all loans, or 0.2%, were 60 to 89 days past
due and $248.2 million, or 0.9%, were 30 to 59 days (or one payment) past due. Many of the commercial and commercial real
estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting
system. Loans on this system are closely monitored by management on a monthly basis.
The Company’s home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at
December 31, 2020 that are current with regard to the contractual terms of the loan agreement represent 98.3% of the total
82
home equity portfolio. Residential real estate loans at December 31, 2020 that are current with regards to the contractual terms
of the loan agreements comprise 96.8% of these residential real estate loans outstanding.
Non-performing Loans Rollforward
The table below presents a summary of non-performing loans for the periods presented:
(Dollars in thousands)
Balance at beginning of period
Additions
Additions from the adoption of ASU 2016-13
Return to performing status
Payments received
Transfers to OREO and other repossessed assets
Charge-offs
Net change for niche loans (1)
Balance at end of period
2020
2019
$
$
117,588 $
85,993
37,285
(10,254)
(53,029)
(14,557)
(29,835)
(5,678)
127,513 $
113,234
96,355
—
(14,774)
(45,168)
(3,061)
(39,591)
10,593
117,588
(1) This includes activity for premium finance receivables and indirect consumer loans.
Prior to January 1, 2020, PCI loans were excluded from non-performing loans as they continued to earn interest income from
the related accretable yield, independent of performance with contractual terms of the loan. As a result of the adoption of ASU
2016-13 effective January 1, 2020, the Company transitioned all previously classified PCI loans to PCD loans, which no longer
maintain the prior pools and related accounting concepts. Specifically, recognition of interest income on PCD loans is
considered at the individual asset level following the Company's accrual policies, instead of based upon the entire pool of loans.
As such, after adoption, the Company includes PCD loans in total non-performing loans.
83
Allowance for Credit Losses
The allowance for credit losses, specifically the allowance for loan losses and the allowance for unfunded commitment losses,
represents management’s estimate of lifetime expected credit losses in the loan portfolio. The allowance for credit losses is
determined quarterly using a methodology that incorporates important risk characteristics of each loan, as described below
under “How We Determine the Allowance for Credit Losses” in this Item 7.
The following table sets forth the allocation of the allowance for credit losses by major loan type and the percentage of loans in
each category to total loans for the past five fiscal years:
December 31, 2020
December 31, 2019
December 31, 2018
December 31, 2017
December 31, 2016
(Dollars in thousands)
Allowance for credit losses allocation:
Commercial
Commercial real-estate
Home equity
Residential real-estate
Premium finance receivables – commercial
Premium finance receivables – life insurance
Consumer and other
Total allowance for credit losses, excluding
covered loans
Covered loans
Total allowance for credit losses
Allowance category as a percent of total
allowance for credit losses:
Commercial
Commercial real-estate
Home equity
Residential real-estate
Premium finance receivables—commercial
Premium finance receivables—life insurance
Consumer and other
Total allowance for credit losses, excluding
covered loans
Covered loans
Total allowance for credit losses
% of
Loan
Type to
Total
Loans
% of
Loan
Type to
Total
Loans
% of
Loan
Type to
Total
Loans
% of
Loan
Type to
Total
Loans
% of
Loan
Type to
Total
Loans
Amount
Amount
Amount
Amount
37 % $ 64,920
31 % $ 67,826
33 % $ 57,811
31 % $ 44,493
30 %
26
1
5
13
18
0
68,511
30
61,661
29
56,496
30
53,095
3,878
9,800
8,132
1,515
1,705
2
5
13
19
0
8,507
7,194
6,144
1,571
1,261
2
4
12
19
1
10,493
6,688
5,356
1,490
840
3
4
12
19
1
11,774
5,714
6,125
1,500
1,263
Amount
$ 94,212
243,603
11,437
12,459
17,267
510
422
$ 379,910
—
100 % $ 158,461
—
—
100 % $ 154,164
—
—
100 % $ 139,174
—
—
100 % $ 123,964
1,322
—
$ 379,910
100 % $ 158,461
100 % $ 154,164
100 % $ 139,174
100 % $ 125,286
31
4
4
12
18
1
100 %
0
100 %
25 %
64
3
3
5
0
0
100 %
—
100 %
41 %
43
3
6
5
1
1
100 %
—
100 %
44 %
39
6
5
4
1
1
100 %
—
100 %
42 %
40
7
5
4
1
1
100 %
—
100 %
36 %
42
9
5
5
1
1
99 %
1
100 %
Management determined that the allowance for credit losses was appropriate at December 31, 2020, and that the loan portfolio
is well diversified and well secured, without undue concentration in any specific risk area. While this process involves a high
degree of management judgment, the allowance for credit losses is based on a comprehensive, well documented, and
consistently applied analysis of the Company’s loan portfolio. This analysis takes into consideration all available information
existing as of the financial statement date, including environmental factors such as economic, industry, geographical and
political factors, when considered applicable. The relative level of allowance for credit losses is reviewed and compared to
industry peers. This review encompasses levels of total non-performing loans, portfolio mix, portfolio concentrations and
overall levels of net charge-off. Historical trending of both the Company’s results and the industry peers is also reviewed to
analyze comparative significance.
84
Allowance for Credit Losses, Excluding Covered Loans
The following tables summarize the activity in our allowance for credit losses, specifically related to loans and unfunded
lending-related commitments, during the last five fiscal years.
(Dollars in thousands)
Allowance for credit losses, excluding covered loans, at beginning
of year
Cumulative effect adjustment from the adoption of ASU 2016-13
Provision for credit losses
Other adjustments (1)
Charge-offs:
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables
Consumer and other
Total charge-offs
Recoveries:
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables
Consumer and other
Total recoveries
Net charge-offs, excluding covered loans
Allowance for credit losses, excluding covered loans, at year end
Net charge-offs (recoveries) by category as a percentage of its own
respective category’s average:
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables
Consumer and other
Total loans, net of unearned income, excluding covered loans
Net charge-offs as a percentage of the provision for credit losses
Year-end total loans (excluding covered loans)
Allowance for loan losses as a percentage of loans at end of year
Allowance for credit losses as a percentage of loans at end of year
Allowance for credit losses as a percentage of loans at end of year,
excluding PPP loans
2020
2019
2018
2017
2016
$ 158,461
$ 154,164
$ 139,174
$ 123,964
$ 106,349
47,344
214,235
179
18,293
15,960
2,061
891
15,472
528
—
53,864
(21)
35,880
5,402
3,702
798
12,902
522
—
34,832
(182)
14,532
1,395
2,245
1,355
12,228
880
—
29,982
238
5,159
4,236
3,952
1,284
7,335
729
—
34,790
(292)
7,915
1,930
3,998
1,730
8,193
925
$
53,205
$
59,206
$
32,635
$
22,695
$
24,691
5,092
1,835
528
184
5,108
149
$
$
12,896
(40,309)
$
$
2,845
2,516
479
422
3,203
195
9,660
(49,546)
1,457
5,631
541
2,075
3,069
202
$
$
12,975
(19,660)
$
$
1,870
2,190
746
452
2,128
299
7,685
(15,010)
1,594
2,945
484
225
2,374
186
7,808
(16,883)
$
$
$ 379,910
$ 158,461
$ 154,164
$ 139,174
$ 123,964
0.12 %
0.41 %
0.18 %
0.05 %
0.17
0.33
0.06
0.11
0.52
0.04
0.61
0.04
0.12
0.29
0.13 %
18.82 %
0.20 %
91.99 %
(0.06)
0.28
(0.08)
0.13
0.50
0.09 %
56.44 %
0.03
0.46
0.11
0.08
0.34
0.07 %
50.06 %
0.12 %
(0.02)
0.46
0.23
0.10
0.54
0.09 %
48.53 %
$ 32,079,073
$ 26,800,290
$ 23,820,691
$ 21,640,797
$ 19,703,172
1.00 %
1.18
0.59 %
0.59
0.64 %
0.65
0.64 %
0.64
0.62 %
0.63
1.29
0.59
0.65
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 an allowance for loan losses,
which is determined with respect to loans that we have originated, and an allowance for unfunded commitment losses. A
separate allowance for held-to-maturity securities losses is measured related to such debt securities portfolio. Our allowance for
unfunded commitment losses is determined with respect to funds that we have committed to lend but for which funds have not
yet been disbursed and is computed using a methodology similar to that used to determine the allowance for loan losses. The
allowance for unfunded lending-related commitments totaled $60.5 million as of December 31, 2020 compared to $1.6 million
as of December 31, 2019. The increase in allowance for unfunded lending-related commitments in 2020 was primarily the
result of the adoption of CECL as of January 1, 2020 and deterioration in macroeconomic conditions subsequent to that date
related to COVID-19.
85
Additions to the allowance for credit losses are charged to earnings through the provision for credit losses. Charge-offs
represent the amount of loans that have been determined to be uncollectible during a given period, and are deducted from the
allowance for credit losses, and recoveries represent the amount of collections received from loans that had previously been
charged off, and are credited to the allowance for credit losses. See Note 5 of the Consolidated Financial Statements presented
under Item 8 of this report for further discussion of activity within the allowance for credit losses during the period and the
relationship with respective loan balances for each loan category and the total loan portfolio.
How We Determine the Allowance for Credit Losses
The allowance for credit losses is measured on a collective or pooled basis by loans that share similar risk characteristics. If the
loan no longer exhibits risk characteristics similar to that of a pool, typically due to credit deterioration of the related borrower,
the Company analyzes the loan for purposes of individually assessing a specific allowance for credit loss as part of the Problem
Loan Reporting system review. A separate reserve is collectively measured for loans continuing to share risk characteristics
and, as a result, remaining in the pools. See Note 5 of the Consolidated Financial Statements presented under Item 8 of this
report for further discussion of the allowance for credit losses measurement process.
Collective Measurement
The allowance for credit losses is measured on a collective or pooled basis when similar risk characteristics exist, based upon
the segmentation discussed above. The Company utilizes modeling methodologies that estimate lifetime credit loss rates on
each pool, including methodologies estimating the probability of default and loss given default on specific segments. Historical
credit loss history is adjusted for reasonable and supportable forecasts developed by the Company on a quantitative or
qualitative basis and incorporates third party economic forecasts. Reasonable and supportable forecasts consider the
macroeconomic factors that are most relevant to evaluating and predicting expected credit losses in the Company's financial
assets. Currently, the Company utilizes an eight quarter forecast period using a single macroeconomic scenario provided by a
third-party and reviewed within the Company's governance structure. For periods beyond the ability to develop reasonable and
supportable forecasts, the Company reverts to historical loss rates at an input level, straight-line over a four quarter reversion
period. Expected credit losses are measured over the contractual term of the financial asset with consideration of expected
prepayments. Expected extensions, renewals or modifications of the financial asset are only considered when either 1) the
expected extension, renewal or modification is contained within the existing agreement and is not unconditionally cancelable,
or 2) the expected extension, renewal or modification is reasonably expected to result in a TDR. The methodologies discussed
above are applied to both current asset balances on the Company's Consolidated Statements of Condition and off-balance sheet
commitments (i.e. unfunded lending-related commitments).
Individual Assessment
Loans with a credit risk rating of a 6 through 9 are reviewed on a monthly basis to determine if (a) an amount is deemed
uncollectible (a charge-off) or (b) it is probable that the Company will be unable to collect amounts due in accordance with the
original contractual terms of the loan. In cases in which collectability is not probable, the loan is considered to no longer exhibit
shared risk characteristics of a pool and as a result, is individually assessed for allowance for credit losses measurement
purposes. If a loan is individually assessed, the carrying amount of the loan is compared to the expected payments to be
received, discounted at the loan’s original rate, or for foreclosure-probable and collateral dependent loans, to the fair value of
the collateral less the estimated cost to sell, when appropriate under accounting rules. Any shortfall is recorded as a specific
reserve within the allowance for credit losses.
Home Equity, Residential Real Estate and Consumer Loans
The determination of the appropriate allowance for credit losses for home equity, residential real estate and consumer loans
differs from the process used for commercial and commercial real estate loans. These portfolios utilize the weighted-average
remaining maturity ("WARM") methodology. The WARM methodology is an assumption-based approach that utilizes
historical loss and prepayment information as the basis to estimate prepayment and credit adjusted contractual cash flows. The
Company considers a qualitative factor to adjust historical information for current conditions and reasonable and supportable
forecasts. The same credit risk rating system and Problem Loan Reporting systems are used. The only significant difference is
in how the credit risk ratings are assigned to these loans.
The home equity loan portfolio is reviewed on a loan by loan basis by analyzing current FICO scores of the borrowers, line
availability, recent line usage, an approaching maturity and the aging status of the loan. Certain of these factors, or combination
of these factors, may cause a portion of the credit risk ratings of home equity loans across all banks to be downgraded. Similar
to commercial and commercial real estate loans, once a home equity loan’s credit risk rating is downgraded to a 6 through 9, the
86
Company’s Managed Asset Division reviews and advises the subsidiary banks as to collateral valuations and as to the ultimate
resolution of the credits that deteriorate to a non-accrual status to minimize losses.
Residential real estate loans that are downgraded to a credit risk rating of 6 through 9 also enter the problem loan reporting
system and have the underlying collateral evaluated by the Managed Assets Division.
Premium Finance Receivables
The determination of the appropriate allowance for credit losses for premium finance receivables is an assumption-based
approach focusing on historical loss rates in the portfolio, adjusted qualitatively for current macroeconomic conditions and
reasonable and supportable forecasts.
Methodology in Assessing Impairment and Charge-off Amounts
In determining the amount of reserves or charge-offs associated with collateral dependent loans, the Company values the loan
generally by starting with a valuation obtained from an appraisal of the underlying collateral and then deducting estimated
selling costs, if appropriate, to arrive at a net appraised value. We obtain the appraisals of the underlying collateral typically on
an annual basis from one of a pre-approved list of independent, third party appraisal firms. Types of appraisal valuations
include “as-is,” “as-complete,” “as-stabilized,” bulk, fair market, liquidation and “retail sellout” values.
In many cases, the Company simultaneously values the underlying collateral by marketing the property to market participants
interested in purchasing properties of the same type. If the Company receives offers or indications of interest, we will analyze
the price and review market conditions to assess whether in light of such information the appraised value overstates the likely
price and that a lower price would be a better assessment of the market value of the property and would enable us to liquidate
the collateral. Additionally, the Company takes into account the strength of any guarantees or other credit enhancements, and
the ability of the borrower to provide value related to those guarantees in determining the ultimate charge-off or reserve
associated with any individually assessed loans. Accordingly, the Company may charge-off a loan to a value below the net
appraised value if it believes that an expeditious liquidation is desirable in the circumstance and it has legitimate offers or other
indications of interest to support a value that is less than the net appraised value. Alternatively, the Company may carry a loan
at a value that is in excess of the appraised value if the Company has a guarantee from a borrower or other credit enhancements
that the Company believes has realizable value. In evaluating the strength of any guarantee, the Company evaluates the
financial wherewithal of the guarantor, the guarantor’s reputation, and the guarantor’s willingness and desire to work with the
Company. The Company then conducts a review of the strength of a guarantee on a frequency established as the circumstances
and conditions of the borrower warrant.
In circumstances where the Company has received an appraisal but has no third party offers or indications of interest, the
Company may enlist the input of realtors in the local market as to the highest valuation that the realtor believes would result in a
liquidation of the property given a reasonable marketing period of approximately 90 days. To the extent that the realtors’
indication of market clearing price under such scenario is less than the net appraised valuation, the Company may take a charge-
off on the loan to a valuation that is less than the net appraised valuation.
The Company may also charge-off a loan below the net appraised valuation if the Company holds a junior mortgage position in
a piece of collateral whereby the risk to acquiring control of the property through the purchase of the senior mortgage position
is deemed to potentially increase the risk of loss upon liquidation due to the amount of time to ultimately market the property
and the volatile market conditions. In such cases, the Company may abandon its junior mortgage and charge-off the loan
balance in full.
In other cases, the Company may allow the borrower to conduct a “short sale,” which is a sale where the Company allows the
borrower to sell the property at a value less than the amount of the loan. Many times, it is possible for the current owner to
receive a better price than if the property is marketed by a financial institution which the market place perceives to have a
greater desire to liquidate the property at a lower price. To the extent that we allow a short sale at a price below the value
indicated by an appraisal, we may take a charge-off beyond the value that an appraisal would have indicated.
Other market conditions may require a reserve to bring the carrying value of the loan below the net appraised valuation such as
litigation surrounding the borrower and/or property securing our loan or other market conditions impacting the value of the
collateral.
Having determined the net value based on the factors such as those noted above and compared that value to the book value of
the loan, the Company arrives at a charge-off amount or a specific reserve included in the allowance for credit losses. In
87
summary, for collateral dependent loans, appraisals are used as the fair value starting point in the estimate of net value.
Estimated costs to sell are deducted from the appraised value, when appropriate under current accounting rules, to arrive at the
net appraised value. Although an external appraisal is the primary source of valuation utilized for charge-offs on collateral
dependent loans, alternative sources of valuation may become available between appraisal dates. As a result, we may utilize
values obtained through these alternative sources, which include purchase and sale agreements, legitimate indications of
interest, negotiated short sales, realtor price opinions, sale of the note or support from guarantors, as the basis for charge-offs.
These alternative sources of value are used only if deemed to be more representative of value based on updated information
regarding collateral resolution. In addition, if an appraisal is not deemed current, a discount to appraised value may be utilized.
Any adjustments from appraised value to net value are detailed and justified in an impairment analysis, which is reviewed and
approved by the Company’s Managed Assets Division.
TDRs
At December 31, 2020, the Company had $68.2 million in loans modified in as TDRs. The $68.2 million in TDRs represents
286 credits in which economic concessions were granted to certain borrowers to better align the terms of their loans with their
current ability to pay. The balance increased from $63.8 million representing 255 credits at December 31, 2019.
Concessions were granted on a case-by-case basis working with these borrowers to find modified terms that would assist them
in retaining their businesses or their homes and attempt to keep these loans in an accruing status for the Company. Typical
concessions include reduction of the interest rate on the loan to a rate considered lower than market and other modification of
terms including forgiveness of a portion of the loan balance, extension of the maturity date, and/or modifications from principal
and interest payments to interest-only payments for a certain period. See Note 5, “Allowance for Credit Losses” of
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further discussion regarding the
effectiveness of these modifications in keeping the modified loans current based upon contractual terms.
Subsequent to its restructuring, any TDR that becomes nonaccrual or more than 90 days past-due and still accruing interest will
be included in the Company’s nonperforming loans. Each TDR was individually assessed when measuring the allowance for
credit losses at December 31, 2020 and approximately $2.9 million was appropriately reserved for through the Company’s
normal reserving methodology in the Company’s allowance for credit losses. Additionally, at December 31, 2020, the
Company was committed to lend additional funds to borrowers totaling $1.1 million under the contractual terms related to
TDRs compared to no commitments to lend additional funds to borrowers at December 31, 2019.
The table below presents a summary of TDRs for the respective periods, presented by loan category and accrual status:
(Dollars in thousands)
Accruing TDRs:
Commercial
Commercial real estate
Residential real estate and other
Total accruing TDRs
Non-accrual TDRs: (1)
Commercial
Commercial real estate
Residential real estate and other
Total non-accrual TDRs
Total TDRs:
Commercial
Commercial real estate
Residential real estate and other
Total TDRs
(1) Included in total non-performing loans.
88
December 31,
December 31,
2020
2019
$
$
$
$
$
$
7,699 $
10,549
28,775
47,023 $
10,491 $
6,177
4,501
21,169 $
18,190 $
16,726
33,276
68,192 $
4,905
9,754
22,066
36,725
13,834
7,119
6,158
27,111
18,739
16,873
28,224
63,836
TDR Rollforward
The table below presents a summary of TDRs as of December 31, 2020, 2019 and 2018, and shows the changes in the balance
during those periods:
Year Ended December 31, 2020
(Dollars in thousands)
Balance at beginning of period
Additions during the period
Reductions:
Charge-offs
Transferred to OREO and other repossessed assets
Removal of TDR loan status (1)
Payments received
Balance at period end
Year Ended December 31, 2019
(Dollars in thousands)
Balance at beginning of period
Additions during the period
Reductions:
Charge-offs
Transferred to OREO and other repossessed assets
Removal of TDR loan status (1)
Payments received
Balance at period end
Year Ended December 31, 2018
(Dollars in thousands)
Balance at beginning of period
Additions during the period
Reductions:
Charge-offs
Transferred to OREO and other repossessed assets
Removal of TDR loan status (1)
Payments received
Balance at period end
Commercial
Commercial
Real Estate
Residential
Real Estate
and Other
Total
18,739 $
12,362
16,873 $
19,281
28,224 $
14,229
63,836
45,872
(5,016)
—
(65)
(7,830)
18,190 $
(8,004)
(857)
(257)
(10,310)
16,726 $
(715)
(945)
(1,202)
(6,315)
33,276 $
(13,735)
(1,802)
(1,524)
(24,455)
68,192
Commercial
Commercial
Real Estate
Residential
Real Estate
and Other
36,319 $
26,341
15,447 $
7,018
14,336 $
20,206
(20,771)
—
—
(23,150)
18,739 $
(589)
—
(856)
(4,147)
16,873 $
38
—
—
(6,356)
28,224 $
Commercial
Commercial
Real Estate
Residential
Real Estate
and Other
23,917 $
18,967
17,500 $
514
8,369 $
9,762
(2,385)
(37)
(654)
(3,489)
36,319 $
(2)
(119)
(631)
(1,815)
15,447 $
(468)
—
—
(3,327)
14,336 $
Total
66,102
53,565
(21,322)
—
(856)
(33,653)
63,836
Total
49,786
29,243
(2,855)
(156)
(1,285)
(8,631)
66,102
$
$
$
$
$
$
(1) Loan was previously classified as a TDR and subsequently performed in compliance with the loan’s modified terms for
a period of six months (including over a calendar year-end) at a modified interest rate which represented a market rate
at the time of restructuring. Per our TDR policy, the TDR classification is removed.
On March 22, 2020 interagency guidance was issued titled “Interagency Statement on Loan Modifications and Reporting for
Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work
prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effect of
COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law
from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020, until the earlier of December 31,
2020 (subsequently extended to January 1, 2022 under CAA), or the date that is 60 days after the date on which the national
emergency concerning COVID-19 outbreak declared by the President of the United States under the National Emergencies Act
(50 U.S.C. 1601 et seq.) terminates. Accordingly, we are offering short-term modifications made in response to COVID-19 to
borrowers who are current and otherwise not past due. These include short-term, 180 days or less, modifications in the form of
payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Modifications
qualifying for the exemption from TDR classification totaled approximately $279.6 million as of December 31, 2020.
89
The table below presents a summary of all COVID-19 related modified loans, including those not qualifying for the exemption
under Section 4013, as of December 31, 2020, presented by loan category and type of modification:
(in thousands)
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables
Consumer and other
Interest-only
Full Payment
Deferral
Line Increases
Other
Total
$
118,186 $
22,299 $
45,530 $
9,905 $
195,920
78,213
—
—
—
—
44,391
1,469
407
10,673
29
—
—
—
—
—
13,718
136,322
—
—
—
—
1,469
407
10,673
29
Total loans, net of unearned income
$
196,399 $
79,268 $
45,530 $
23,623 $
344,820
Potential Problem Loans
Management believes that any loan where there are serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms should be identified as a non-performing loan and should be included in the disclosure of “Past
Due Loans and Non-Performing Assets.” At the periods presented in this Annual Report on Form 10-K, the Company has no
potential problem loans as defined by SEC regulations.
Loan Concentrations
Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar activities
which would cause them to be similarly impacted by economic or other conditions. The Company had no concentrations of
loans exceeding 10% of total loans at December 31, 2020, except for loans included in the specialty finance operating segment,
which are diversified throughout the United States and Canada.
Other Real Estate Owned
In certain circumstances, the Company is required to take action against the real estate collateral of specific loans. The
Company uses foreclosure only as a last resort for dealing with borrowers experiencing financial hardships. The Company
employs extensive contact and restructuring procedures to attempt to find other solutions for our borrowers. The tables below
present a summary of other real estate owned and shows the activity for the respective periods and the balance for each property
type:
(Dollars in thousands)
Balance at beginning of period
Disposal/resolved
Transfers in at fair value, less costs to sell
Additions from acquisition
Fair value adjustments
Balance at end of period
(Dollars in thousands)
Residential real estate
Residential real estate development
Commercial real estate
Total
90
Year Ended
December 31,
December 31,
2020
2019
15,171 $
(10,776)
13,239
—
(1,076)
16,558 $
24,820
(14,516)
5,722
2,179
(3,034)
15,171
Period End
December 31,
December 31,
2020
2019
2,324 $
1,691
12,543
16,558 $
1,016
810
13,345
15,171
$
$
$
$
Deposits and Other Funding Sources
Total deposits at December 31, 2020, were $37.1 billion, increasing $7.0 billion, or 23%, compared to the $30.1 billion at
December 31, 2019. Average deposit balances in 2020 were $34.0 billion, reflecting an increase of $6.6 billion, or 24%,
compared to the average balances in 2019.
The increase in year end and average deposits in 2020 over 2019 is primarily attributable to additional deposits related to PPP
lending and the Company's continued overall growth during 2020. Average non-interest bearing deposits increased $2.7 billion,
or 41% in 2020 compared to 2019, with period end balances ending at 32% of total deposits at December 31, 2020, compared
to 24% at December 31, 2019.
The following table presents the composition of average deposits by product category for each of the last three years:
(Dollars in thousands)
Non-interest bearing deposits
NOW and interest-bearing demand deposits
Wealth management deposits
Money market accounts
Savings accounts
Time certificates of deposit
Total average deposits
2020
Balance
$ 9,432,090
3,298,554
3,882,975
8,874,488
3,354,662
5,142,938
$ 33,985,707
Years Ended December 31,
2019
2018
Percent
Balance
Percent
Balance
28 % $ 6,711,298
2,903,441
10
2,761,936
11
6,659,376
26
2,834,381
10
15
5,467,192
100 % $ 27,337,624
25 % $ 6,545,251
2,436,791
11
2,356,145
10
5,105,244
24
2,684,661
10
20
4,872,590
100 % $ 24,000,682
Percent
28 %
10
10
21
11
20
100 %
Wealth management deposits are funds from the brokerage customers of Wintrust Investments, CDEC, trust and asset
management customers of the Company and brokerage customers from unaffiliated companies which have been placed into
deposit accounts of the banks (“wealth management deposits” in the table above). Wealth management deposits consist
primarily of money market accounts. Consistent with reasonable interest rate risk parameters, these funds have generally been
invested in loan production of the banks as well as other investments suitable for banks.
The following table presents average deposit balances for each bank and the relative percentage of total consolidated average
deposits held by each bank during each of the past three years:
2020
2019
2018
Years Ended December 31,
(Dollars in thousands)
Wintrust Bank
Lake Forest Bank
Hinsdale Bank
Northbrook Bank
Town Bank
Barrington Bank
Wheaton Bank
Village Bank
Old Plank Trail Bank
Libertyville Bank
St. Charles Bank
Beverly Bank
State Bank of the Lakes
Schaumburg Bank
Crystal Lake Bank
Total deposits
Percentage increase from prior year
Balance
$ 6,819,748
3,614,371
3,052,738
2,583,597
2,383,930
2,188,226
2,040,385
1,767,994
1,623,980
1,592,267
1,440,961
1,434,404
1,240,211
1,160,111
1,042,784
$ 33,985,707
Percent
Balance
Percent
Balance
Percent
19 % $ 4,549,385
2,627,628
12
1,945,538
8
1,835,242
8
1,675,926
7
1,552,299
6
1,311,340
6
1,234,009
5
1,283,627
5
1,244,853
5
941,276
4
1,070,510
4
956,470
4
925,259
4
847,320
3
100 % $ 24,000,682
14 %
19 %
11
8
8
7
6
6
5
5
5
4
4
4
4
4
100 %
9 %
20 % $ 5,249,917
3,000,910
11
2,191,744
9
2,263,964
8
1,879,208
7
1,708,232
6
1,540,076
6
1,422,208
5
1,405,279
5
1,348,820
5
1,085,324
4
1,229,752
4
1,061,278
4
995,613
3
955,299
3
100 % $ 27,337,624
24 %
91
Average deposit balances for each bank as a percentage of total consolidated average deposits held by each bank remained
relatively consistent between 2019 and 2020. Increase in average deposit balances were primarily attributable to additional
deposits related to PPP lending and the Company's continued overall growth during 2020.
Other Funding Sources. Although deposits are the Company’s primary source of funding its interest-earning assets, the
Company’s ability to manage the types and terms of deposits is somewhat limited by customer preferences and market
competition. As a result, in addition to deposits and the issuance of equity securities and the retention of earnings, the Company
uses several other funding sources to support its growth. These sources include short-term borrowings, notes payable, FHLB
advances, subordinated debt, secured borrowings and junior subordinated debentures. The Company evaluates the terms and
unique characteristics of each source, as well as its asset-liability management position, in determining the use of such funding
sources.
The following table sets forth, by category, the composition of the average balances of other funding sources for the periods
presented:
(Dollars in thousands)
Federal Home Loan Bank advances
Subordinated notes
Notes payable
Short-term borrowings
Other
Secured borrowings
Total other borrowings
2020
2019
2018
Years Ended December 31,
Average
Balance
$ 1,156,106
436,275
122,091
17,965
60,908
295,729
496,693
Percent
of Total
Average
Balance
Percent
of Total
Average
Balance
Percent
of Total
49 % $ 658,669
309,178
19
40 % $ 713,539
139,140
19
5
1
3
12
21
137,170
44,240
47,028
200,396
428,834
8
3
3
12
26
67,176
21,270
48,333
152,836
289,615
51 %
10
5
2
3
11
21
Junior subordinated debentures
Total other funding sources
253,566
$ 2,342,640
253,566
11
100 % $ 1,650,247
253,566
15
100 % $ 1,395,860
18
100 %
Notes payable balances represent the balances on a $200.0 million loan agreement (“Credit Agreement”) with unaffiliated
banks consisting of a $50.0 million revolving credit facility (“Revolving Credit Facility”) and a $150.0 million term facility
(“Term Facility”). Both the Revolving Credit Facility and the Term Facility are available for corporate purposes such as to
provide capital to fund continued growth at existing bank subsidiaries, possible future acquisitions and for other general
corporate matters. At December 31, 2020, the Company had a notes payable balance of $101.7 million under the Term Facility.
At December 31, 2020, the Company had no outstanding balance under the Revolving Credit Facility. See Note 13, “Other
Borrowings,” to the Consolidated Financial Statements in Item 8 for further discussion of notes payable.
FHLB advances provide the banks with access to fixed-rate funds which are useful in mitigating interest rate risk and achieving
an acceptable interest rate spread on fixed-rate loans or securities. FHLB advances to the banks totaled $1.2 billion at
December 31, 2020 and $674.9 million at December 31, 2019. See Note 11, “Federal Home Loan Bank Advances,” to the
Consolidated Financial Statements in Item 8 for further discussion of the terms of these advances.
The balance of secured borrowings primarily represents a third party Canadian transaction (“Canadian Secured Borrowing”).
Under the Canadian Secured Borrowing, the Company, through its subsidiary, FIFC Canada, sells an undivided co-ownership
interest in all receivables owed to FIFC Canada to an unrelated third party in exchange for cash payments pursuant to a
receivables purchase agreement (“Receivables Purchase Agreement”). See Note 13, “Other Borrowings,” to the Consolidated
Financial Statements in Item 8 for further discussion of these secured borrowings under this agreement. At December 31, 2020,
the translated balance of the secured borrowings totaled $329.9 million.
At December 31, 2020 and 2019, subordinated notes totaled $436.5 million and $436.1 million, respectively. During 2019, the
Company issued $300.0 million of subordinated notes receiving $296.7 million in proceeds, net of underwriting discount. The
notes have a stated interest rate of 4.85% and mature in June 2029. During 2014, the Company issued $140.0 million of
subordinated notes receiving $139.1 million in proceeds, net of underwriting discount. The notes have a stated interest rate of
5.00% and mature in June 2024. See Note 12, “Subordinated Notes,” to the Consolidated Financial Statements in Item 8 for
further discussion.
92
Short-term borrowings include securities sold under repurchase agreements and federal funds purchased. These borrowings
totaled $11.4 million and $20.5 million at December 31, 2020 and 2019, respectively. Securities sold under repurchase
agreements represent sweep accounts for certain customers in connection with master repurchase agreements at the banks as
well as short-term borrowings from banks and brokers. This funding category typically fluctuates based on customer
preferences and daily liquidity needs of the banks, their customers and the banks’ operating subsidiaries. See Note 13, “Other
Borrowings,” to the Consolidated Financial Statements in Item 8 for further discussion of these borrowings.
The Company has $253.6 million of junior subordinated debentures outstanding as of December 31, 2020 and 2019. The
amounts reflected on the balance sheet represent the junior subordinated debentures issued to eleven trusts by the Company and
equal the amount of the preferred and common securities issued by the trusts. See Note 14, “Junior Subordinated Debentures,”
to the Consolidated Financial Statements in Item 8 for further discussion of the Company’s junior subordinated debentures.
Starting in 2016, none of the junior subordinated debentures qualified as Tier 1 regulatory capital of the Company resulting in
$245.5 million of the junior subordinated debentures, net of common securities, being included in the Company's Tier 2
regulatory capital.
Other borrowings at December 31, 2020 include a fixed-rate promissory note issued by the Company in June 2017 and
amended in March 2020 (“Fixed-Rate Promissory Note”) related to and secured by three office buildings owned by the
Company. At December 31, 2020, the Fixed-Rate Promissory Note had a balance of $65.1 million. Under the Fixed-Rate
Promissory Note, during the three months ended March 31, 2020, the Company made monthly principal payments and paid
interest at a fixed rate of 3.36%. An amendment to the Fixed-Rate Promissory Note was executed on and became effective as of
March 31, 2020. The amendment increased the principal amount to $66.4 million, reduced the interest rate to 3.00% and
extended the maturity date to March 31, 2025. See Note 13, “Other Borrowings,” to the Consolidated Financial Statements in
Item 8 for further discussion of these borrowings.
In response to the COVID-19 pandemic, the Company will continue to manage funding sources discussed above, including the
utilization of availability with the FHLB and FRB and the Revolving Credit Facility with unaffiliated banks, to access needed
liquidity in a timely manner.
Shareholders’ Equity. Total shareholders’ equity was $4.1 billion at December 31, 2020, an increase of $424.7 million from the
December 31, 2019 total of $3.7 billion. The increase in 2020 was primarily a result of net income of $293.0 million, $277.6
million of net proceeds from the issuance of shares of Series E preferred stock in May 2020, $55.8 million in net unrealized
gains from investment securities, net of tax, $13.7 million from the issuance of shares of the Company's common stock pursuant
to various stock compensation plans, net of treasury shares, and $4.3 million of foreign currency translation adjustments, net of
tax, partially offset by common stock repurchased under authorized program of $92.1 million, common stock dividends of
$64.5 million and preferred stock dividends of $21.4 million, $9.9 million of net unrealized losses on cash flow hedges, net of
tax, $4.9 million debited to surplus for stock-based compensation costs and a one-time cumulative effect adjustment from the
adoption of ASU 2016-13, net of tax, of $26.7 million. See Note 23, “Shareholders’ Equity,” to the Consolidated Financial
Statements in Item 8 for further discussion of shareholders’ equity.
Liquidity and Capital Resources
The Company and the banks are subject to various regulatory capital requirements established by the federal banking agencies
that take into account risk attributable to balance sheet and off-balance sheet activities. Failure to meet minimum capital
requirements can initiate certain mandatory — and possibly discretionary — actions by regulators, that if undertaken could
have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the banks must meet specific capital guidelines that involve
quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Federal Reserve’s capital guidelines require bank holding companies to maintain a minimum ratio of
qualifying total capital to risk-weighted assets of 8.0%, of which at least 4.50% must be in the form of Common Equity Tier 1
capital and 6.0% must be in the form of Tier 1 capital. The Federal Reserve also requires a minimum leverage ratio of Tier 1
capital to total assets of 4.0%. In addition, the Federal Reserve continues to consider the Tier 1 leverage ratio in evaluating
proposals for expansion or new activities.
93
The following table summarizes the capital guidelines for bank holding companies as of December 31, 2020, as well as certain
ratios relating to the Company’s equity and assets as of December 31, 2020, 2019 and 2018:
Common Equity Tier 1 capital to risk-weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Tier 1 leverage ratio
Total average equity to total average assets
Dividend payout ratio
Minimum
Ratio +
Capital
Conservation
Buffer (1)
Minimum
Ratios
4.5 %
6.0
8.0
4.0
N/A
N/A
7.00 %
8.50
10.50
N/A
N/A
N/A
Minimum
Well
Capitalized
Ratios (2)
2019
2020
8.8 % 9.2 %
N/A
10.0
6.0
12.6
10.0
8.1
N/A
9.5
N/A
N/A 23.9
9.6
12.2
8.7
10.4
16.6
2018
9.3 %
9.7
11.6
9.1
10.7
13.0
(1) Reflects the Capital Conservation Buffer of 2.5%.
(2) Reflects the well-capitalized standard applicable to the Company for purposes of the Federal Reserve’s Regulation Y.
The Federal Reserve has not yet revised the well-capitalized standard for BHCs to reflect the higher capital
requirements imposed under the U.S. Basel III Rule or to add Common Equity Tier 1 capital ratio and Tier 1 leverage
ratio requirements to this standard. As a result, the Common Equity Tier 1 capital ratio and Tier 1 leverage ratio are
denoted as “N/A” in this column. If the Federal Reserve were to apply the same or a very similar well-capitalized
standard to BHCs as the standard applicable to our subsidiary banks, the Company’s capital ratios as of December
31, 2020 would exceed such revised well-capitalized standard.
As reflected in the table, each of the Company’s capital ratios at December 31, 2020, exceeded the well-capitalized ratios
established by the Federal Reserve. Refer to Note 19 to the Consolidated Financial Statements in Item 8 for further information
on the capital positions of the banks.
The Company’s principal sources of funds at the holding company level are dividends from its subsidiaries, borrowings under
its loan agreement with unaffiliated banks and proceeds from the issuances of subordinated debt and additional equity. Refer to
Notes 12, 13, 14 and 23 to the Consolidated Financial Statements in Item 8 for further information on the Company’s
subordinated notes, other borrowings, junior subordinated debentures and shareholders’ equity, respectively. Management is
committed to maintaining the Company’s capital levels above the “Well Capitalized” levels established by the Federal Reserve
for bank holding companies.
In June 2015, the Company issued and sold 5,000,000 shares of fixed-to-floating non-cumulative perpetual preferred stock,
Series D, liquidation preference of $25 per share (the “Series D Preferred Stock”) for $125.0 million in a public offering. When,
as and if declared, dividends on the Series D Preferred Stock are payable quarterly in arrears at a rate of 6.50% per annum from
the original issuance date to, but excluding, July 15, 2025, and from (and including) that date at a floating rate equal to three-
month LIBOR plus a spread of 4.06% per annum. The dividend rate of such floating rate dividends will be reset quarterly. The
Company received proceeds, after deducting underwriting discounts, commissions and related costs, of approximately $120.8
million from the issuance, which were intended to be used for general corporate purposes. The Series D Preferred Stock is listed
on the NASDAQ Global Select Market under the symbol “WTFCM.” In January, April, July and October of 2020, Wintrust
declared a quarterly cash dividend of $0.41 per share of Series D preferred stock.
In May 2020, the Company issued 11,500 shares of fixed-rate reset non-cumulative perpetual preferred stock, Series E,
liquidation preference $25,000 per share (the “Series E Preferred Stock”) as part of a $287.5 million public offering of
11,500,000 depositary shares, each representing a 1/1,000th interest in a share of Series E Preferred Stock. When, as and if
declared, dividends on the Series E Preferred Stock are payable quarterly in arrears at a fixed rate of 6.875% per annum. In July
and October of 2020, Wintrust declared a quarterly cash dividend of $716.15 and $429.69, respectively, per share of Series E
preferred stock.
The Board approved the first semi-annual dividend on the Company’s common stock in January 2000 and continued to approve
semi-annual dividends until quarterly dividends were approved starting in 2014. The payment of dividends is also subject to
statutory restrictions and restrictions arising under the terms of the Company's Series D and Series E Preferred Stock, the
Company’s trust preferred securities offerings units and under certain financial covenants in the Company’s revolving and term
facilities. Under the terms of these separate facilities entered into on September 18, 2018, the Company is prohibited from
paying dividends on any equity interests, including its common stock and preferred stock, if such payments would cause the
Company to be in default under its facilities or exceed a certain threshold. In January, April, July and October of 2020, Wintrust
declared a quarterly cash dividend of $0.28 per common share. In January, April, July and October of 2019, Wintrust declared a
94
quarterly cash dividend of $0.25 per common share. In January of 2021, Wintrust declared a quarterly cash dividend of $0.31
per common share. Taking into account the limitations on the payment of dividends, the final determination of timing, amount
and payment of dividends is at the discretion of the Company’s Board of Directors and will depend on the Company’s earnings,
financial condition, capital requirements and other relevant factors.
Banking laws impose restrictions upon the amount of dividends that can be paid to the holding company by the banks. Based on
these laws, the banks could, subject to minimum capital requirements, declare dividends to the Company without obtaining
regulatory approval in an amount not exceeding (a) undivided profits, and (b) the amount of net income reduced by dividends
paid for the current and prior two years.
Since the banks are required to maintain their capital at the well-capitalized level (due to the Company being a financial holding
company), funds otherwise available as dividends from the banks are limited to the amount that would not reduce any of the
banks’ capital ratios below the well-capitalized level. During 2020, 2019 and 2018, the subsidiaries paid dividends to Wintrust
totaling $253.0 million, $139.0 million, and $111.0 million, respectively. At January 1, 2021, subject to minimum capital
requirements at the banks, approximately $467.1 million was available as dividends from the banks without prior regulatory
approval and without compromising the banks’ well-capitalized positions.
In response to the COVID-19 pandemic, the Company continues to leverage its capital management framework to assess and
monitor risk when making capital decisions. The Company will continuously evaluate the adequacy of capital as a result of the
uncertainty from the COVID-19 pandemic.
Liquidity management at the banks involves planning to meet anticipated funding needs at a reasonable cost. Liquidity
management is guided by policies, formulated and monitored by the Company’s senior management and each Bank’s asset/
liability committee, which take into account the marketability of assets, the sources and stability of funding and the level of
unfunded commitments. The banks’ principal sources of funds are deposits, short-term borrowings and capital contributions
from the holding company. In addition, the banks are eligible to borrow under FHLB advances and at the FRB Discount
Window, another source of liquidity.
In accordance with the liquidity management noted above, deposit growth and increases in borrowings from various sources
have resulted in accumulating liquidity assets in recent periods. In 2020, we increased our liquid assets to ensure that we have
the balance sheet strength to serve our clients through the COVID-19 pandemic. As a result, the Company believes that it has
sufficient funds and access to funds to effectively manage through the COVID-19 pandemic as well as meet its working capital
and other needs. The Company will continue to prudently evaluate liquidity sources, including the management of availability
with the FHLB and FRB and utilization of the revolving credit facility with unaffiliated banks.
Core deposits are the most stable source of liquidity for community banks due to the nature of long-term relationships generally
established with depositors and the security of deposit insurance provided by the FDIC. Core deposits are generally defined in
the industry as total deposits less time deposits with balances greater than $100,000. Due to the affluent nature of many of the
communities that the Company serves, management believes that many of its time deposits with balances in excess of $100,000
are also a stable source of funds. Currently, standard deposit insurance coverage is $250,000 per depositor per insured bank, for
each account ownership category.
While the Company obtains a portion of its total deposits through brokered deposits, the Company does so primarily as an
asset-liability management tool to assist in the management of interest rate risk, and the Company does not consider brokered
deposits to be a vital component of its current liquidity resources. Historically, brokered deposits have represented a small
component of the Company’s total deposits outstanding, as set forth in the table below:
(Dollars in thousands)
Total deposits
Brokered Deposits (1)
Brokered deposits as a percentage of total
deposits (1)
December 31,
2020
2019
2018
2017
2016
$ 37,092,651
$ 30,107,138
$ 26,094,678
$ 23,183,347
$ 21,658,632
1,843,227
1,011,404
1,071,562
1,445,306
1,159,475
5.0 %
3.4 %
4.1 %
6.2 %
5.4 %
(1) Brokered Deposits include certificates of deposit obtained through deposit brokers, deposits received through the
Certificate of Deposit Account Registry Program, as well as wealth management deposits of brokerage customers from
unaffiliated companies which have been placed into deposit accounts of the banks.
95
The banks routinely accept deposits from a variety of municipal entities. Typically, these municipal entities require that banks
pledge marketable securities to collateralize these public deposits. At December 31, 2020 and 2019, the banks had
approximately $2.4 billion and $1.7 billion, respectively, of securities collateralizing public deposits and other short-term
borrowings. Public deposits requiring pledged assets are not considered to be core deposits, however they provide the Company
with a reliable, lower cost, short-term funding source than what is available through many other wholesale alternatives.
Other than as discussed in this section, the Company is not aware of any known trends, commitments, events, regulatory
recommendations or uncertainties that would have any material adverse effect on the Company’s capital resources, operations
or liquidity.
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET
ARRANGEMENTS
The Company has various financial obligations, including contractual obligations and commitments that may require future
cash payments.
Contractual Obligations. The following table presents, as of December 31, 2020, significant fixed and determinable contractual
obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced
note to the Consolidated Financial Statements in Item 8:
(Dollars in thousands)
Deposits
FHLB advances (1)
Subordinated notes
Other borrowings
Junior subordinated debentures
Lease commitments
Purchase obligations (2)
Total
Note
Reference
10 $
11
12
13
14
16
$
One year
or less
36,023,747 $
62,987
—
364,671
—
22,022
70,147
36,543,574 $
From one to
three years
Payments Due in
From three
to five years
Over five
years
1,023,967 $
—
—
93,487
—
42,114
88,548
1,248,116 $
44,129 $
25,442
139,473
60,102
—
37,059
41,296
347,501 $
808 $
1,140,000
297,033
668
253,566
134,525
36,685
1,863,285 $
Total
37,092,651
1,228,429
436,506
518,928
253,566
235,720
236,676
40,002,476
(1) Certain advances provide the FHLB with call dates which are not reflected in the above table.
(2) Purchase obligations presented above primarily relate to certain contractual cash obligations for pending acquisitions,
marketing obligations and services related to the construction of facilities, data processing and the outsourcing of
certain operational activities.
The Company also enters into derivative contracts under which the Company is required to either receive cash from or pay cash
to counterparties depending on changes in interest rates. Derivative contracts are carried at fair value representing the net
present value of expected future cash receipts or payments based on market rates as of the balance sheet date. Because the
derivative assets and liabilities recorded on the balance sheet at December 31, 2020 do not represent the amounts that may
ultimately be paid under these contracts, these assets and liabilities are not included in the table of contractual obligations
presented above.
Commitments. The following table presents a summary of the amounts and expected maturities of significant commitments as
of December 31, 2020. Further information on these commitments is included in Note 20 of the Consolidated Financial
Statements in Item 8.
(Dollars in thousands)
Commitment type:
Commercial, commercial real estate and
construction
Residential real estate
Revolving home equity lines of credit
Letters of credit
Commitments to sell mortgage loans
One year or
less
From one to
three years
From three
to five years
Over
five years
Total
$ 3,240,673
1,727,894
756,198
267,802
2,332,032
2,273,483
—
—
46,454
—
749,931
—
—
32,943
—
140,351
—
—
1,007
—
6,404,438
1,727,894
756,198
348,206
2,332,032
96
Our remaining commitment to fund community investments totaled $28.5 million, which includes future cash outlays for the
construction and development of properties for low-income housing, support for small businesses, and historic tax credit
projects that qualify for CRA purposes. These commitments are not included in the commitments table above, as the timing and
amounts are based upon the financing arrangements provided in each project’s partnership or operating agreement and could
change due to variances in the construction schedule, project revisions, or the cancellation of the project.
Contingencies. The Company enters into residential mortgage loan sale agreements with investors in the normal course of
business. These agreements usually require certain representations concerning credit information, loan documentation,
collateral and insurability. Investors have requested the Company to indemnify them against losses on certain loans or to
repurchase loans which the investors believe do not comply with applicable representations. Upon completion of its own
investigation, the Company generally repurchases or provides indemnification on certain loans. Indemnification requests are
generally received within two years subsequent to sale. Management maintains a liability for estimated losses on loans expected
to be repurchased or on which indemnification is expected to be provided and regularly evaluates the adequacy of this recourse
liability based on trends in repurchase and indemnification requests, actual loss experience, known and inherent risks in the
loans and current economic conditions. At December 31, 2020, the liability for estimated losses on repurchase and
indemnification was $0.8 million and was included in other liabilities on the balance sheet.
97
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Effects of Inflation
A banking organization’s assets and liabilities are primarily monetary. Changes in the rate of inflation do not have as great an
impact on the financial condition of a bank as do changes in interest rates. Moreover, interest rates do not necessarily change at
the same percentage as inflation. Accordingly, changes in inflation are not expected to have a material impact on the Company.
Asset-Liability Management
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. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and
maintenance of yield. Asset-liability management policies are established and monitored by management in conjunction with
the boards of directors of the banks, subject to general oversight by the Risk Management Committee of the Company’s Board.
The policies establish guidelines for acceptable limits on the sensitivity of the market value of assets and liabilities to changes
in interest rates.
Interest rate risk arises when the maturity or re-pricing periods and interest rate indices of the interest earning assets, interest
bearing liabilities, and derivative financial instruments are different. It is the risk that changes in the level of market interest
rates will result in disproportionate changes in the value of, and the net earnings generated from, the Company’s interest
earning assets, interest bearing liabilities and derivative financial instruments. The Company continuously monitors not only the
organization’s current net interest margin, but also the historical trends of these margins. In addition, management attempts to
identify potential adverse changes in net interest income in future years as a result interest rate fluctuations by performing
simulation analysis of various interest rate environments. If a potential adverse change in net interest margin and/or net income
is identified, management takes appropriate action with its asset-liability structure to mitigate these potentially adverse
situations. Please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
for further discussion of the net interest margin.
Since the Company’s primary source of interest bearing liabilities is from customer deposits, the Company’s ability to manage
the types and terms of such deposits is somewhat limited by customer preferences and local competition in the market areas in
which the banks operate. The rates, terms and interest rate indices of the Company’s interest earning assets result primarily
from the Company’s strategy of investing in loans and securities that permit the Company to limit its exposure to interest rate
risk, together with credit risk, while at the same time achieving an acceptable interest rate spread.
The Company’s exposure to interest rate risk is reviewed on a regular basis by management and the Risk Management
Committees of the boards of directors of the banks and the Company. The objective of the review is to measure the effect on net
income and to adjust balance sheet and derivative financial instruments to minimize the inherent risk while at the same time
maximize net interest income.
The following interest rate scenarios display the percentage change in net interest income over a one-year time horizon
assuming increases and decreases of 100 and 200 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 Scenarios at December 31, 2020 and December 31, 2019 is as follows:
Static Shock Scenarios
December 31, 2020
December 31, 2019
Ramp Scenarios
December 31, 2020
December 31, 2019
+200
Basis
Points
+100
Basis
Points
-100
Basis
Points
-200
Basis
Points
25.0 %
18.6
11.6 %
9.7
(7.9) %
(10.9)
(16.0) %
(21.2)
+200
Basis
Points
11.4 %
9.3
+100
Basis
Points
-100
Basis
Points
-200
Basis
Points
5.7 %
4.8
(3.3) %
(5.0)
(6.9) %
(10.4)
98
One method utilized by financial institutions, including the Company, to manage interest rate risk is to enter into derivative
financial instruments. Derivative financial instruments include interest rate swaps, interest rate caps, floors and collars, futures,
forwards, option contracts and other financial instruments with similar characteristics. Additionally, the Company enters into
commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward
commitments for the future delivery of mortgage loans to third party investors. See Note 21, “Derivative Financial
Instruments,” to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for further information
on the Company’s derivative financial instruments.
During 2020 and 2019, the Company entered into certain covered call option transactions related to certain securities held by
the Company. The Company uses these option transactions (rather than entering into other derivative interest rate contracts,
such as interest rate floors) to economically hedge positions and compensate for net interest margin compression by increasing
the total return associated with the related securities through fees generated from these options. Although the revenue received
from these options is recorded as non-interest income rather than interest income, the increased return attributable to the related
securities from these options contributes to the Company’s overall profitability. The Company’s exposure to interest rate risk
may be impacted by these transactions. To mitigate this risk, the Company may acquire fixed rate term debt or use other
financial derivative instruments. There were no covered call options outstanding as of December 31, 2020 or 2019.
99
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Wintrust Financial Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of condition of Wintrust Financial Corporation and subsidiaries
(the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income,
changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 26, 2021 expressed an unqualified opinion thereon.
Adoption of ASU 2016-13
As discussed in Note 1 of the consolidated financial statements, the Company changed its method of accounting for credit
losses in 2020 due to the adoption of Accounting Standards Update (ASU) No. 2016-13 Financial Instruments – Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments, and the related amendments. See below for discussion of
our related critical audit matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
100
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit
matters or on the accounts or disclosures to which they relate.
Description of the
Matter
Allowance for credit losses
As discussed above, on January 1, 2020, the Company adopted ASU 2016-13, Financial
Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments
which resulted in an increase in the allowance for credit losses (ACL) of $47.4 million and
reduced retained earnings, net of deferred tax by $26.7 million through a cumulative-effect
adjustment. At December 31, 2020, the Company’s loan portfolio totaled $32.1 billion and the
associated ACL was $380.0 million. As more fully described in Notes 1 and 5 to the
consolidated financial statements, the ACL represents management’s estimate of expected credit
losses over the contractual term of the loan. The ACL is measured on a collective or pooled basis
when assets share the same risk characteristics or on an individual basis when assets do not share
similar risk characteristics. For assets measured on a collective basis, the Company applies
modeling methodologies that utilize the Company’s historical loss experience to estimate
lifetime credit loss rates on each pool, including methodologies estimating the probability of
default and loss given default on specific segments. The historical credit loss experience utilized
in the ACL models is adjusted for the Company’s reasonable and supportable economic
forecasts. The modeled results are then adjusted for certain qualitative factors. For assets
measured on an individual basis, the Company measures the expected losses primarily based on
the estimated collateral value.
Auditing management’s estimate of the ACL was especially challenging due to the complexity
of the Company’s ACL models and the significant judgement required in establishing
management’s reasonable and supportable economic forecasts.
How we Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of
internal controls over the ACL process, including among other things, controls over
management’s process of assessing and challenging the reasonable and supportable economic
forecasts, the development, operation and monitoring of the ACL models, and the completeness
and accuracy of key inputs and assumptions used in the ACL models.
To test the Company’s ACL models, we involved our specialists to test a sample of the ACL
models by evaluating model methodology, model performance and testing key modeling
assumptions. Additionally, we tested the accuracy of data utilized by the models by agreeing key
data fields to source documentation and performed targeted re-calculations for a sample of
models.
To test the reasonable and supportable economic forecasts, our audit procedures included among
others, evaluating the basis of the economic forecast factors utilized by management, testing the
completeness and accuracy of data used by management to develop the economic forecasts, and
comparing management’s economic forecasts to other available external sources for contrary or
corroborative evidence.
In addition, we evaluated the overall ACL and whether the ACL appropriately reflects expected
lifetime losses in the loan portfolio as of the consolidated balance sheet date. For example, we
compared the overall ACL amount to those established by similar banking institutions with
similar loan portfolios.
101
Valuation of goodwill
Description of the
Matter
At December 31, 2020, the Company's goodwill was $645.7 million. As discussed in Notes 1
and 8 to the consolidated financial statements, goodwill is tested for impairment at least annually
at the reporting unit level. The Company has goodwill assigned to each of its reporting units,
Community Banking, Specialty Finance, and Wealth Management. For each reporting unit, the
Company performed a quantitative impairment test as of October 1, 2020, in which the
Company compared its estimate of each reporting units’ fair value to the respective reporting
units’ carrying value.
Auditing management's annual goodwill impairment test was complex and highly judgmental
due to the significant estimation required to determine the fair value of the reporting units. In
particular, the fair value estimate was sensitive to significant assumptions, such as changes in the
discount rate and certain projected financial information. These assumptions are affected by
expectations about future market or economic conditions, particularly as a result of the
uncertainty around the COVID-19 pandemic and timing of economic recovery.
How we Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s goodwill impairment review process, including controls over
management’s review of the significant assumptions described above.
We involved our specialists to test the estimated fair value of the Company’s reporting units.
Our audit procedures included, among others, assessing management’s methodologies and
testing the significant assumptions discussed above and the underlying data used by the
Company in its analysis. We compared the significant assumptions used by management to
recent and current industry and economic trends. We assessed the historical accuracy of
management's estimates and performed sensitivity analyses of significant assumptions to
evaluate changes in the fair value of the reporting units resulting from changes in the
assumptions. In addition, we tested management's reconciliation of the fair value of the reporting
units to the market capitalization of the Company.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1999.
Chicago, Illinois
February 26, 2021
102
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
Assets
Cash and due from banks
Federal funds sold and securities purchased under resale agreements
Interest-bearing deposits with banks
Available-for-sale securities, at fair value
Held-to-maturity securities, at amortized cost, net of allowance for credit losses of $59 at December 31, 2020
($593.8 million and $1.1 billion fair value at December 31, 2020 and December 31, 2019, respectively)
Trading account securities
Equity securities with readily determinable fair value
Federal Home Loan Bank and Federal Reserve Bank stock
Brokerage customer receivables
Mortgage loans held-for-sale, at fair value
Loans, net of unearned income
Allowance for loan losses
Net loans
Premises and equipment, net
Lease investments, net
Accrued interest receivable and other assets
Goodwill
Other intangible assets
Total assets
Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing
Interest bearing
Total deposits
Federal Home Loan Bank advances
Other borrowings
Subordinated notes
Junior subordinated debentures
Trade date securities payable
Accrued interest payable and other liabilities
Total liabilities
Shareholders' Equity:
Preferred stock, no par value; 20,000,000 shares authorized:
Series D - $25 liquidation value; 5,000,000 shares issued and outstanding at December 31, 2020 and
December 31, 2019
Series E - $25,000 liquidation value; 11,500 shares issued and outstanding at December 31, 2020 and no
shares issued and outstanding at December 31, 2019
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at December 31, 2020 and
2019; 58,473,252 shares issued at December 31, 2020 and 57,950,803 shares issued at December 31, 2019
Surplus
Treasury stock, at cost, 1,703,627 shares at December 31, 2020 and 128,912 shares at December 31, 2019
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying Notes to Consolidated Financial Statements.
103
December 31,
2020
2019
$
322,415 $
59
4,802,527
3,055,839
579,138
671
90,862
135,588
17,436
1,272,090
32,079,073
(319,374)
31,759,699
768,808
242,434
1,351,455
645,707
36,040
286,167
309
2,164,560
3,106,214
1,134,400
1,068
50,840
100,739
16,573
377,313
26,800,290
(156,828)
26,643,462
754,328
231,192
1,061,141
645,220
47,057
$
45,080,768 $
36,620,583
$
11,748,455 $
25,344,196
37,092,651
1,228,429
518,928
436,506
253,566
200,907
1,233,786
40,964,773
125,000
287,500
58,473
1,649,990
(100,363)
2,080,013
15,382
4,115,995
7,216,758
22,890,380
30,107,138
674,870
418,174
436,095
253,566
—
1,039,490
32,929,333
125,000
—
57,951
1,650,278
(6,931)
1,899,630
(34,678)
3,691,250
$
45,080,768 $
36,620,583
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Interest income
Interest and fees on loans
Mortgage loans held-for-sale
Interest-bearing deposits with banks
Federal funds sold and securities purchased under resale agreements
Investment securities
Trading account securities
Federal Home Loan Bank and Federal Reserve Bank stock
Brokerage customer receivables
Total interest income
Interest expense
Interest on deposits
Interest on Federal Home Loan Bank advances
Interest on other borrowings
Interest on subordinated notes
Interest on junior subordinated debentures
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income
Wealth management
Mortgage banking
Service charges on deposit accounts
(Losses) gains on investment securities, net
Fees from covered call options
Trading (losses) gains, net
Operating lease income, net
Other
Total non-interest income
Non-interest expense
Salaries and employee benefits
Equipment
Operating lease equipment depreciation
Occupancy, net
Data processing
Advertising and marketing
Professional fees
Amortization of other intangible assets
FDIC insurance
OREO expense, net
Other
Total non-interest expense
Income before taxes
Income tax expense
Net income
Preferred stock dividends
Net income applicable to common shares
Net income per common share—Basic
Net income per common share—Diluted
Cash dividends declared per common share
Weighted average common shares outstanding
Dilutive potential common shares
Average common shares and dilutive common shares
See accompanying Notes to Consolidated Financial Statements.
104
$
$
$
$
$
$
Years Ended December 31,
2020
2019
2018
1,157,249 $
20,077
8,553
102
99,634
37
6,891
477
1,293,020
189,178
18,193
12,773
21,961
11,008
253,113
1,039,907
214,220
825,687
100,336
346,013
45,023
(1,926)
2,292
(1,004)
47,604
65,851
604,189
626,076
68,496
37,915
69,957
30,196
36,296
27,426
11,018
25,004
(921)
108,632
1,040,095
389,781
96,791
292,990 $
21,377
271,613 $
4.72 $
4.68 $
1.12 $
57,523
496
58,019
1,228,480 $
11,992
29,803
700
108,046
39
5,416
666
1,385,142
278,892
9,878
13,897
15,555
12,001
330,223
1,054,919
53,864
1,001,055
97,114
154,293
39,070
3,525
3,670
(158)
47,041
62,617
407,172
546,420
52,328
35,760
64,289
27,820
48,595
27,471
11,844
9,199
3,628
100,772
928,126
480,101
124,404
355,697 $
8,200
347,497 $
6.11 $
6.03 $
1.00 $
56,857
762
57,619
1,044,502
15,738
17,090
1
87,382
43
5,331
723
1,170,810
166,553
12,412
8,599
7,121
11,222
205,907
964,903
34,832
930,071
90,963
136,990
36,404
(2,898)
3,519
11
38,451
52,710
356,150
480,077
42,949
29,305
57,814
35,027
41,140
32,306
4,571
17,209
6,120
79,570
826,088
460,133
116,967
343,166
8,200
334,966
5.95
5.86
0.76
56,300
908
57,208
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Unrealized gains (losses) on available-for-sale securities
Before tax
Tax effect
Net of tax
Reclassification of net gains on available-for-sale securities included
in net income
Before tax
Tax effect
Net of tax
Reclassification of amortization of unrealized gains on investment
securities transferred to held-to-maturity from available-for-sale
Before tax
Tax effect
Net of tax
Net unrealized gains (losses) on available-for-sale securities
Unrealized losses on derivative instruments
Before tax
Tax effect
Net unrealized losses on derivative instruments
Foreign currency translation adjustment
Before tax
Tax effect
Net foreign currency translation adjustment
Total other comprehensive income (loss)
Comprehensive income
See accompanying Notes to Consolidated Financial Statements.
Years Ended December 31,
2020
2019
2018
$
292,990 $
355,697 $
343,166
76,464
(20,378)
56,086
79,702
(21,361)
58,341
(27,408)
7,354
(20,054)
221
(59)
162
899
(241)
658
33
(9)
24
231
(62)
169
55,755
(13,591)
3,642
(9,949)
479
(131)
348
57,335
(28,685)
7,687
(20,998)
5,367
(1,113)
4,254
50,060
343,050 $
7,483
(1,626)
5,857
42,194
397,891 $
$
89
(24)
65
(20,143)
(1,160)
310
(850)
(12,216)
3,026
(9,190)
(30,183)
312,983
105
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
Balance at December 31, 2017
Preferred
stock
Common
stock
Surplus
Treasury
stock
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
shareholders'
equity
$
125,000 $
56,068 $ 1,529,035 $
(4,986) $ 1,313,657 $
(41,835) $
2,976,939
Cumulative effect adjustment from the adoption of:
ASU 2016-01
ASU 2017-12
ASU 2018-02
Net income
Other comprehensive loss, net of tax
Cash dividends declared on common
stock, $0.76 per share
Dividends on preferred stock, $1.64
per share
Stock-based compensation
Common stock issued for:
Exercise of stock options and
warrants
Restricted stock awards
Employee stock purchase plan
Director compensation plan
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
299
101
31
19
—
—
—
—
—
—
—
13,496
11,359
(101)
2,492
1,703
—
—
—
—
—
—
—
—
(192)
(456)
—
—
1,880
(116)
2,974
343,166
(42,787)
(8,200)
—
—
—
—
—
(1,880)
—
(2,974)
—
(30,183)
—
—
—
—
—
—
—
—
(116)
—
343,166
(30,183)
(42,787)
(8,200)
13,496
11,466
(456)
2,523
1,722
Balance at December 31, 2018
$
125,000 $
56,518 $ 1,557,984 $
(5,634) $ 1,610,574 $
(76,872) $
3,267,570
Cumulative effect adjustment from the
adoption of ASU 2017-08
Net income
Other comprehensive income, net of tax
Cash dividends declared on common
stock, $1.00 per share
Dividends on preferred stock, $1.64
per share
Stock-based compensation
Common stock issued for:
Acquisitions
Exercise of stock options and
warrants
Restricted stock awards
Employee stock purchase plan
Director compensation plan
Balance at December 31, 2019
Cumulative effect adjustment from
the adoption of ASU 2016-13, net of
tax
Net income
Other comprehensive income, net of
tax
Cash dividends declared on
common stock, $1.12 per share
Dividends on Series D preferred
stock, $1.64 per share and Series E
preferred stock, $1,145.84 per share
Common stock repurchased under
authorized program
Stock-based compensation
Issuance of Series E preferred stock
Common stock issued for:
Exercise of stock options and
warrants
Restricted stock awards
Employee stock purchase plan
Director compensation plan
Balance at December 31, 2020
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,304
1,074
70,682
146
150
44
19
5,541
(150)
2,775
2,142
—
—
—
—
—
—
—
(844)
(453)
—
—
(1,531)
355,697
—
—
—
42,194
(56,910)
(8,200)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,531)
355,697
42,194
(56,910)
(8,200)
11,304
71,756
4,843
(453)
2,819
2,161
$
125,000 $
57,951 $ 1,650,278 $
(6,931) $ 1,899,630 $
(34,678) $
3,691,250
—
—
—
—
—
—
—
287,500
—
—
—
—
—
—
—
—
—
—
—
—
229
201
72
20
—
—
—
—
—
—
(4,938)
(9,887)
9,434
(201)
2,906
2,398
—
—
—
—
—
(92,055)
—
—
(625)
(752)
—
—
(26,717)
292,990
—
—
(26,717)
292,990
—
50,060
50,060
(64,513)
(21,377)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(64,513)
(21,377)
(92,055)
(4,938)
277,613
9,038
(752)
2,978
2,418
$
412,500 $
58,473 $ 1,649,990 $
(100,363) $ 2,080,013 $
15,382 $
4,115,995
See accompanying Notes to Consolidated Financial Statements.
106
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses
Depreciation, amortization and accretion, net
Deferred income tax (benefit) expense
Stock-based compensation (benefit) expense
Net amortization of premium on securities
Accretion of discounts on loans
Mortgage servicing rights fair value change, net
Originations and purchases of mortgage loans held-for-sale
Early buy-out exercises of mortgage loans held-for-sale guaranteed by U.S. Government Agencies
Proceeds from sales of mortgage loans held-for-sale
BOLI income
Decrease (increase) in trading securities, net
Net (increase) decrease in brokerage customer receivables
Gains on mortgage loans sold
Losses (gains) on investment securities, net, and dividend reinvestment on equity securities
Losses on sales of premises and equipment, net
Net (gains) losses on sales and fair value adjustments of other real estate owned
Increase in accrued interest receivable and other assets, net
Increase (decrease) in accrued interest payable and other liabilities, net
Net Cash (Used for) Provided by Operating Activities
Investing Activities:
Proceeds from maturities and calls of available-for-sale securities
Proceeds from maturities and calls of held-to-maturity securities
Proceeds from sales of available-for-sale securities
Proceeds from sales of equity securities with readily determinable fair value
Proceeds from sales and capital distributions of equity securities without readily determinable fair value
Purchases of available-for-sale securities
Purchases of held-to-maturity securities
Purchases of equity securities with readily determinable fair value
Purchases of equity securities without readily determinable fair value
Purchase of Federal Home Loan Bank and Federal Reserve Bank stock, net
Distributions from investments in partnerships, net
Net cash paid in business combinations
Proceeds from sales of other real estate owned
Net increase in interest-bearing deposits with banks
Net increase in loans
Redemption of BOLI
Purchases of premises and equipment, net
Net Cash Used for Investing Activities
Financing Activities:
Increase in deposit accounts
Increase in other borrowings, net
Increase (decrease) in Federal Home Loan Bank advances, net
Cash payments to settle contingent consideration liabilities recognized in business combinations
Proceeds from the issuance of preferred stock, net
Proceeds from the issuance of subordinated notes, net
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and
conversion of common stock warrants
Common stock repurchases under authorized program
Common stock repurchases for tax withholdings related to stock-based compensation
Dividends paid
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period
Cash and Cash Equivalents at End of Period
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest
Income taxes, net
Business combinations and asset acquisitions:
Fair value of assets acquired, including cash and cash equivalents
Value ascribed to goodwill and other intangible assets
Fair value of liabilities assumed
Non-cash activities
Transfer to other real estate owned from loans
Common stock issued for acquisitions
$
$
See accompanying Notes to Consolidated Financial Statements.
107
2020
Years Ended December 31,
2019
2018
$
292,990
$
355,697
$
343,166
214,220
96,369
(4,058)
(4,938)
10,881
(81,604)
62,859
(8,004,730)
(297,599)
7,624,799
(4,488)
397
(863)
(339,127)
2,373
421
(1,421)
(131,870)
46,924
(518,465)
1,613,143
879,713
502,250
6,530
1,857
(1,998,380)
(125,220)
(45,735)
(5,118)
(34,849)
76
—
10,776
(2,636,581)
(5,290,668)
3,428
(63,646)
(7,182,424)
6,985,964
88,596
553,500
(4,523)
277,613
—
15,059
(92,055)
(1,377)
(85,890)
7,736,887
35,998
286,476
322,474
257,408
105,268
—
—
—
13,239
—
$
$
53,864
88,362
44,557
11,304
6,605
(26,624)
35,536
(4,497,921)
—
4,484,838
(4,846)
624
(3,964)
(135,607)
(3,525)
92
1,921
(133,022)
(11,898)
265,993
718,345
422,959
972,253
19,200
1,764
(2,226,834)
(493,389)
(32,729)
(4,394)
(9,385)
1,955
(108,365)
14,516
(983,513)
(2,229,637)
326
(82,021)
(4,018,949)
3,142,499
15,480
248,442
(66)
—
296,617
10,667
—
(1,297)
(65,110)
3,647,232
(105,724)
392,200
286,476
327,329
60,845
1,093,254
80,581
896,686
5,722
71,756
$
$
34,832
67,665
55,224
13,496
7,411
(20,318)
5,370
(3,955,438)
—
4,076,887
(5,448)
(697)
13,822
(104,998)
2,000
64
4,664
(133,519)
(27,001)
377,182
352,683
11,129
214,196
1,895
1,324
(1,095,375)
(253,129)
—
(4,592)
(1,365)
3,409
(53,871)
19,375
(15,988)
(1,883,354)
8,438
(68,273)
(2,763,498)
2,547,399
137,257
(147,999)
—
—
—
15,903
—
(648)
(50,987)
2,500,925
114,609
277,591
392,200
197,911
69,118
485,368
109,548
423,234
7,936
—
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Wintrust Financial Corporation (“Wintrust” or the “Company”) and its subsidiaries
conform to generally accepted accounting principles in the United States and prevailing practices of the banking industry. In the
preparation of the consolidated financial statements, management is required to make certain estimates and assumptions that
affect the reported amounts contained in the consolidated financial statements. Management believes that the estimates made
are reasonable; however, changes in estimates may be required if economic or other conditions change beyond management’s
expectations. Reclassifications of certain prior year amounts have been made to conform to the current year presentation. The
following is a summary of the Company’s significant accounting policies.
Principles of Consolidation
The consolidated financial statements of Wintrust include the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Earnings per Share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance
of common stock that then share in the earnings of the Company. The weighted-average number of common shares outstanding
is increased by the assumed conversion of any outstanding convertible preferred stock shares from the beginning of the year or
date of issuance, if later, and the number of common shares that would be issued assuming the exercise of stock options, the
issuance of restricted shares and stock warrants using the treasury stock method. The adjustments to the weighted-average
common shares outstanding are only made when such adjustments will dilute earnings per common share. Net income
applicable to common shares used in the diluted earnings per share calculation can be affected by the conversion of the
Company's preferred stock, if any such convertible shares are outstanding. Where the effect of this conversion would reduce
the loss per share or increase the income per share, net income applicable to common shares is not adjusted by the associated
preferred dividends.
Business Combinations
The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805,
“Business Combinations” (“ASC 805”) when it obtains control of a business. When determining whether a business has been
acquired, the Company first evaluates whether substantially all of the fair value of the gross assets acquired are concentrated in
a single identifiable asset or a group of similar identifiable assets. If concentrated in such a manner, the set of assets and
activities is not a business. If not concentrated in such a manner, the Company assesses whether the set meets the definition of a
business by containing inputs, outputs and at least one substantive process. If the set represents a business, the Company
recognizes the fair value of the assets acquired and liabilities assumed, immediately expenses transaction costs and accounts for
restructuring plans separately from the business combination. The excess of the cost of the acquisition over the fair value of the
net tangible and intangible assets acquired is recorded as goodwill. Alternatively, a gain is recorded equal to the amount by
which the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration paid.
If the set of assets and activities do not constitute a business, the transaction is accounted for as an asset acquisition. The cost of
a group of assets acquired is allocated to the individual assets acquired or liabilities assumed based on the relative fair value and
does not result in the recognition of goodwill. Generally, any excess of the cost of the transaction over the fair value of the
individual assets acquired or liabilities assumed, or, in contrast, any excess of the fair value of the individual assets acquired or
liabilities assumed over the cost of the transaction, should be allocated on a relative fair value basis. Certain "non-qualifying"
assets are excluded from this allocation, and are recognized at the individual asset's fair value.
Results of operations of the acquired business are included in the income statement from the effective date of acquisition.
Subsequent adjustments to provisional amounts that are identified in reporting periods within one year after the acquisition date
in a business combination are recognized in the reporting period in which the adjustment amounts are determined.
108
Cash Equivalents
For purposes of the consolidated statements of cash flows, Wintrust considers cash on hand, cash items in the process of
collection, non-interest bearing amounts due from correspondent banks, federal funds sold and securities purchased under resale
agreements with original maturities of three months or less, to be cash equivalents.
Investment Securities
The Company classifies debt and equity securities upon purchase in one of five categories: trading, held-to-maturity debt
securities, available-for-sale debt securities, equity securities with a readily determinable fair value or equity securities without
a readily determinable fair value. Debt and equity securities held for resale are classified as trading securities. Debt securities
for which the Company has the ability and positive intent to hold until maturity are classified as held-to-maturity. All other debt
securities are classified as available-for-sale as they may be sold prior to maturity in response to changes in the Company’s
interest rate risk profile, funding needs, demand for collateralized deposits by public entities or other reasons. Equity securities
are classified based upon whether a readily determinable fair value exists on such security. The fair value of an equity security
is readily determinable if it meets certain conditions, including whether sales prices or bid-ask quotes are currently available on
certain securities exchanges; traded only in a foreign market that is of a breadth and scope comparable to one of the U.S.
markets; or the security is an investment in a mutual fund or similar structure with a fair value per share or unit that is
determined and published, and is the basis for current transactions.
Held-to-maturity debt securities are stated at amortized cost, which represents actual cost adjusted for premium amortization
and discount accretion using methods that approximate the effective interest method. Available-for-sale debt securities are
stated at fair value, with unrealized gains and losses, net of related taxes, included in shareholders’ equity as a separate
component of other comprehensive income. Trading account securities and equity securities with a readily determinable fair
value are stated at fair value. Realized and unrealized gains and losses from sales and fair value adjustments are included in
other non-interest income. Equity securities without a readily determinable fair value are stated at either a calculated net asset
value per share, if available, or the cost of the security minus impairment, if any, plus or minus changes resulting from
observable price changes in orderly transactions for the identical or similar instrument of the same issuer.
Subsequent to classification at the time of purchase, the Company may transfer debt securities between trading, held-to-
maturity, or available-for-sale. For debt securities transferred to trading, the current unrealized gain or loss at the date of
transfer, net of related taxes, is immediately recognized in earnings. Debt securities transferred from trading to either held-to-
maturity or available-for-sale have already recognized any unrealized gain or loss into earnings and this amount is not reversed.
Unrealized gains or losses, net related taxes, for available-for-sale debt securities transferred to held-to-maturity remain as a
separate component of other comprehensive income and an offsetting discount is included in the amortized cost of the held-to-
maturity debt security. These amounts are amortized over the remaining life of the debt security in equal and offsetting
amounts. Unrealized gains or losses for held-to-maturity debt securities transferred to available-for-sale are recognized at the
transfer date as a separate component of other comprehensive income, net of related taxes.
Declines in the fair value of held-to-maturity and available-for-sale debt investment securities (with certain exceptions for debt
securities noted below) that are deemed to be credit losses are charged to the allowance for credit losses. In evaluating credit
impairment, management considers the extent to which the fair value has been less than cost, the financial condition and near-
term prospects of the issuer, and the intent and ability of the Company to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value in the near term. Declines in the fair value of debt securities below
amortized cost are deemed to be credit losses in circumstances where: (1) the Company has the intent to sell a security; (2) it is
more likely than not that the Company will be required to sell the debt security before recovery of its amortized cost basis; or
(3) the Company does not expect to recover the entire amortized cost basis of the debt security. If the Company intends to sell a
debt security or if it is more likely than not that the Company will be required to sell the debt security before recovery, a credit
impairment write-down is recognized in the allowance for credit losses equal to the difference between the debt security’s
amortized cost basis and its fair value. If an entity does not intend to sell the debt security or it is not more likely than not that it
will be required to sell the debt security before recovery, the credit impairment write-down is separated into an amount
representing credit loss, which is recognized in the allowance for credit losses, and an amount related to all other factors, which
is recognized in other comprehensive income.
Equity securities with readily determinable fair values are measured at fair value with changes recognized in net income. Equity
securities without readily determinable fair values are measured at cost minus impairment, if any, plus or minus changes
resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. Such
investments are included within accrued interest receivable and other assets within the Company's Consolidated Statements of
Condition.
109
Interest and dividends, including amortization of premiums and accretion of discounts, are recognized as interest income when
earned. Realized gains and losses on sales (using the specific identification method), unrealized gains and losses on equity
securities and declines in value judged to be other-than-temporary are included in non-interest income.
FHLB and FRB Stock
Investments in FHLB and FRB stock are restricted as to redemption and are carried at cost.
Securities Purchased Under Resale Agreements and Securities Sold Under Repurchase Agreements
Securities purchased under resale agreements and securities sold under repurchase agreements are generally treated as
collateralized financing transactions and are recorded at the amount at which the securities were acquired or sold plus accrued
interest. Securities, consisting of U.S. Treasury, U.S. Government agency and mortgage-backed securities, pledged as collateral
under these financing arrangements cannot be sold by the secured party. The fair value of collateral either received from or
provided to a third party is monitored and additional collateral is obtained or requested to be returned as deemed appropriate.
Brokerage Customer Receivables
The Company, under an agreement with an out-sourced securities clearing firm, extends credit to its brokerage customers to
finance their purchases of securities on margin. The Company receives income from interest charged on such extensions of
credit. Brokerage customer receivables represent amounts due on margin balances. Securities owned by customers are held as
collateral for these receivables.
Mortgage Loans Held-for-Sale
Mortgage loans are classified as held-for-sale when originated or acquired with the intent to sell the loan into the secondary
market. ASC 825, “Financial Instruments” provides entities with an option to report selected financial assets and liabilities at
fair value. Mortgage loans classified as held-for-sale are measured at fair value which is typically determined by reference to
investor prices for loan products with similar characteristics. Changes in fair value are recognized in mortgage banking revenue.
Market conditions or other developments may change management’s intent with respect to the disposition of these loans and
loans previously classified as mortgage loans held-for-sale may be reclassified to the loans held-for-investment portfolio, with
the balance transferred continuing to be carried at fair value.
Loans and Leases
Loans are generally reported at the principal amount outstanding, net of unearned income. Interest income is recognized when
earned. Loan origination fees and certain direct origination costs are deferred and amortized over the expected life of the loan as
an adjustment to the yield using methods that approximate the effective interest method. Finance charges on premium finance
receivables are earned over the term of the loan, using a method which approximates the effective yield method.
Leases classified as capital leases are included within lease loans for financial statement purposes. Capital leases are stated as
the sum of remaining minimum lease payments from lessees plus estimated residual values less unearned lease income.
Unearned lease income on capital leases is recognized over the term of the leases using the effective interest method.
Interest income is not accrued on loans where management has determined that the borrowers may be unable to meet
contractual principal or interest obligations, or where interest or principal is 90 days or more past due, unless the loans are
adequately secured and in the process of collection. Cash receipts on non-accrual loans are generally applied to the principal
balance until the remaining balance is considered collectible, at which time interest income may be recognized when received.
Allowance for Credit Losses
In accordance with ASC 326, “Financial Instruments – Credit Losses” (“ASC 326”), the Company measures the allowance for
credit losses at the time of origination or purchase of a financial asset, representing an estimate of lifetime expected credit losses
on the related asset. Financial assets include assets measured under the amortized cost basis, including loans, net investments in
leases recognized by a lessor, held-to-maturity debt securities and purchased credit deteriorated (“PCD”) assets at the time of
and subsequent to acquisition, and off-balance-sheet credit exposures considered unconditionally cancellable. In addition to
financial assets measured at amortized cost, credit losses related to available-for-sale debt securities are recorded through the
allowance for credit losses and not as a direct adjustment to the amortized cost of the securities.
110
The allowance for credit losses on financial assets held at amortized cost is measured on a collective or pooled basis when
similar risk characteristics exist. The Company utilizes modeling methodologies that estimate lifetime credit loss rates on each
pool, including methodologies estimating the probability of default and loss given default on specific segments. Credit quality
indicators, specifically the Company's internal risk rating systems, reflect how the Company monitors credit losses and
represent factors used by the Company when measuring the allowance for credit losses. Historical credit loss history is adjusted
for reasonable and supportable forecasts developed by the Company and incorporates third party economic forecasts on a
quantitative or qualitative basis. Reasonable and supportable forecasts consider the macroeconomic factors that are most
relevant to evaluating and predicting expected credit losses in the Company's financial assets. For periods beyond the ability to
develop reasonable and supportable forecasts, the Company reverts to historical loss rates. Qualitative factors assessed by
Management include the following:
•
•
•
•
•
•
•
•
•
Changes in the nature and volume of the institution’s financial assets;
Changes in the existence, growth, and effect of any concentrations of credit;
Changes in the volume and severity of past due financial assets, the volume of non-accrual assets, and the volume and
severity of adversely classified or graded assets;
Changes in the value of the underlying collateral for loans that are not collateral-dependent;
Changes in the institution’s lending policies and procedures, including changes in underwriting standards and practices
for collections, write-offs, and recoveries;
Changes in the quality of the institution’s credit review function;
Changes in the experience, ability, and depth of the institution’s lending, investment, collection, and other relevant
management and staff;
The effect of changes in other external factors such as the regulatory, legal and technological environments;
competition; and events such as natural disasters; and
Actual and expected changes in international, national, regional, and local economic and business conditions and
developments in which the institution operates that affect the collectability of financial assets.
Expected credit losses are measured over the contractual term of the financial asset with consideration of expected
prepayments. Expected extensions, renewals or modifications of the financial asset are considered when either 1) the expected
extension, renewal or modification is contained within the existing agreement and is not unconditionally cancellable, or 2) the
expected extension, renewal or modification is reasonably expected to result in a troubled debt restructuring (“TDR”).
Financial assets that do not share similar risk characteristics with any pool are assessed for the allowance for credit losses on an
individual basis. These typically include assets experiencing financial difficulties, including substandard non-accrual assets and
assets currently classified or expected to be classified as TDRs. If an individual asset is removed from a pool, the allowance for
credit losses for such pool will be measured without considering the removed asset. If foreclosure is probable or the asset is
considered collateral-dependent, expected credit losses are measured based upon the fair value of the underlying collateral
adjusted for selling costs, if appropriate. For certain accruing current and expected TDRs, expected credit losses are measured
based upon the present value of future cash flows of the modified asset terms compared to the amortized cost of the asset.
For purchased financial assets that have experienced more-than-insignificant deterioration in credit quality since origination
(“PCD assets”), the Company recognizes the sum of the purchase price and estimate of the allowance for credit losses as of the
date of acquisition as the initial amortized cost basis. If the estimated allowance for credit losses is recognized under a
methodology that is not a discounted cash flow methodology, such allowance for credit losses will be estimated based upon the
unpaid principal balance of the financial asset.
The Company does not measure an allowance for credit losses on accrued interest receivable balances if these balances are
written off in a timely manner. Write-offs of accrued interest receivable balances are recorded as a reduction to interest income.
Recoveries of financial assets previously written off are recognized when received and recorded as a component of the
allowance for credit losses. When measuring the allowance for credit losses, the Company incorporates an estimate of expected
recoveries provided the estimate is reasonable and supportable. Write-offs of financial assets are charged-off or deducted from
the allowance for credit losses and recorded in the period when the Company concludes that all or a portion of a financial asset
is no longer collectible. A provision for credit losses is charged to income based on Management’s periodic evaluation of the
factors previously described. Evaluations are conducted at least quarterly and more frequently if deemed necessary.
111
Mortgage Servicing Rights ("MSRs")
MSRs are recorded in the Consolidated Statements of Condition at fair value in accordance with ASC 860, “Transfers and
Servicing.” The Company originates mortgage loans for sale to the secondary market. Certain loans are originated and sold with
servicing rights retained. MSRs associated with loans originated and sold, where servicing is retained, are capitalized at the time
of sale at fair value based on the future net cash flows expected to be realized for performing the servicing activities, and
included in other assets in the Consolidated Statements of Condition. The change in the fair value of MSRs is recorded as a
component of mortgage banking revenue in non-interest income in the Consolidated Statements of Income. The Company
measures the fair value of MSRs by stratifying the servicing rights into pools based on homogeneous characteristics, such as
product type and interest rate. The fair value of each servicing rights pool is calculated based on the present value of estimated
future cash flows using a discount rate commensurate with the risk associated with that pool, given current market conditions.
Estimates of fair value include assumptions about prepayment speeds, interest rates and other factors which are subject to
change over time. Changes in these underlying assumptions could cause the fair value of MSRs to change significantly in the
future.
Lease Investments
The Company’s investments in equipment and other assets held on operating leases are reported as lease investments, net.
Rental income on operating leases is recognized as income over the lease term on a straight-line basis. Equipment and other
assets held on operating leases is stated at cost less accumulated depreciation. Depreciation of the cost of the assets held on
operating leases, less any residual value, is computed using the straight-line method over the term of the leases, which is
generally seven years or less.
Premises and Equipment
Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets.
Useful lives generally range from two to 15 years for furniture, fixtures and equipment, two to seven years for software and
computer-related equipment and seven to 39 years for buildings and improvements. Land improvements are amortized over a
period of 15 years and leasehold improvements are amortized over the shorter of the useful life of the improvement or the term
of the respective lease including any lease renewals deemed to be reasonably assured. Land, antique furnishings and artwork are
not subject to depreciation. Expenditures for major additions and improvements are capitalized, and maintenance and repairs
are charged to expense as incurred. Eligible costs related to the configuration, coding, testing and installation of internal use
software and qualifying cloud computing arrangements are capitalized.
Long-lived depreciable assets are evaluated periodically for impairment when events or changes in circumstances indicate the
carrying amount may not be recoverable. Impairment exists when the expected undiscounted future cash flows of a long-lived
asset are less than its carrying value. In that event, a loss is recognized for the difference between the carrying value and the
estimated fair value of the asset based on a quoted market price, if applicable, or a discounted cash flow analysis. Impairment
losses are recognized in other non-interest expense.
Other Real Estate Owned
Other real estate owned is comprised of real estate acquired in partial or full satisfaction of loans and is included in other assets
in the Consolidated Statements of Condition. Other real estate owned is recorded at its estimated fair value less estimated
selling costs at the date of transfer. Any excess of the related loan balance over the fair value less expected selling costs is
charged to the allowance for credit losses. In contrast, any excess of the fair value less expected selling costs over the related
loan balance is recorded as a recovery of prior charge-offs on the loan and, if any portion of the excess exceeds prior charge-
offs, as an increase to earnings. Subsequent changes in value are reported as adjustments to the carrying amount and are
recorded in other non-interest expense. Gains and losses upon sale, if any, are also charged to other non-interest expense. At
December 31, 2020 and 2019, other real estate owned, excluding covered other real estate owned, totaled $16.6 million and
$15.2 million, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of net assets acquired. Other intangible assets
represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or
other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related
contract, asset or liability. In accordance with accounting standards, goodwill is not amortized, but rather is tested for
112
impairment on an annual basis or more frequently when events warrant, using a qualitative or quantitative approach. Intangible
assets which have finite lives are amortized over their estimated useful lives and also are subject to impairment testing.
Intangible assets which have indefinite lives are evaluated each reporting date to determine whether events and circumstances
continue to support an indefinite useful life. If an indefinite useful life can no longer be supported for such asset, the intangible
asset will be amortized prospectively over the remaining estimated useful life. If an indefinite useful life can be supported, the
asset is not amortized, but rather is tested for impairment on an annual basis or more frequently when events warrant, using a
qualitative or quantitative approach. The Company’s intangible assets having finite lives are amortized over varying periods not
exceeding twenty years.
Bank-Owned Life Insurance ("BOLI")
The Company maintains BOLI on certain executives. BOLI balances are recorded at their cash surrender values and are
included in other assets in the Consolidated Statements of Condition. Changes in the cash surrender values are included in non-
interest income. At December 31, 2020 and 2019, BOLI totaled $154.6 million and $187.5 million, respectively.
Derivative Instruments
The Company enters into derivative transactions principally to protect against the risk of adverse price or interest rate
movements on the future cash flows or the value of certain assets and liabilities. The Company is also required to recognize
certain contracts and commitments, including certain commitments to fund mortgage loans held-for-sale, as derivatives when
the characteristics of those contracts and commitments meet the definition of a derivative. The Company accounts for
derivatives in accordance with ASC 815, “Derivatives and Hedging,” which requires that all derivative instruments be recorded
in the Consolidated Statements of Condition at fair value. The accounting for changes in the fair value of a derivative
instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of
hedging relationship.
Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset or
liability attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments
designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges. Formal documentation of the relationship between a derivative instrument and a
hedged asset or liability, as well as the risk-management objective and strategy for undertaking each hedge transaction and an
assessment of effectiveness, is required at inception to apply hedge accounting. In addition, formal documentation of ongoing
effectiveness testing is required to maintain hedge accounting.
Fair value hedges are accounted for by recording the changes in the fair value of the derivative instrument and the changes in
the fair value related to the risk being hedged of the hedged asset or liability on the statement of condition with corresponding
offsets recorded in the income statement. The adjustment to the hedged asset or liability is included in the basis of the hedged
item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and
related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments
to the interest income or expense recorded on the hedged asset or liability.
Cash flow hedges are accounted for by recording the changes in the fair value of the derivative instrument on the statement of
condition as either a freestanding asset or liability, with a corresponding offset recorded in other comprehensive income within
shareholders’ equity, net of deferred taxes. Amounts are reclassified from accumulated other comprehensive income to interest
expense in the period or periods the hedged forecasted transaction affects earnings.
Under both the fair value and cash flow hedge scenarios, changes in the fair value of derivatives not considered to be highly
effective in hedging the change in fair value or the expected cash flows of the hedged item are recognized in earnings as non-
interest income during the period of the change.
Derivative instruments that are not designated as hedges according to accounting guidance are reported on the statement of
condition at fair value and the changes in fair value are recognized in earnings as non-interest income during the period of the
change.
Commitments to fund mortgage loans (i.e. interest rate locks) to be sold into the secondary market and forward commitments
for the future delivery of these mortgage loans are accounted for as derivatives and are not designated in hedging relationships.
Fair values of these mortgage derivatives are estimated primarily based on changes in mortgage rates from the date of the
commitments. Changes in the fair values of these derivatives are included in mortgage banking revenue.
113
Forward currency contracts used to manage foreign exchange risk associated with certain assets are accounted for as derivatives
and are not designated in hedging relationships. Foreign currency derivatives are recorded at fair value based on prevailing
currency exchange rates at the measurement date. Changes in the fair values of these derivatives resulting from fluctuations in
currency rates are recognized in earnings as non-interest income during the period of change.
Periodically, the Company sells options to an unrelated bank or dealer for the right to purchase certain securities held within its
investment portfolios (“covered call options”). These option transactions are designed primarily as an economic hedge to
compensate for net interest margin compression by increasing the total return associated with holding the related securities as
earning assets by using fee income generated from these options. These transactions are not designated in hedging relationships
pursuant to accounting guidance and, accordingly, changes in fair values of these contracts, are reported in other non-interest
income.
The Company periodically purchases options for the right to purchase securities not currently held within its investment
portfolios or enters into interest rate swaps in which the Company elects to not designate such derivatives as hedging
instruments. These option and swap transactions are designed primarily to economically hedge a portion of the fair value
adjustments related to the Company’s mortgage servicing rights portfolio. The gain or loss associated with these derivative
contracts are included in mortgage banking revenue.
Trust Assets, Assets Under Management and Brokerage Assets
Assets held in fiduciary or agency capacity for customers are not included in the consolidated financial statements as they are
not assets of Wintrust or its subsidiaries. Fee income is recognized on an accrual basis and is included as a component of non-
interest income.
Income Taxes
Wintrust and its subsidiaries file a consolidated Federal income tax return. Income tax expense is based upon income in the
consolidated financial statements rather than amounts reported on the income tax return. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
currently enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as an income tax
benefit or income tax expense in the period that includes the enactment date.
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. In
accordance with applicable accounting guidance, uncertain tax positions are initially recognized in the financial statements
when it is more likely than not the positions will be sustained upon examination by the tax authorities. Such tax positions are
both initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized
upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Interest and penalties on
income tax uncertainties are classified within income tax expense in the income statement.
Stock-Based Compensation Plans
In accordance with ASC 718, “Compensation — Stock Compensation,” compensation cost is measured as the fair value of the
awards on their date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options and the market price
of the Company’s stock at the date of grant is used to estimate the fair value of restricted stock awards. Compensation cost is
recognized over the required service period, generally defined as the vesting period. For awards with graded vesting,
compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.
Accounting guidance permits for the recognition of stock based compensation for the number of awards that are ultimately
expected to vest. As a result, recognized compensation expense for stock options and restricted share awards is reduced for
estimated forfeitures prior to vesting. Forfeitures rates are estimated for each type of award based on historical forfeiture
experience. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and
circumstances.
The Company issues new shares to satisfy option exercises and vesting of restricted shares.
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Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes
unrealized gains and losses on available-for-sale debt securities, net of deferred taxes, changes in deferred gains and losses on
investment securities transferred from available-for-sale debt securities to held-to-maturity debt securities, net of deferred taxes,
adjustments related to cash flow hedges, net of deferred taxes, and foreign currency translation adjustments, net of deferred
taxes. The Company has a policy for releasing the income tax effects from accumulated other comprehensive income using an
individual security approach.
Stock Repurchases
The Company periodically repurchases shares of its outstanding common stock through open market purchases or other
methods. Repurchased shares are recorded as treasury shares on the trade date using the treasury stock method, and the cash
paid is recorded as treasury stock.
Foreign Currency Translation
The Company revalues assets, liabilities, revenue and expense denominated in non-U.S. currencies into U.S. dollars at the end
of each month using applicable exchange rates.
Gains and losses relating to translating functional currency financial statements for U.S. reporting are included in other
comprehensive income. Gains and losses relating to the re-measurement of transactions to the functional currency are reported
in the Consolidated Statements of Income.
Going Concern
In connection with preparing financial statements for each reporting period, the Company evaluates whether conditions or
events, considered in the aggregate, exist that would raise substantial doubt about the Company's ability to continue as a going
concern within one year after the date the financial statements are issued. If substantial doubt exists, specific disclosures are
required to be included in the Company's financial statements issued. Through its evaluation, the Company did not identify any
conditions or events that would raise substantial doubt about the Company's ability to continue as a going concern within one
year of the issuance of these consolidated financial statements.
Accounting Pronouncements Newly Adopted
Allowance for Credit Losses
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments,” to replace the incurred loss methodology for
recognizing credit losses, which delays recognition until it is probable a loss has been incurred, with a methodology that reflects
an estimate of all expected credit losses and considers additional reasonable and supportable forecasted information when
determining lifetime credit loss estimates. This impacts the calculation of an allowance for credit losses for all financial assets
measured under the amortized cost basis, including held-to-maturity debt securities and purchased credit deteriorated (“PCD”)
assets at the time of and subsequent to acquisition. Additionally, credit losses related to available-for-sale debt securities would
be recorded through the allowance for credit losses and not as a direct adjustment to the amortized cost of the securities.
The FASB continued to issue various updates to clarify and improve specific areas of ASU No. 2016-13. In November 2018,
the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses,” to clarify
the implementation guidance within ASU No. 2016-13 surrounding narrow aspects of Topic 326, including the impact of the
guidance on operating lease receivables. In May 2019, FASB issued ASU No. 2019-05, “Financial Instruments - Credit Losses
(Topic 326): Targeted Transition Relief," allowing for the irrevocable election of the fair value option for certain financial
assets, on an instrument-by-instrument basis, within the scope previously measured at amortized cost basis. In November 2019,
the FASB issued ASU No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” to
clarify and improve implementation guidance on certain aspects of Topic 326, including expected recoveries on purchased
financial assets with credit deterioration, financial assets secured by collateral maintenance provisions, adjustment of the
effective interest rate for troubled debt restructurings for prepayment assumptions existing at the time of adoption of Topic 326,
and disclosure relief for accrued interest receivable balances. In February 2020, the FASB issued ASU No. 2020-02, “Financial
Instruments - Credit Losses (Topic 326) and Leases (Topic 842), Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.
2016-02, Leases (Topic 842),” which adds and amends SEC Staff Guidance paragraphs within these Topics in the Codification
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to reflect the issuance of SEC Staff Accounting Bulletin (“SAB”) No. 119, which includes the SEC’s general statement on
measuring current expected credit losses, and information on developing, reporting, and validating a systematic methodology.
In May 2020, federal and state banking regulators issued the final “Interagency Policy Statement on Allowance for Credit
Losses." The policy statement was issued to maintain conformance with GAAP and FASB Accounting Standards Codification
("ASC") Topic 326 and does not prescribe how estimation methods are used, nor how key assumptions are determined. The
final guidance describes the measurement of expected credit losses, including the design, documentation, and validation of
expected credit loss estimation processes, internal controls over these processes, and the responsibilities of boards of directors
and management, in addition to examiner reviews of the allowance for credit losses. The final Policy Statement replaces the
previously existing policy statements related to the allowance for loan and lease losses under the prior incurred loss
methodology and was effective upon adoption of ASC Topic 326.
The Company adopted ASU No. 2016-13 and all subsequent updates issued to clarify and improve specific areas of this ASU as
of January 1, 2020. Guidance was adopted under a modified retrospective approach and, at January 1, 2020, the Company
recognized a cumulative-effect adjustment to the allowance for credit losses of $47.4 million representing current expected
credit losses on financial instruments. Of this amount, $33.2 million was recorded to the allowance for unfunded commitment
losses within accrued interest and other liabilities and $74,000 was recorded to the allowance for held-to-maturity securities
losses presented as a reduction to the carrying balance of held-to-maturity debt securities, both on the Company's Consolidated
Statements of Condition, with an offsetting amount recorded directly to retained earnings, net of taxes. The remaining
$14.2 million cumulative effect adjustment was recorded to the allowance for loan losses, presented separately on the
Company's Consolidated Statements of Condition. Of the amount recorded to the allowance for loan losses, $11.0 million
related to PCD loans with such offsetting amount added directly to the carrying balance of the loans and the remaining
$3.2 million not related to PCD loans recorded directly to retained earnings, net of taxes, on the Company's Consolidated
Statements of Condition.
Further, as noted above, certain accounting policy elections are available under the new rules. The Company utilized the
following approach to such elections:
•
•
•
•
The Company elected to not measure an allowance for credit losses on accrued interest as such accrued interest is
written off in a timely manner when deemed uncollectible. Any such write-off of accrued interest will reverse
previously recognized interest income.
The Company elected to not include accrued interest within presentation and disclosures of the carrying amount of
financial assets held at amortized cost. This election is applicable to the various disclosures included within the
Company's financial statements. Accrued interest related to financial assets held at amortized cost is included within
accrued interest receivable and other assets within the Company's Consolidated Statements of Condition and totaled
$121.9 million at December 31, 2020.
The Company elected to estimate expected credit losses by measuring the face amount or unpaid principal balance
component of the amortized cost basis of a financial asset separately from other components such as premiums,
discount and deferred fees and costs.
The Company elected to not maintain current accounting policies for existing purchase credit impaired ("PCI")
financial assets. Upon adoption, such assets were considered PCD assets and measured accordingly under the new
rules.
See Note 5 - Allowance for Credit Losses for further information on the Company’s current expected credit losses
methodology.
Legislation and Regulations Issued as a Result of the COVID-19 Pandemic
On March 27, 2020, the President of the United States signed the CARES Act, which provides entities with optional temporary
relief from certain accounting and financial reporting requirements under U.S. GAAP.
Section 4013 of the CARES Act allows financial institutions to suspend application of certain current TDR accounting
guidance under ASC 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the
earlier of December 31, 2020 or 60 days after the end of the COVID-19 national emergency, provided certain criteria are met.
This relief can be applied to loan modifications for borrowers that were not more than 30 days past due as of December 31,
2019 and to loan modifications that defer or delay the payment of principal or interest, or change the interest rate on the loan.
The Company chose to apply this relief to eligible loan modifications.
In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for
Financial Institutions Working with Customers Affected by the Coronavirus to provide separate relief, specifically indicating
that if a modification is either short-term (e.g., six months) or mandated by a federal or state government in response to the
COVID-19 pandemic, the borrower is not considered to be experiencing financial difficulty and thus does not represent a TDR
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under ASC 310-40. Additionally, in August 2020, regulators issued the Joint Statement on Additional Loan Accommodations
Related to COVID-19 Event to provide prudent risk management and consumer protection principles for financial institutions
to consider while working with borrowers as loans near the end of initial loan accommodation periods applicable during the
COVID-19 pandemic. The Company continues to prudently work with borrowers negatively impacted by the COVID-19
pandemic while managing credit risks and recognizing appropriate allowance for credit losses on its loan portfolio.
The CARES Act also provided financial institutions with the option to defer adoption of ASU No. 2016-13 until the earlier of
the date the COVID-19 national emergency comes to an end or December 31, 2020. The Company did not elect to defer
adoption and elected to adopt ASU No. 2016-13 and all subsequent updates issued to clarify and improve specific areas of this
ASU as of January 1, 2020.
The business tax provisions of the CARES Act include temporary changes to income and non-income based tax laws, including
immediate recovery of qualified improvement property costs and acceleration of Alternative Minimum Tax ("AMT") credits.
These provisions are not expected to have a material impact on the Company's deferred taxes.
On December 27, 2020, the Consolidated Appropriations Act, 2021 (the "CAA"), which combines stimulus relief for the
COVID-19 pandemic with an omnibus spending bill for the 2021 fiscal year, was signed by the President of the United States.
The CAA included extension of TDR accounting relief provided under the CARES Act to January 1, 2022. The extension did
not impact loan modifications made prior to December 31, 2020, however, it was considered in the identification of expected
TDRs as of December 31, 2020.
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides temporary optional
relief for contracts modified as a result of reference rate reform meeting certain modification criteria, generally allowing an
entity to account for contract modifications occurring due to reference rate reform as an event that does not require contract
remeasurement or reassessment of a previous accounting determination at the modification date. The guidance also includes
temporary optional expedients intended to provide relief from various hedge effectiveness requirements for hedging
relationships affected by reference rate reform, provided certain criteria are met, and allows a one-time election to sell or
transfer to either available-for-sale or trading any held-to-maturity ("HTM") debt securities that refer to an interest rate affected
by reference rate reform and were classified as HTM prior to January 1, 2020. Additionally, in January 2021, the FASB issued
ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which provided additional clarification that certain optional
expedients and exceptions noted above apply to derivative instruments that use an interest rate for margining, discounting or
contract price alignment that is modified as a result of reference rate reform. This guidance was effective upon issuance and can
be applied prospectively, with certain exceptions, through December 31, 2022.
In November 2020, federal and state banking regulators issued the “Interagency Policy Statement on Reference Rates for
Loans" to reiterate that a specific replacement rate for loans impacted by reference rate reform has not been endorsed and
entities may utilize any replacement reference rate determined to be appropriate based on its funding model and customer
needs. As discussed in the “Interagency Policy Statement on Reference Rates for Loans," fallback language should be included
in lending contracts to provide for use of a robust fallback rate if the initial reference rate is discontinued. Additionally, federal
banking regulators issued the "Interagency Statement on LIBOR Transition" acknowledging that the administrator of LIBOR
has announced it will consult on its intention to cease the publication of the one week and two month USD LIBOR settings
immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately
following the LIBOR publication on June 30, 2023. As discussed in the "Interagency Statement on LIBOR Transition,"
regulators encouraged banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable
and in any event by December 31, 2021, in order to facilitate an orderly, safe and sound LIBOR transition. The Company
continues to monitor efforts and evaluate the impact of reference rate reform on its consolidated financial statements, including
developing processes for assessing accounting impact.
Goodwill
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment,” to simplify the subsequent measurement of goodwill. When the carrying amount of a reporting unit
exceeds its fair value, an entity is no longer required to determine goodwill impairment by assigning the fair value of a
reporting unit to all of its assets and liabilities as if that reporting unit was acquired in a business combination. Goodwill
impairment is recognized according to the excess of the carrying amount of the reporting unit over the calculated fair value of
such unit. The Company adopted ASU No. 2017-04 as of January 1, 2020 under a prospective approach. Adoption of this
standard did not have a material impact on the Company's consolidated financial statements.
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Fair Value Measurement
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes
to the Disclosure Requirement for Fair Value Measurement,” to modify disclosure requirements on fair value measurements
and inputs. The Company adopted ASU No. 2018-13 as of January 1, 2020 and this guidance has been applied prospectively or
retrospectively depending upon the disclosure requirement and did not have a material impact on the Company's consolidated
financial statements or disclosures.
Intangibles
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic
350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service
Contract,” to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service
contract with similar requirements related to implementation costs incurred to develop or obtain internal-use software. In
addition, the amendment requires any capitalized implementation costs related to a hosting arrangement to be expensed over the
term of the hosting arrangement. The Company adopted ASU No. 2018-15 as of January 1, 2020 and this guidance has been
applied prospectively to cloud computing implementation costs incurred after the date of adoption. Adoption of this standard
did not have a material impact on the Company's consolidated financial statements.
Codification Improvements
In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments,” to clarify and
improve various aspects of financial instruments guidance, including amending ASC 326, Financial Instruments-Credit Losses,
to align the contractual term used to measure expected credit losses for a lease to be consistent with the lease term determined
under ASC 842, Leases, and amending ASC 860, Transfers and Servicing, to clarify that, when an entity regains control of
financial assets previously sold, an allowance for credit losses should be recognized in accordance with ASC 326. The guidance
also amends ASC 820, Fair Value Measurement, to clarify the applicability of the portfolio exception to non-financial items
accounted for as derivatives, and amends ASC 942, Financial Services, to clarify the applicability of certain disclosure
requirements in ASC 320, Investments-Debt Securities, to depository and lending institutions. Amendments to clarify
Codification sections relevant to the accounting for certain fees and costs related to exchanges or modifications of debt
instruments within ASC 470, Debt, is also provided. As the Company has already adopted the standards amended by this ASU,
this guidance was effective upon issuance. Amendments to ASC 326 were applied under a modified retrospective approach
through a cumulative-effect adjustment recognized by the Company directly to retained earnings on the Company's
Consolidated Statements of Condition. Adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments." The FASB has continued to issue various
updates to clarify and improve specific areas of ASU No. 2016-01, ASU No. 2016-13, and ASU No. 2017-12. The Company
adopted ASU No. 2019-04 as of January 1, 2020. Amendments related to Topic 815 were adopted under a retrospective
approach, while amendments related to ASC 825 were adopted under a modified retrospective approach. Amendments related
to Topic 326 were adopted consistent with ASU No. 2016-13. Adoption of ASU No. 2019-04 did not have a material impact on
the Company's consolidated financial statements.
(2) Recent Accounting Pronouncements
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes," to simplify the accounting for income taxes by removing certain exceptions to the general principles of ASC 740,
"Income Taxes". The guidance also improves consistent application by clarifying and amending existing guidance from ASC
740. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein and is to
be applied on a retrospective, modified retrospective or prospective approach, depending on the specific amendment. Early
adoption is permitted. The Company does not expect this guidance to have a material impact on the consolidated financial
statements.
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Investment Securities
In January 2020, the FASB issued ASU No. 2020-01, “Clarifying the Interactions Between Investments-Equity Securities (ASC
Topic 321), Investments-Equity Method and Joint Ventures (ASC Topic 323), and Derivatives and Hedging (ASC Topic 815),”
which amends ASC 323, Investments-Equity Method & Joint Ventures to clarify that an entity should consider observable
transactions that require it to either apply or discontinue using the equity method of accounting for purposes of applying the
measurement alternative in accordance with ASC 321, Investments-Equity Securities, immediately before applying or
discontinuing the equity method under ASC 323.
The guidance also amends ASC 815, Derivatives & Hedging, to clarify that, when determining the accounting for certain non-
derivative forward contracts and purchased options, an entity should not consider how to account for the resulting investments
upon eventual settlement or exercise, and that an entity should evaluate the remaining characteristics in accordance with ASC
815 to determine the accounting for those forward contracts and purchased options.
This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and is to be
applied under a prospective approach. Early adoption is permitted. The Company does not expect this guidance to have a
material impact on the Company’s consolidated financial statements.
Debt
In August 2020, the FASB issued ASU No. 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity’s Own Equity,” which includes provisions for reducing the number of accounting models used in
accounting for convertible debt instruments and convertible preferred stock, amending derivatives and earnings-per-share (EPS)
guidance and expanding disclosures for convertible debt instruments and EPS. This guidance is effective for fiscal years
beginning after December 15, 2021, including interim periods therein, and is to be applied under either a full or modified
retrospective approach. Early adoption is permitted.
In October 2020, the FASB issued ASU No. 2020-09, “Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC
Release No. 33-10762," which provides amendments to the SEC Materials and Disclosure sections within ASC Topics 270,
Interim Reporting, 460, Guarantees, 470, Debt, and 505, Equity, impacted by the Financial Disclosures about Guarantors and
Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities SEC ruling. This
guidance is effective on January 4, 2021, consistent with SEC Release No. 33-10762, and is to be applied prospectively. Early
voluntary compliance is permitted.
The Company does not expect the guidance issued in ASU No. 2020-06 and ASU No. 2020-09 to have a material impact on the
Company’s consolidated financial statements.
Codification Improvements
In October 2020, the FASB issued ASU No. 2020-08, “Codification Improvements to Subtopic 310-20, Receivables —
Nonrefundable Fees and Other Costs,” clarifying that, for each reporting period, an entity should reevaluate whether a callable
debt security with multiple call dates is within the scope of ASC 310-20, which was amended to require amortization of any
premium to the next call date. The next call date is defined as the first date when a call option at a specified price becomes
exercisable. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein,
and is to be applied under a prospective approach. The Company does not expect this guidance to have a material impact on the
Company’s consolidated financial statements.
Additionally, the FASB issued ASU No. 2020-10, “Codification Improvements,” in October 2020 to improve the consistency of
the Codification by adding or moving disclosure-specific guidance contained in the Other Presentation Matters section to the
appropriate Disclosure Section for various Topics. This guidance is effective for fiscal years beginning after December 15,
2020 and is to be applied under a retrospective approach. The Company does not expect this guidance to have a material impact
on the Company’s consolidated financial statements.
SEC Amendments to Financial Disclosures about Acquired and Disposed Businesses
In May 2020, the SEC issued a final rule on “Amendments to Financial Disclosures about Acquired and Disposed Businesses,”
which provides for specific disclosure changes, including revising the investment and income significance tests, conforming the
significance threshold and tests for a disposed business to those used for an acquired business, permitting abbreviated financial
statements for certain acquisitions of a component of an entity, and reducing the maximum number of years for which financial
statements are required for acquired businesses from three years to two years, among other amendments. This guidance is
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effective on January 1, 2021 and early compliance is permitted. The Company does not expect this guidance to have a material
impact on the Company’s consolidated financial statements.
SEC Update of Statistical Disclosures for Bank and Savings and Loan Registrants
In September 2020, the SEC issued a final rule on the “Update of Statistical Disclosures for Bank and Savings and Loan
Registrants,” which adopts rules to update statistical disclosure requirements for banking registrants. The amendments update
and expand the disclosures that registrants are required to provide, codify certain Industry Guide 3 disclosure items and
eliminate other Guide 3 disclosures that overlap with SEC rules, GAAP or IFRS standards. In addition, Guide 3 is being
rescinded and replaced with a new subpart of Regulation S-K. The SEC ruling is applicable to fiscal years beginning after
December 15, 2021 and early compliance is permitted. The Company does not expect this guidance to have a material impact
on the Company’s consolidated financial statements.
(3) Investment Securities
A summary of the available-for-sale and held-to-maturity securities portfolios presenting carrying amounts and gross unrealized
gains and losses as of December 31, 2020 and 2019 is as follows:
(Dollars in thousands)
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Municipal
Corporate notes:
Financial issuers
Other
Mortgage-backed: (1)
Mortgage-backed securities
Collateralized mortgage
obligations
Total available-for-sale securities
Held-to-maturity securities
U.S. Government agencies
Municipal
Mortgage-backed securities
Total held-to-maturity securities
Less: Allowance for credit
losses(2)
Held-to-maturity securities, net
of allowance for credit losses
Equity securities with readily
determinable fair value
December 31, 2020
Gross
Gross
unrealized
unrealized
losses
gains
Amortized
Cost
Fair Value
Amortized
Cost
December 31, 2019
Gross
Gross
unrealized
unrealized
losses
gains
Fair Value
$ 304,956 $
15 $
— $ 304,971 $ 120,275 $
813 $
— $ 121,088
80,074
141,244
4,439
5,707
—
(41)
84,513
365,639
146,910
141,701
3,557
3,785
(3,754)
365,442
(168)
145,318
91,786
1,000
1,363
(2,764)
20
—
90,385
1,020
97,051
1,000
761
31
(4,002)
—
93,810
1,031
2,330,332
86,721
(15)
2,417,038
2,328,383
21,240
(3,013)
2,346,610
10,689
313
—
11,002
32,775
280
(140)
32,915
$ 2,960,081 $ 98,578 $ (2,820) $ 3,055,839 $ 3,086,824 $ 30,467 $ (11,077) $ 3,106,214
$ 177,959 $ 2,552 $
— $ 180,511 $ 902,974 $ 2,159 $ (5,460) $ 899,673
200,707
12,232
(214)
212,725
231,426
7,536
(239)
238,723
200,531
—
—
200,531
—
—
—
—
$ 579,197 $ 14,784 $
(214) $ 593,767 $ 1,134,400 $ 9,695 $ (5,699) $ 1,138,396
(59)
$ 579,138
$
87,618 $ 3,674 $
(430) $
90,862 $ 48,044 $ 3,511 $
(715) $
50,840
(1) Consisting entirely of residential mortgage-backed securities, none of which are subprime.
(2) As of January 1, 2020, the Company adopted ASU 2016-13 related to credit losses on financial assets held at amortized
cost. As a result of such adoption, the Company measured an allowance for credit losses related to lifetime expected
credit losses on held-to-maturity investment securities.
Equity securities without readily determinable fair values totaled $31.2 million as of December 31, 2020. Equity securities
without readily determinable fair values are included as part of accrued interest receivable and other assets in the Company's
Consolidated Statements of Condition. The Company monitors its equity investments without readily determinable fair values
to identify potential transactions that may indicate an observable price change in orderly transactions for the identical or a
similar investment of the same issuer, requiring adjustment to its carrying amount. The Company recorded $401,000 of upward
adjustments and no downward adjustments on such securities in 2020. The Company conducts a quarterly assessment of its
equity securities without readily determinable fair values to determine whether impairment exists in such equity securities,
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considering, among other factors, the nature of the securities, financial condition of the issuer and expected future cash flows.
During the year ended December 31, 2020, the Company recorded $3.0 million of impairment of equity securities without
readily determinable fair values.
The following tables present the portion of the Company’s available-for-sale debt securities portfolios which had gross
unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at
December 31, 2020 and 2019, respectively:
As of December 31, 2020
(Dollars in thousands)
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Municipal
Corporate notes:
Financial issuers
Other
Mortgage-backed:
Continuous unrealized
losses existing for less
than 12 months
Continuous unrealized
losses existing for
greater than 12 months
Total
Fair value
Unrealized
losses
Fair value
Unrealized
losses
Fair value
Unrealized
losses
$
— $
—
17,997
— $
—
(38)
— $
—
112
— $
—
(3)
— $
—
18,109
—
—
(41)
—
—
—
—
72,058
—
(2,764)
—
72,058
—
(2,764)
—
Mortgage-backed securities
Collateralized mortgage obligations
Total available-for-sale securities
$
972
—
18,969 $
(14)
—
(52) $
62
—
72,232 $
(1)
—
(2,768) $
1,034
—
91,201 $
(15)
—
(2,820)
As of December 31, 2019
(Dollars in thousands)
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Municipal
Corporate notes:
Financial issuers
Other
Mortgage-backed:
Continuous unrealized
losses existing for less
than 12 months
Continuous unrealized
losses existing for
greater than 12 months
Total
Fair value
Unrealized
losses
Fair value
Unrealized
losses
Fair value
Unrealized
losses
$
— $
193,533
28,246
— $
(3,754)
(165)
— $
—
52
— $
—
(3)
— $
193,533
28,298
67,838
—
(3,760)
—
2,758
—
(242)
—
70,596
—
—
(3,754)
(168)
(4,002)
—
Mortgage-backed securities
Collateralized mortgage obligations
Total available-for-sale securities
751,053
9,419
$ 1,050,089 $
(3,013)
(132)
(10,824) $
—
1,305
4,115 $
—
(8)
751,053
10,724
(253) $ 1,054,204 $
(3,013)
(140)
(11,077)
The Company conducts a regular assessment of its investment securities to determine whether securities are experiencing credit
losses. Factors for consideration include the nature of the securities, credit ratings or financial condition of the issuer, the extent
of the unrealized loss, expected cash flows, market conditions and the Company’s ability to hold the securities through the
anticipated recovery period.
The Company does not consider available-for-sale securities with unrealized losses at December 31, 2020 to be experiencing
credit losses and recognized no resulting allowance for credit losses for such individually assessed credit losses. The Company
does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these
investments before recovery of the amortized cost bases, which may be the maturity dates of the securities. The unrealized
losses within each category have occurred as a result of changes in interest rates, market spreads and market conditions
subsequent to purchase. Available-for-sale securities with continuous unrealized losses existing for more than twelve months
were primarily corporate notes.
121
See Note 5—Allowance for Credit Losses for further discussion regarding any credit losses associated with held-to-maturity
securities at December 31, 2020.
The following table provides information as to the amount of gross gains and gross losses realized and proceeds received
through the sales and calls of investment securities:
(Dollars in thousands)
Realized gains on investment securities
Realized losses on investment securities
Net realized gains on investment securities
Unrealized gains on equity securities with readily determinable fair value
Unrealized losses on equity securities with readily determinable fair value
Net unrealized gains (losses) on equity securities with readily
determinable fair value
Upward adjustments of equity securities without readily determinable fair
values
Downward adjustments of equity securities without readily determinable
fair values
Impairment of equity securities without readily determinable fair values
Adjustment and impairment, net, of equity securities without readily
determinable fair values
Other than temporary impairment charges(1)
(Losses) gains on investment securities, net
Proceeds from sales of available-for-sale securities(2)
Proceeds from sales of equity securities with readily determinable fair
value
Proceeds from sales and capital distributions of equity securities without
readily determinable fair value
$
$
$
Years Ended December 31,
2019
2018
2020
751 $
(530)
221
4,265
(3,818)
931 $
(32)
899
3,057
(568)
1,144
(1,111)
33
2,771
(4,910)
447
401
2,489
(2,139)
505
325
—
(2,995)
(2,594)
—
(1,926) $
(106)
(262)
137
—
3,525 $
—
(1,117)
(792)
—
(2,898)
502,250 $
972,253 $
214,196
6,530
1,857
19,200
1,764
1,895
1,324
(1) Applicable to periods prior to the adoption of ASU 2016-13.
(2) Includes proceeds from available-for-sale securities sold in accordance with written covered call options sold to a
third party.
Net losses/gains on investment securities resulted in income tax (benefit) expense of $(513,000), $939,000 and $(772,000) in
2020, 2019 and 2018, respectively.
122
The amortized cost and fair value of securities as of December 31, 2020 and December 31, 2019, by contractual maturity, are
shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or
repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity
categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying
mortgages may be called or prepaid without penalties:
(Dollars in thousands)
Available-for-sale securities
Due in one year or less
Due in one to five years
Due in five to ten years
Due after ten years
Mortgage-backed
Total available-for-sale securities
Held-to-maturity securities
Due in one year or less
Due in one to five years
Due in five to ten years
Due after ten years
Mortgage-backed
Total held-to-maturity securities
Less: Allowance for credit losses(1)
December 31, 2020
December 31, 2019
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
$
$
$
$
343,601 $
67,901
111,886
95,672
2,341,021
2,960,081 $
343,846 $
70,334
112,178
101,441
2,428,040
3,055,839 $
183,996 $
62,679
186,683
292,308
2,361,158
3,086,824 $
7,138 $
22,217
150,621
198,690
200,531
579,197 $
(59)
7,186 $
23,068
159,293
203,689
200,531
593,767 $
6,061 $
28,697
213,104
886,538
—
1,134,400 $
185,035
64,064
184,666
292,924
2,379,525
3,106,214
6,074
28,986
216,957
886,379
—
1,138,396
Held-to-maturity securities, net of allowance for credit
losses
$
579,138
(1) As of January 1, 2020, the Company adopted ASU 2016-13 related to credit losses on financial assets held at
amortized cost. As a result of such adoption, the Company measured an allowance for credit losses related to lifetime
expected credit losses on held-to-maturity investment securities.
At December 31, 2020 and December 31, 2019, securities having a carrying value of $2.4 billion and $1.7 billion, respectively,
were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and
derivatives. At December 31, 2020, there were no securities of a single issuer, other than U.S. Government-sponsored agency
securities, which exceeded 10% of shareholders’ equity.
123
(4) Loans
The following table shows the Company's loan portfolio by category as of the dates shown:
(Dollars in thousands)
Balance:
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables—commercial
Premium finance receivables—life insurance
Consumer and other
Total loans, net of unearned income
Mix:
Commercial
Commercial real estate
Home equity
Residential real estate
Premium finance receivables—commercial
Premium finance receivables—life insurance
Consumer and other
Total loans, net of unearned income
December 31, 2020
December 31, 2019
$
$
11,955,967
8,494,132
425,263
1,259,598
4,054,489
5,857,436
32,188
32,079,073
$
$
8,285,920
8,020,276
513,066
1,354,221
3,442,027
5,074,602
110,178
26,800,290
37 %
26
1
5
13
18
0
100 %
31 %
30
2
5
13
19
0
100 %
The Company’s loan portfolio is generally comprised of loans to consumers and small to medium-sized businesses, which, for
the commercial and commercial real estate portfolios, are located primarily within the geographic market areas that the banks
serve. Various niche lending businesses, including lease finance and franchise lending, operate on a national level. Additionally,
to provide short-term relief due to macroeconomic deterioration from the COVID-19 pandemic to small businesses within such
market areas, the Company originated loans through PPP, an expansion of guaranteed lending under Section 7(a) of the Small
Business Act within the CARES Act. As of December 31, 2020, the Company's commercial portfolio included approximately
$2.7 billion of such PPP loans. The premium finance receivables portfolios are made to customers throughout the United States
and Canada. The Company strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower and
geographic concentrations. Such diversification reduces the exposure to economic downturns that may occur in different
segments of the economy or in different industries.
Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium
finance receivables were $113.1 million and $118.4 million at December 31, 2020 and 2019, respectively.
Total loans, excluding PCD loans, include net deferred loan fees and costs and fair value purchase accounting adjustments
totaling $(3.2) million at December 31, 2020 and $9.1 million at December 31, 2019. Prior to January 1, 2020, PCI loans were
recorded net of credit discounts. See “Acquired Loan Information - PCI Loans” below. Net deferred fees as of December 31,
2020 includes $32.5 million of net deferred fees paid by the SBA for loans originated under the PPP. As PPP loans share
similar characteristics (loan terms), and prepayments are considered probable and can reasonably be estimated due to terms of
the program, the Company considers estimated future principal prepayments in recognizing such deferred fee for determining a
constant effective yield on the portfolio of loans.
Certain real estate loans, including mortgage loans held-for-sale, commercial, consumer, and home equity loans with balances
totaling approximately $7.0 billion and $6.8 billion at December 31, 2020 and 2019, respectively, were pledged as collateral to
secure the availability of borrowings from certain federal agency banks. At December 31, 2020, approximately $6.8 billion of
these pledged loans are included in a blanket pledge of qualifying loans to the FHLB. The remaining $222.2 million of pledged
loans was used to secure potential borrowings at the FRB discount window. At December 31, 2020 and 2019, the banks had
outstanding borrowings of $1.2 billion and $674.9 million, respectively, from the FHLB in connection with these collateral
arrangements. See Note 11, “Federal Home Loan Bank Advances,” for a summary of these borrowings.
It is the policy of the Company to review each prospective credit in order to determine the appropriateness and, when required,
the adequacy of security or collateral necessary to obtain when making a loan. The type of collateral, when required, will vary
124
from liquid assets to real estate. The Company seeks to assure access to collateral, in the event of default, through adherence to
state lending laws and the Company’s credit monitoring procedures.
Acquired Loan Information — PCI Loans
As part of the Company's previous acquisitions, the Company acquired loans for which there was evidence of credit quality
deterioration since origination (PCI loans) and we determined that it was probable that the Company would be unable to collect
all contractually required principal and interest payments. Prior to January 1, 2020, PCI loans were aggregated into pools by
common risk characteristics for accounting purposes, including recognition of interest income on a pool basis. Measurement of
any allowance for loan losses on these loans were offset by the remaining credit discount related to the pool. Changes in
expected cash flows would vary from period to period as the Company periodically updated its cash flow model assumptions
for PCI loans. The factors that most significantly affected the estimates of gross cash flows expected to be collected, and
accordingly the accretable yield, included changes in the benchmark interest rate indices for variable-rate products and changes
in prepayment assumptions and loss estimates. As a result of the implementation of ASU No. 2016-13, beginning in the first
quarter of 2020, PCI loans transitioned to a classification of PCD, which no longer maintains the prior pools and related
accounting concepts.
The following table presents the unpaid principal balance and carrying value for these acquired loans under the required
disclosures for PCI loans before the adoption of ASU No. 2016-13:
(Dollars in thousands)
PCI loans
December 31, 2019
Unpaid
Principal
Balance
Carrying
Value
$
455,784 $
425,372
The following table provides activity for the accretable yield of PCI loans under the required disclosures for PCI loans before
the adoption of ASU No. 2016-13:
(Dollars in thousands)
Accretable yield, beginning balance
Acquisitions
Accretable yield amortized to interest income
Reclassification from non-accretable difference (1)
Increases in interest cash flows due to payments and changes in interest rates
Accretable yield, ending balance
Years Ended December 31,
2019
$
$
34,876
16,770
(18,226)
5,516
6,012
44,948
(1) Reclassification is the result of subsequent increases in expected principal cash flows.
See Note 5, “Allowance for Credit Losses,” for further discussion regarding the allowance for loan losses associated with PCI
loans at December 31, 2019.
(5) Allowance for Credit Losses
In accordance with ASC 326, the Company is required to measure the allowance for credit losses of financial assets with similar
risk characteristics on a collective or pooled basis. In considering the segmentation of financial assets measured at amortized
cost into pools, the Company considered various risk characteristics in its analysis. Generally, the segmentation utilized
represents the level at which the Company develops and documents its systematic methodology to determine the allowance for
credit losses for the financial asset held at amortized cost, specifically the Company's loan portfolio and debt securities
classified as held-to-maturity. Below is a summary of the Company's loan portfolio segments and major debt security types:
Commercial loans, including PPP loans: The Company makes commercial loans for many purposes, including working capital
lines and leasing arrangements, that are generally renewable annually and supported by business assets, personal guarantees and
additional collateral. Underlying collateral includes receivables, inventory, enterprise value and the assets of the business.
Commercial business lending is generally considered to involve a slightly higher degree of risk than traditional consumer bank
lending. This portfolio includes a range of industries, including manufacturing, restaurants, franchise, professional services,
equipment finance and leasing, mortgage warehouse lending and industrial.
125
The Company also originates loans through PPP. Administered by the SBA, PPP provides short-term relief primarily related to
the disruption from COVID-19 to companies and non-profits that meet the SBA’s definition of an eligible small business.
Under the program, the SBA will forgive all or a portion of the loan if, during a certain period, loans are used for qualifying
expenses. If all or a portion of the loan is not forgiven, the borrower is responsible for repayment. PPP loans are fully
guaranteed by the SBA, including any portion not forgiven. The SBA guarantee exists at the inception of the loan and
throughout its life and is not separated from the loan if the loan is subsequently sold or transferred. As it is not considered a
freestanding contract, the Company considers the impact of the SBA guarantee when measuring the allowance for credit losses.
Commercial real estate loans, including construction and development, and non-construction: The Company's commercial real
estate loans are generally secured by a first mortgage lien and assignment of rents on the underlying property. Since most of the
Company's bank branches are located in the Chicago metropolitan area and southern Wisconsin, a significant portion of the
Company's commercial real estate loan portfolio is located in this region. As the risks and circumstances of such loans in
construction phase vary from that of non-construction commercial real estate loans, the Company assessed the allowance for
credit losses separately for these two segments.
Home equity loans: The Company's home equity loans and lines of credit are primarily originated by each of the bank
subsidiaries in their local markets where there is a strong understanding of the underlying real estate value. The Company's
banks monitor and manage these loans, and conduct an automated review of all home equity loans and lines of credit at least
twice per year. The banks subsidiaries use this information to manage loans that may be higher risk and to determine whether to
obtain additional credit information or updated property valuations. In a limited number of cases, the Company may issue home
equity credit together with first mortgage financing, and requests for such financing are evaluated on a combined basis.
Residential real estate loans: The Company's residential real estate portfolio predominantly includes one- to four-family
adjustable rate mortgages that have repricing terms generally from one to three years, construction loans to individuals and
bridge financing loans for qualifying customers. The Company's adjustable rate mortgages relate to properties located
principally in the Chicago metropolitan area and southern Wisconsin or vacation homes owned by local residents. The
Company believes that since this loan portfolio consists primarily of locally originated loans, and since the majority of the
borrowers are longer-term customers with lower LTV ratios, the Company faces a relatively low risk of borrower default and
delinquency. It is not the Company's current practice to underwrite, and there are no plans to underwrite subprime, Alt A, no or
little documentation loans, or option ARM loans.
Premium finance receivables: The Company makes loans to businesses to finance the insurance premiums they pay on their
commercial insurance policies. The loans are indirectly originated by working through independent medium and large insurance
agents and brokers located throughout the United States and Canada. The insurance premiums financed are primarily for
commercial customers’ purchases of liability, property and casualty and other commercial insurance. This lending involves
relatively rapid turnover of the loan portfolio and high volume of loan originations. The Company performs ongoing credit and
other reviews of the agents and brokers to mitigate against the risk of fraud.
The Company also originates life insurance premium finance receivables. These loans are originated directly with the borrowers
with assistance from life insurance carriers, independent insurance agents, financial advisors and legal counsel. The life
insurance policy is the primary form of collateral. In addition, these loans often are secured with a letter of credit, marketable
securities or certificates of deposit. In some cases, the Company may make a loan that has a partially unsecured position.
Consumer and other loans: Included in the consumer and other loan category is a wide variety of personal and consumer loans
to individuals. The Company originates consumer loans in order to provide a wider range of financial services to their
customers. Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve
more credit risk than mortgage loans due to the type and nature of the collateral.
U.S. government agency securities: This security type includes debt obligations of certain government-sponsored entities of the
U.S. government such as the Federal Home Loan Bank, Federal Agricultural Mortgage Corporation, Federal Farm Credit Banks
Funding Corporation and Fannie Mae. Such securities often contain an explicit or implicit guarantee of the U.S. government.
Municipal securities: The Company's municipal securities portfolio include bond issues for various municipal government
entities located throughout the United States, including the Chicago metropolitan area and southern Wisconsin, some of which
are privately placed and non-rated. Though the risk of loss is typically low, including within the Company, default history exists
on municipal securities within the United States.
The tables below show the aging of the Company’s loan portfolio by the segmentation noted above at December 31, 2020 and
2019. For periods prior to January 1, 2020, PCI loans are disclosed in segmentation consistent with that discussed above for
126
comparative purposes. For accounting purposes, including recognition of interest income, PCI loans were aggregated into pools
by common risk characteristics separate from non-acquired loans. As a result of the implementation of ASU 2016-13 in 2020,
PCI loans transitioned to a PCD classification, which no longer maintains the prior pools and related accounting concepts.
Recognition of interest income on PCD loans is considered at the individual asset level following the Company's accrual
policies, instead of based upon the entire pool of loans. As a result, such PCD loans are included within nonaccrual status, if
applicable.
As of December 31, 2020
(Dollars in thousands)
Loan Balances (1):
Commercial
Commercial, industrial and other,
excluding PPP loans
Commercial PPP loans
Commercial real estate:
Construction and development
Non-construction
Home equity
Residential real estate
Premium finance receivables
Commercial insurance loans
Life insurance loans
Consumer and other
Total loans, net of unearned
income
Nonaccrual
90+ days
and still
accruing
60-89
days past
due
30-59
days past
due
Current
Total Loans
$
21,743 $
307 $
6,900 $
44,345 $ 9,166,751 $ 9,240,046
—
5,633
40,474
6,529
26,071
13,264
—
436
—
—
—
—
—
12,792
—
264
—
36
2,715,885
2,715,921
—
5,178
47
1,635
6,798
21,003
24
5,344
26,772
637
12,584
18,809
30,465
136
1,360,825
7,049,906
418,050
1,219,308
4,002,826
5,805,968
31,328
1,371,802
7,122,330
425,263
1,259,598
4,054,489
5,857,436
32,188
$
114,150 $
13,363 $
41,585 $
139,128 $ 31,770,847 $ 32,079,073
(1) Includes PCD loans and, for periods prior to the adoption of ASU 2016-13, PCI loans. PCI loans represented loans
acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings
disclosed in comparative periods are based upon contractually required payments. As a result of the adoption of ASU
2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020.
As of December 31, 2019
(Dollars in thousands)
Loan Balances (1):
Commercial
Commercial, industrial and other,
excluding PPP loans
Commercial PPP loans
Commercial real estate
Construction and development
Non-construction
Home equity
Residential real estate
Premium finance receivables
Commercial insurance loans
Life insurance loans
Consumer and other
Total loans, net of unearned
income
Nonaccrual
90+ days
and still
accruing
60-89
days past
due
30-59
days past
due
Current
Total Loans
$
37,224 $
1,855 $
3,275 $
77,324 $ 8,166,242 $ 8,285,920
—
—
—
—
—
—
2,112
24,001
7,363
13,797
3,514
11,432
—
5,771
5,292
26,254
454
3,089
20,590
11,517
12,119
590
231
—
287
—
40
48,964
48,603
3,533
18,041
18,783
32,559
344
1,223,567
6,626,537
501,716
1,283,449
6,736,827
513,066
1,313,523
1,354,221
3,379,018
5,041,453
109,276
3,442,027
5,074,602
110,178
$
105,908 $
34,376 $
50,523 $
248,151 $ 26,361,332 $ 26,800,290
(1) Includes PCD loans and, for periods prior to the adoption of ASU 2016-13, PCI loans. PCI loans represented loans
acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings
disclosed in comparative periods are based upon contractually required payments. As a result of the adoption of ASU
2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020.
127
Credit Quality Indicators
Credit quality indicators, specifically the Company's internal risk rating systems, reflect how the Company monitors credit
losses and represents factors used by the Company when measuring the allowance for credit losses. The following discusses the
Company's credit quality indicators by financial asset.
Loan portfolios
The Company's ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans.
To do so, the Company operates a credit risk rating system under which credit management personnel assign a credit risk rating
(1 to 10 rating) to each loan at the time of origination and review loans on a regular basis. These credit risk ratings are also an
important aspect of the Company's allowance for credit losses measurement methodology. The credit risk rating structure and
classifications are shown below:
Pass (risk rating 1 to 5): Based on various factors (liquidity, leverage, etc.), the Company believes asset quality is acceptable
and is deemed to not require additional monitoring by the Company.
Special mention (risk rating 6): Assets in this category are currently protected, potentially weak, but not to the point of
substandard classification. Loss potential is moderate if corrective action is not taken.
Substandard accrual (risk rating 7): Assets in this category have well defined weaknesses that jeopardize the liquidation of the
debt. Loss potential is distinct but with no discernible impairment.
Substandard nonaccrual/doubtful (risk rating 8 and 9): Assets have all the weaknesses in those classified “substandard accrual”
with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts,
conditions, and values, improbable.
Loss/fully charged-off (risk rating 10): Assets in this category are considered fully uncollectible. As such, these assets have no
carrying balance on the Company's Consolidated Statements of Condition.
Each loan officer is responsible for monitoring his or her loan portfolio, recommending a credit risk rating for each loan in his
or her portfolio and ensuring the credit risk ratings are appropriate. These credit risk ratings are then ratified by the bank’s chief
credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors including: a
borrower’s financial strength, cash flow coverage, collateral protection and guarantees.
The Company’s Problem Loan Reporting system includes all loans with credit risk ratings of 6 through 9. This system is
designed to provide an on-going detailed tracking mechanism for each problem loan. Once management determines that a loan
has deteriorated to a point where it has a credit risk rating of 6 or worse, the Company’s Managed Asset Division performs an
overall credit and collateral review. As part of this review, all underlying collateral is identified and the valuation methodology
is analyzed and tracked. As a result of this initial review by the Company’s Managed Asset Division, the credit risk rating is
reviewed and a portion of the outstanding loan balance may be deemed uncollectible and, as a result, no longer share similar
risk characteristics as its related pool. If that is the case, the individual loan is considered collateral dependent and individually
assessed for an allowance for credit loss. The Company’s individual assessment utilizes an independent re-appraisal of the
collateral (unless such a third-party evaluation is not possible due to the unique nature of the collateral, such as a closely-held
business or thinly traded securities). In the case of commercial real estate collateral, an independent third party appraisal is
ordered by the Company’s Real Estate Services Group to determine if there has been any change in the underlying collateral
value. These independent appraisals are reviewed by the Real Estate Services Group and sometimes by independent third party
valuation experts and may be adjusted depending upon market conditions.
Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original
contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the
Company, including a downgrade in the credit risk rating, movement to non-accrual status or a charge-off. If the Company
determines that a loan amount or portion thereof is uncollectible, the loan’s credit risk rating is immediately downgraded to an 8
or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk
rating of an 8 or 9 for the duration of time that a balance remains outstanding. The Company undertakes a thorough and
ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the
credit to minimize actual losses. In determining the appropriate charge-off for collateral-dependent loans, the Company
considers the results of appraisals for the associated collateral.
128
The table below shows the Company’s loan portfolio by credit quality indicator and year of origination at December 31, 2020:
As of December 31, 2020
(In thousands)
Loan Balances:
Commercial, industrial and other
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
2020
2019
2018
2017
2016
Prior
Revolving
to Term
Year of Origination
Revolving
Total
Loans
$ 2,050,767 $ 1,199,104 $
882,508 $ 649,206 $ 282,664 $ 513,418
$ 2,922,136 $
16,515
$ 8,516,318
35,305
19,848
821
77,741
90,112
1,619
44,642
74,527
3,470
31,131
37,499
2,699
17,329
48,356
867
12,695
30,277
8,934
113,137
68,257
2,473
367
762
860
332,347
369,638
21,743
Total commercial, industrial and other
$ 2,106,741 $ 1,368,576 $ 1,005,147 $ 720,535 $ 349,216 $ 565,324
$ 3,106,003 $
18,504
$ 9,240,046
Commercial PPP
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
$ 2,715,915 $
— $
— $
— $
— $
—
6
—
—
—
—
—
—
—
—
—
—
—
—
—
Total commercial PPP
$ 2,715,921 $
— $
— $
— $
— $
—
—
—
—
—
$
— $
—
—
—
$
— $
Construction and development
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
$
301,565 $
448,704 $
213,508 $ 135,583 $
71,883 $
58,088
$
28,822 $
3,700
—
—
9,032
1,200
—
48,174
27,439
2,675
5,846
1,596
2,897
1,860
—
1,072
6,338
566
1,104
—
150
—
Total construction and development
$
305,265 $
458,936 $
269,124 $ 167,779 $
75,630 $
66,096
$
28,972 $
—
—
—
—
—
—
—
—
—
—
$ 2,715,915
—
6
—
$ 2,715,921
$ 1,258,153
97,358
10,659
5,632
$ 1,371,802
Non-construction
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
$ 1,346,139 $ 1,027,293 $
833,289 $ 750,825 $ 642,371 $ 1,623,135
$
179,489 $
7,371
$ 6,409,912
10,885
2,533
—
63,482
42,091
270
70,128
10,112
1,609
87,985
20,133
2,134
94,122
155,080
20,381
5,240
92,208
31,222
100
10
—
2,693
—
—
484,475
187,468
40,475
Total non-construction
$ 1,359,557 $ 1,133,136 $
915,138 $ 861,077 $ 762,114 $ 1,901,645
$
179,599 $
10,064
$ 7,122,330
$
45 $
— $
47 $
28 $
15 $
6,391
$
388,649 $
170
$
395,345
—
—
—
—
—
—
—
319
—
—
—
159
—
249
223
2,302
10,817
3,039
6,337
1,059
2,986
687
1,619
122
9,326
14,063
6,529
$
45 $
— $
366 $
187 $
487 $
22,549
$
399,031 $
2,598
$
425,263
$
357,381 $
318,601 $
119,071 $ 133,055 $ 110,950 $ 162,876
$
— $
308
2,412
—
644
626
845
2,690
904
1,639
2,429
2,339
5,329
1,997
4,354
5,629
7,527
5,364
12,628
—
—
—
Total residential real estate
$
360,101 $
320,716 $
124,304 $ 143,152 $ 122,930 $ 188,395
$
— $
$ 3,976,384 $
34,372 $
4,368 $
48 $
— $
23,830
1,455
8,100
333
344
5,135
—
89
30
—
—
1
—
—
—
—
—
—
—
$
— $
—
—
—
$ 4,009,769 $
40,184 $
4,487 $
49 $
— $
—
$
— $
—
$ 4,054,489
Home equity
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
Total home equity
Residential real estate
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
Premium finance receivables - commercial
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
Total premium finance receivables -
commercial
Premium finance receivables - life
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
$
579,716 $
599,479 $
605,635 $ 654,513 $ 763,327 $ 2,654,178
$
— $
—
—
—
—
—
—
—
—
—
588
—
—
—
—
—
—
—
—
—
—
—
Total premium finance receivables - life
$
579,716 $
599,479 $
605,635 $ 655,101 $ 763,327 $ 2,654,178
$
— $
Consumer and other
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
$
2,303 $
2,100 $
1,820 $
550 $
495 $
6,472
$
17,569 $
16
8
1
22
1
—
—
—
3
129
80
—
9
—
—
—
96
212
422
6
3
—
—
—
—
—
—
—
—
—
—
$ 1,201,934
15,595
15,999
26,070
$ 1,259,598
$ 4,015,172
24,163
1,888
13,266
—
—
—
—
—
—
—
—
—
$ 5,856,848
588
—
—
$ 5,857,436
$
31,309
220
224
435
Total consumer and other
Total loans (1)
Pass
Special mention
Substandard accrual
Substandard nonaccrual/doubtful
$
2,328 $
2,123 $
1,823 $
639 $
495 $
7,202
$
17,578 $
—
$
32,188
$ 11,330,215 $ 3,629,653 $ 2,660,246 $ 2,323,808 $ 1,871,705 $ 5,024,558
$ 3,536,665 $
24,056
$ 30,400,906
74,044
26,262
8,922
151,254
165,634
149,652
116,123
184,038
119,580
134,374
7,869
91,797
8,347
62,868
12,191
73,340
139,444
13,031
57,349
69,479
5,459
3,747
2,381
982
964,072
599,945
114,150
Total loans
$ 11,439,443 $ 3,923,150 $ 2,926,024 $ 2,548,519 $ 2,074,199 $ 5,405,389
$ 3,731,183 $
31,166
$ 32,079,073
(1)
Includes $235.6 million of loans with COVID-19 related modifications that migrated from pass as of March 1, 2020 to special mention
or substandard accrual as of December 31, 2020. These loans were qualitatively evaluated as a part of the measurement of the
allowance for credit losses as of December 31, 2020.
Held-to-maturity debt securities
The Company conducts an assessment of its investment securities, including those classified as held-to-maturity, at the time of
purchase and on at least an annual basis to ensure such investment securities remain within appropriate levels of risk and
continue to perform satisfactorily in fulfilling its obligations. The Company considers, among other factors, the nature of the
securities and credit ratings or financial condition of the issuer. If available, the Company obtains a credit rating for issuers
from a Nationally Recognized Statistical Rating Organization (“NRSRO”) for consideration. If no such rating is available for an
issuer, the Company performs an internal rating based on the scale utilized within the loan portfolio as discussed above. For
purposes of the table below, the Company has converted any issuer rating from an NRSRO into the Company’s internal ratings
based on Investment Policy and review by the Company’s management.
As of December 31, 2020
(In thousands)
Amortized Cost Balances:
U.S. government agencies
1-4 internal grade
5-7 internal grade
8-10 internal grade
2020
2019
2018
2017
2016
Prior
Balance
Year of Origination
Total
$
124,575 $
— $
50,000 $
— $
— $
3,384
$
177,959
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total U.S. government agencies
$
124,575 $
— $
50,000 $
— $
— $
3,384
$
177,959
Municipal
1-4 internal grade
5-7 internal grade
8-10 internal grade
Total municipal
Mortgage-backed securities
1-4 internal grade
5-7 internal grade
8-10 internal grade
Total mortgage-backed securities
Total held-to-maturity securities
Less: Allowance for credit losses
Held-to-maturity securities, net of allowance for credit losses
Measurement of Allowance for Credit Losses
$
$
— $
161 $
7,570 $
43,633 $
10,139 $
139,204
$
200,707
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
161 $
7,570 $
43,633 $
10,139 $
139,204
$
200,707
$
200,531 $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
$
200,531 $
— $
— $
— $
— $
—
—
—
—
$
200,531
—
—
$
$
200,531
579,197
(59)
$
579,138
The Company's allowance for credit losses consists of the allowance for loan losses, the allowance for unfunded commitment
losses and the allowance for held-to-maturity debt security losses. In accordance with ASC 326, the Company measures the
allowance for credit losses at the time of origination or purchase of a financial asset, representing an estimate of lifetime
expected credit losses on the related asset. When developing its estimate, the Company considers available information relevant
to assessing the collectability of cash flows, from both internal and external sources. Historical credit loss experience is one
input in the estimation process as well as inputs relevant to current conditions and reasonable and supportable forecasts. In
considering past events, the Company considers the relevance, or lack thereof, of historical information due to changes in such
things as financial asset underwriting or collection practices, and changes in portfolio mix due to changing business plans and
strategies. In considering current conditions and forecasts, the Company considers both the current economic environment and
the forecasted direction of the economic environment with emphasis on those factors deemed relevant to or driving changes in
expected credit losses. As significant judgment is required, the review of the appropriateness of the allowance for credit losses
is performed quarterly by various committees with participation by the Company's executive management.
130
(In thousands)
Allowance for loan losses
Allowance for unfunded lending-related commitments losses
Allowance for loan losses and unfunded lending-related commitments losses
Allowance for held-to-maturity securities losses
Allowance for credit losses
December 31,
2020
December 31,
2019
$
$
319,374 $
60,536
379,910
59
379,969 $
156,828
1,633
158,461
—
158,461
The allowance for credit losses is measured on a collective or pooled basis when similar risk characteristics exist, based upon
the segmentation discussed above. The Company utilizes modeling methodologies that estimate lifetime credit loss rates on
each pool, including methodologies estimating the probability of default and loss given default on specific segments. Historical
credit loss history is adjusted for reasonable and supportable forecasts developed by the Company on a quantitative or
qualitative basis. Reasonable and supportable forecasts consider the macroeconomic factors that are most relevant to evaluating
and predicting expected credit losses in the Company's financial assets. Currently, the Company utilizes an eight quarter
forecast period using a single macroeconomic scenario provided by a third-party and reviewed within the Company's
governance structure. For periods beyond the ability to develop reasonable and supportable forecasts, the Company reverts to
historical loss rates at an input level, straight-line over a four quarter reversion period. Expected credit losses are measured over
the contractual term of the financial asset with consideration of expected prepayments. Expected extensions, renewals or
modifications of the financial asset are only considered when either 1) the expected extension, renewal or modification is
contained within the existing agreement and is not unconditionally cancelable, or 2) the expected extension, renewal or
modification is reasonably expected to result in a TDR. The methodologies discussed above are applied to both current asset
balances on the Company's Consolidated Statements of Condition and off-balance sheet commitments (i.e. unfunded lending-
related commitments).
Assets that do not share similar risk characteristics with a pool are assessed for the allowance for credit losses on an individual
basis. These typically include assets experiencing financial difficulties, including asset rated as substandard nonaccrual and
doubtful as well as assets currently classified or expected to be classified as TDRs. If foreclosure is probable or the asset is
considered collateral-dependent, expected credit losses are measured based upon the fair value of the underlying collateral
adjusted for selling costs, if appropriate. Underlying collateral across the Company's segments consist primarily of real estate,
land and construction assets as well as general business assets of the borrower. As of December 31, 2020, substandard
nonaccrual and doubtful loans totaling $78.5 million in carrying balance had no related allowance for credit losses. For certain
accruing current and expected TDRs, expected credit losses are measured based upon the present value of future cash flows of
the modified asset terms compared to the amortized cost of the asset. Considering accounting relief provided under Section
4013 of the CARES Act, loans identified as being reasonably expected to be modified into TDRs in the future totaled
$2.4 million as of December 31, 2020.
The Company does not measure an allowance for credit losses on accrued interest receivable balances because these balances
are written off in a timely manner as a reduction to interest income when assets are placed on nonaccrual status.
131
A summary of the activity in the allowance for credit losses by loan portfolio for the years ended December 31, 2020 and 2019
is as follows:
Year Ended
December 31, 2020
(Dollars in thousands)
Allowance for credit losses at beginning of
period
Cumulative effect adjustment from the
adoption of ASU 2016-13
Other adjustments
Charge-offs
Recoveries
Provision for credit losses
Commercial
Commercial
Real Estate
Home
Equity
Residential
Real Estate
Premium
Finance
Receivable
Consumer
and Other
Total
Loans
$
64,920 $
68,511 $
3,878 $
9,800 $
9,647 $
1,705
158,461
9,039
—
32,064
—
9,061
—
3,002
—
(4,959)
179
(18,293)
(15,960)
(2,061)
(891)
(15,472)
5,092
33,454
1,835
157,153
528
31
184
364
5,108
23,274
(863)
—
(528)
149
(41)
47,344
179
(53,205)
12,896
214,235
Allowance for credit losses at period end
$
94,212 $
243,603 $
11,437 $
12,459 $
17,777 $
422 $ 379,910
By measurement method:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans at period end:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans held at fair value
4,820
89,392
2,237
241,366
197
11,240
684
11,775
—
17,777
88
334
8,026
371,884
$
29,442 $
56,656 $
23,173 $
29,886 $
— $
505 $ 139,662
11,926,525
8,437,476
402,090
1,174,578
9,911,925
31,683
31,884,277
—
—
—
55,134
—
—
55,134
Year Ended
December 31, 2019
(Dollars in thousands)
Allowance for credit losses at beginning of
period
Other adjustments
Charge-offs
Recoveries
Provision for credit losses
Commercial
Commercial
Real Estate
Home
Equity
Residential
Real Estate
Premium
Finance
Receivable
Consumer
and Other
Total
Loans
$
67,826 $
61,661 $
8,507 $
7,194 $
7,715 $
1,261 $ 154,164
—
(34)
(20)
(35,880)
(5,402)
(3,702)
2,845
30,129
2,516
9,770
479
(1,386)
(15)
(798)
422
2,997
49
(12,902)
3,203
11,582
(1)
(522)
195
772
(21)
(59,206)
9,660
53,864
Allowance for credit losses at period end
$
64,920 $
68,511 $
3,878 $
9,800 $
9,647 $
1,705 $ 158,461
By measurement method:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality(1)
Loans at period end:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality(1)
Loan held at fair value
5,719
59,171
30
5,638
62,759
114
450
3,428
—
387
9,386
27
—
9,647
—
142
1,563
—
12,336
145,954
171
$
42,130 $
35,867 $
19,108 $
22,528 $
— $
412 $ 120,045
8,215,484
7,746,969
493,958
1,313,565
8,377,347
107,550
26,254,873
28,306
237,440
—
—
—
—
18,128
132,718
139,282
—
2,216
—
425,372
132,718
(1) Prior to January 1, 2020, measurement of any allowance for loan losses on PCI loans were offset by the remaining discount related to
the acquired pool. As a result of the adoption of ASU 2016-13, PCI loans transitioned to a classification of PCD. Measurement of any
allowance for loan losses on PCD loans is no longer offset by the remaining amount.
At January 1, 2020, the Company adopted ASU 2016-13, which replaced the previous incurred loss methodology for measuring
the allowance for credit losses with a lifetime expected loss methodology. At adoption, the allowance for credit losses related to
loans and lending agreements increased approximately $47.3 million, including an increase of approximately $33.2 million
recorded to the allowance for unfunded commitment losses within accrued interest and other liabilities on the Company's
Consolidated Statements of Condition, with an offsetting amount recorded directly to retained earnings, net of taxes. The
remaining $14.2 million cumulative effect adjustment was recorded to the allowance for loan losses, presented separately on the
Company's Consolidated Statements of Condition. Of the amount recorded to the allowance for loan losses, $11.0 million
related to PCD loans with such offsetting amount added directly to the carrying balance of the loans and the remaining
$3.2 million not related to PCD loans recorded directly to retained earnings, net of taxes, on the Company's Consolidated
Statements of Condition.
For the year ending December 31, 2020, the Company recognized approximately $214.2 million of provision for credit losses
related to loans and lending agreements. The provision was primarily the result of the continued change to macroeconomic
132
conditions throughout 2020 created by the COVID-19 pandemic, and the impact on the Company's macroeconomic forecasts of
key model inputs (Commercial Real Estate Price Index, Baa corporate credit spreads, gross domestic product and Dow Jones
Total Stock Market Index) as well as changes in the Company's loan portfolios. A deterioration in the Commercial Real Estate
Price Index macroeconomic forecast during the Company's reasonable and supportable forecast period was a primary driver of
the increase in provision for credit losses within the commercial real estate portfolio during 2020 compared to 2019. Other key
drivers of provision for credit losses in these portfolios include, but are not limited to, net new loan growth and loan risk rating
migration. Net charge-offs in 2020 totaled $40.3 million.
Held-to-maturity debt securities
At January 1, 2020, the Company established an allowance for credit losses on its held-to-maturity debt securities totaling
approximately $74,000, which is presented as a reduction to the amortized cost basis of held-to-maturity securities on the
Company's Consolidated Statements of Condition. Such adjustment was recorded directly to the Company's retained earnings,
net of taxes. During the year ended December 31, 2020, the Company recognized an approximately $15,000 credit to provision
for credit losses related to held-to-maturity securities.
TDRs
At December 31, 2020, the Company had $68.2 million in loans modified in TDRs. The $68.2 million in TDRs represents 286
credits in which economic concessions were granted to certain borrowers to better align the terms of their loans with their
current ability to pay.
The Company’s approach to restructuring loans is built on its credit risk rating system, which requires credit management
personnel to assign a credit risk rating to each loan. In each case, the loan officer is responsible for recommending a credit risk
rating for each loan and ensuring the credit risk ratings are appropriate. These credit risk ratings are then reviewed and approved
by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of
factors including a borrower’s financial strength, cash flow coverage, collateral protection and guarantees. The Company’s
credit risk rating scale is one through ten with higher scores indicating higher risk. In the case of loans rated six or worse
following modification, the Company’s Managed Assets Division evaluates the loan and the credit risk rating and determines
that the loan has been restructured to be reasonably assured of repayment and of performance according to the modified terms
and is supported by a current, well-documented credit assessment of the borrower’s financial condition and prospects for
repayment under the revised terms.
A modification of a loan with an existing credit risk rating of 6 or worse or a modification of any other credit, which will result
in a restructured credit risk rating of 6 or worse must be reviewed for possible TDR classification. In that event, the Company’s
Managed Assets Division conducts an overall credit and collateral review. A modification of a loans is considered to be a TDR
if both (1) the borrower is experiencing financial difficulty and (2) for economic or legal reasons, the bank grants a concession
to a borrower that it would not otherwise consider. The modification of a loan where the credit risk rating is 5 or better after
such modification is not considered to be a TDR. Based on the Company’s credit risk rating system, it considers that borrowers
whose credit risk rating is 5 or better are not experiencing financial difficulties and therefore, are not considered TDRs.
All credits determined to be a TDR will continue to be classified as a TDR in all subsequent periods, unless the borrower has
been in compliance with the loan’s modified terms for a period of six months (including over a calendar year-end) and the
current interest rate represents a market rate at the time of restructuring. The Managed Assets Division, in consultation with the
respective loan officer, determines whether the modified interest rate represented a current market rate at the time of
restructuring. Using knowledge of current market conditions and rates, competitive pricing on recent loan originations, and an
assessment of various characteristics of the modified loan (including collateral position and payment history), an appropriate
market rate for a new borrower with similar risk is determined. If the modified interest rate meets or exceeds this market rate for
a new borrower with similar risk, the modified interest rate represents a market rate at the time of restructuring. Additionally,
before removing a loan from TDR classification, a review of the current or previously measured impairment on the loan and
any concerns related to future performance by the borrower is conducted. If concerns exist about the future ability of the
borrower to meet its obligations under the loans based on a credit review by the Managed Assets Division, the TDR
classification is not removed from the loan.
TDRs are individually assessed at the time of modification and on a quarterly basis to measure an allowance for credit loss.
The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan’s original rate, or
for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a reserve. Each TDR was
individually assessed at December 31, 2020 and approximately $2.9 million of reserve was measured through the Company’s
normal reserving methodology in the Company’s allowance for credit losses.
133
TDRs may arise in which, due to financial difficulties experienced by the borrower, the Company obtains through physical
possession one or more collateral assets in satisfaction of all or part of an existing credit. Once possession is obtained, the
Company reclassifies the appropriate portion of the remaining balance of the credit from loans to OREO, which is included
within other assets in the Consolidated Statements of Condition. For any residential real estate property collateralizing a
consumer mortgage loan, the Company is considered to possess the related collateral only if legal title is obtained upon
completion of foreclosure, or the borrower conveys all interest in the residential real estate property to the Company through
completion of a deed in lieu of foreclosure or similar legal agreement. At December 31, 2020, the Company had $4.0 million of
foreclosed residential real estate properties included within OREO. Further, the recorded investment in residential mortgage
loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $18.9 million and
$13.5 million at December 31, 2020 and 2019, respectively.
The tables below present a summary of the post-modification balance of loans restructured during the years ended
December 31, 2020, 2019, and 2018, which represent TDRs:
Year ended
December 31, 2020
(Dollars in thousands)
Commercial
Commercial,
industrial and other
Commercial real estate
Non-construction
Residential real estate
and other
Total loans
Year ended
December 31, 2019
(Dollars in thousands)
Commercial
Commercial,
industrial and other
Commercial real estate
Non-construction
Residential real estate
and other
Total loans
Year ended
December 31, 2018
(Dollars in thousands)
Commercial
Commercial,
industrial and other
Commercial real estate
Non-construction
Residential real estate
and other
Total loans
Total (1)(2)
Extension at
Below Market
Terms (2)
Reduction of
Interest Rate (2)
Modification to
Interest-only
Payments (2)
Forgiveness of Debt (2)
Count
Balance
Count
Balance
Count
Balance
Count
Balance
Count
Balance
21 $ 12,362
17 $
8,089
1 $
991
6 $
4,436
1 $
432
18
85
19,281
14,229
15
70
14,657
13,721
3
38
921
5,809
8
1
5,853
190
—
—
124 $ 45,872
102 $ 36,467
42 $
7,721
15 $ 10,479
1 $
—
—
432
Total (1)(2)
Extension at
Below Market
Terms (2)
Reduction of
Interest Rate (2)
Modification to
Interest-only
Payments (2)
Forgiveness of Debt (2)
Count
Balance
Count
Balance
Count
Balance
Count
Balance
Count
Balance
24 $ 26,341
12 $
6,993
2 $
605
13 $ 20,872
— $
7
7,018
5
6,465
145
20,206
117
17,258
—
28
—
5,415
3
1
5,493
311
—
—
176 $ 53,565
134 $ 30,716
30 $
6,020
17 $ 26,676
— $
—
—
—
—
Total (1)(2)
Extension at
Below Market
Terms (2)
Reduction of
Interest Rate (2)
Modification to
Interest-only
Payments (2)
Forgiveness of Debt (2)
Count
Balance
Count
Balance
Count
Balance
Count
Balance
Count
Balance
9 $ 18,967
6 $
1,095
— $
3
59
514
9,762
3
58
514
9,523
1
27
—
85
2,789
3 $ 17,872
— $
—
—
—
—
—
1
71 $ 29,243
67 $ 11,132
28 $
2,874
3 $ 17,872
1 $
—
—
239
239
(1) TDRs may have more than one modification representing a concession. As such, TDRs during the period may be
represented in more than one of the categories noted above.
(2) Balances represent the recorded investment in the loan at the time of the restructuring.
134
During the year ended December 31, 2020, $45.9 million, or 124 loans, were determined to be TDRs, compared to $53.6
million, or 176 loans, and $29.2 million, or 71 loans, in the years ended 2019 and 2018, respectively. Of these loans extended at
below market terms, the weighted average extension had a term of approximately 14 months in 2020 compared to 18 months in
2019 and 48 months in 2018. Further, the weighted average decrease in the stated interest rate for loans with a reduction of
interest rate during the period was approximately 129 basis points, 218 basis points and 172 basis points during the years ended
December 31, 2020, 2019, and 2018, respectively. Interest-only payment terms were approximately 12 months during the year
ended 2020 compared to five months and seven months for the years ended 2019 and 2018, respectively. Additionally,
$453,000 of principal balances were forgiven on the loans noted above in 2020 compared to no principal balance forgiven
during 2019 and $8,000 of principal balance forgiven during 2018.
The tables below present a summary of all loans restructured in TDRs during the years ended December 31, 2020, 2019, and
2018, and such loans which were in payment default under the restructured terms during the respective periods:
(Dollars in thousands)
Commercial
Commercial, industrial
and other
Commercial real-estate
Non-construction
Residential real estate and
other
Year Ended December 31, 2020
Year Ended December 31, 2019
Year Ended December 31, 2018
Total (1)(3)
Payments in
Default (2)(3)
Total (1)(3)
Payments in
Default (2)(3)
Total (1)(3)
Payments in
Default (2)(3)
Count
Balance
Count
Balance
Count
Balance
Count
Balance
Count
Balance
Count
Balance
21 $ 12,362
7 $ 4,041
24 $ 26,341
12 $ 22,575
9 $ 18,967
4 $ 5,296
18
19,281
12
14,343
7
7,018
3
865
85
14,229
8
834
145
20,206
12
5,126
3
59
514
9,762
2
9
455
1,957
Total loans
124 $ 45,872
27 $ 19,218
176 $ 53,565
27 $ 28,566
71 $ 29,243
15 $ 7,708
(1) Total TDRs represent all loans restructured in TDRs during the year indicated.
(2) TDRs considered to be in payment default are over 30 days past-due subsequent to the restructuring.
(3) Balances represent the recorded investment in the loan at the time of the restructuring.
(6) Mortgage Servicing Rights (“MSRs”)
Following is a summary of the changes in the carrying value of MSRs, accounted for at fair value, for the years ended
December 31, 2020, 2019 and 2018:
(Dollars in thousands)
Balance at beginning of year
Additions from loans sold with servicing retained
Additions from acquisitions
Estimate of changes in fair value due to:
Early buyout options ("EBO") exercised
Payoffs and paydowns
Changes in valuation inputs or assumptions
Fair value at end of year
Unpaid principal balance of mortgage loans serviced for others
December 31,
December 31,
December 31,
2020
2019
2018
85,638 $
71,077
—
75,183 $
44,943
408
33,676
33,071
13,806
(1,291)
(32,579)
(30,764)
92,081 $
10,833,135 $
—
(20,118)
(14,778)
85,638 $
8,243,251 $
—
(5,039)
(331)
75,183
6,545,870
$
$
$
The Company recognizes MSR assets upon the sale of residential real estate loans to external third parties when it retains the
obligation to service the loans and the servicing fee is more than adequate compensation. The initial recognition of MSR assets
from loans sold with servicing retained and subsequent changes in fair value of all MSRs are recognized in mortgage banking
revenue. MSRs are subject to changes in value from actual and expected prepayment of the underlying loans.
The estimation of fair value related to MSRs is partly impacted by the Company exercising its EBO on eligible loans previously
sold to the Government National Mortgage Association ("GNMA"). Under such optional repurchase program, financial
institutions acting as servicers are allowed to buy back from the securitized loan pool individual delinquent mortgage loans
meeting certain criteria for which the institution was the original transferor of such loans. At the option of the servicer and
without prior authorization from GNMA, the servicer may repurchase such delinquent loans for an amount equal to the
remaining principal balance of the loan. At the time of such repurchase, any MSR value related to such loans is derecognized.
135
Starting in 2019, the Company periodically purchased options for the right to purchase securities not currently held within the
banks' investment portfolios and entered into interest rate swaps in which the Company elected to not designate such derivatives
as hedging instruments. These option and swap transactions were designed primarily to economically hedge a portion of the fair
value adjustments related to MSRs. During the second quarter of 2020, the Company terminated these interest rate swaps.
There were no such options or interest rate swaps outstanding as of December 31, 2020. For more information regarding these
hedges, see Note 21 - Derivative Financial Instruments in Item 8 of this report.
The MSR asset fair value is determined by using a discounted cash flow model that incorporates the objective characteristics of
the portfolio as well as subjective valuation parameters that purchasers of servicing would apply to such portfolios sold into the
secondary market. The subjective factors include loan prepayment speeds, discount rates, servicing costs and other economic
factors. The Company uses a third party to assist in the valuation of MSRs.
(7) Business Combinations and Asset Acquisitions
Bank Acquisitions
On November 1, 2019, the Company completed its acquisition of SBC. SBC was the parent company of Countryside Bank.
Through this business combination, the Company acquired Countryside Bank's six banking offices located in Countryside,
Burbank, Darien, Homer Glen, Oak Brook and Chicago, Illinois. As of the acquisition date, the Company acquired
approximately $619.8 million in assets, including approximately $423.0 million in loans, and approximately $507.8 million in
deposits. The Company recorded goodwill of approximately $40.3 million related to the acquisition.
On October 7, 2019, the Company completed its acquisition of STC. STC was the parent company of STC Capital Bank.
Through this business combination, the Company acquired STC Capital Bank's five banking offices located in the communities
of St. Charles, Geneva and South Elgin, Illinois. As of the acquisition date, the Company acquired approximately $250.1
million in assets, including approximately $174.3 million in loans, and approximately $201.2 million in deposits. The Company
recorded goodwill of approximately $19.1 million related to the acquisition.
On May 24, 2019, the Company completed its acquisition of ROC. ROC was the parent company of Oak Bank. Through this
business combination, the Company acquired Oak Bank's one banking location in Chicago, Illinois. As of the acquisition date,
the Company acquired approximately $223.4 million in assets, including approximately $124.7 million in loans, and
approximately $161.2 million in deposits. The Company recorded goodwill of approximately $11.7 million related to the
acquisition.
On December 7, 2018, the Company completed its acquisition of certain assets and the assumption of certain liabilities of AEB.
Through this asset acquisition, the Company acquired approximately $164.0 million in assets, including approximately $119.3
million in loans, and approximately $150.8 million in deposits.
On August 1, 2018, the Company completed its acquisition of CSC. CSC was the parent company of Delaware Place Bank.
Through this business combination, the Company acquired Delaware Place Bank's one banking location in Chicago, Illinois. As
of the acquisition date, the Company acquired approximately $282.8 million in assets, including approximately $152.7 million
in loans, and approximately $213.1 million in deposits. Additionally, the Company recorded goodwill of approximately $26.6
million related to the acquisition.
Wealth Management Acquisitions
On December 14, 2018, the Company acquired Elektra, the parent company of CDEC. CDEC is a provider of Qualified
Intermediary services (as defined by U.S. Treasury regulations) for taxpayers seeking to structure tax-deferred like-kind
exchanges under Internal Revenue Code Section 1031. CDEC has successfully facilitated more than 8,000 like-kind exchanges
in the past decade for taxpayers nationwide. These transactions typically generate customer deposits during the period following
the sale of the property until such proceeds are used to purchase a replacement property. The Company recorded goodwill of
approximately $37.3 million related to the acquisition.
Mortgage Banking Acquisitions
On January 4, 2018,
including mortgage-servicing-rights on
approximately 10,000 loans, totaling an estimated $1.6 billion in unpaid principal balance. The Company recorded goodwill
of approximately $9.1 million related to the acquisition.
the Company acquired Veterans First with assets
136
(8) Goodwill and Other Intangible Assets
A summary of the Company’s goodwill assets by business segment is presented in the following table:
(Dollars in thousands)
Community banking
Specialty finance
Wealth management
Total
January 1,
2020
Goodwill
Acquired
Impairment
Loss
Goodwill
Adjustments
December 31,
2020
$
$
536,396 $
39,451
69,373
645,220 $
— $
—
—
— $
— $
—
—
— $
— $
487
—
487 $
536,396
39,938
69,373
645,707
The specialty finance segment's goodwill increased $487,000 in 2020 as a result of foreign currency translation adjustments
related to the Canadian acquisitions.
The Company assesses each reporting unit’s goodwill for impairment on at least an annual basis and considers potential
indicators of impairment at each reporting date between annual goodwill impairment tests. At October 1, 2020, the Company
utilized a quantitative approach for its annual goodwill impairment tests of the banking, specialty finance and wealth
management reporting units and determined that no impairment existed at that time.
Given the current economic uncertainty and volatility surrounding COVID-19, the Company assessed whether events and
circumstances as of each reporting date in 2020 resulted in it being more likely than not that the fair value of any reporting unit
was less than its carrying value. Impairment indicators considered include the condition of the economy and banking industry;
government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the
reporting units; performance of the Company’s stock and other relevant events. As of December 31, 2020, the Company
identified no indicators of goodwill impairment in addition to considerations within its analysis as of October 1, 2020 within the
community banking, specialty finance or wealth management reporting units.
A summary of intangible assets as of the dates shown and the expected amortization of finite-lived intangible assets as of
December 31, 2020 is as follows:
(Dollars in thousands)
Community banking segment:
Core deposit intangibles with finite lives:
Gross carrying amount
Accumulated amortization
Net carrying amount
Trademark with indefinite lives:
Carrying amount
Total net carrying amount
Specialty finance segment:
Customer list intangibles with finite lives:
Gross carrying amount
Accumulated amortization
Net carrying amount
Wealth management segment:
Customer list and other intangibles with finite lives:
Gross carrying amount
Accumulated amortization
Net carrying amount
Total intangible assets:
Gross carrying amount
Accumulated amortization
Total intangible assets, net
137
December 31,
2020
2019
$
$
$
$
$
$
$
$
$
55,206 $
(32,680)
22,526 $
5,800
28,326 $
1,966 $
(1,644)
322 $
20,430 $
(13,038)
7,392 $
83,402 $
(47,362)
36,040 $
55,206
(26,326)
28,880
5,800
34,680
1,965
(1,552)
413
20,430
(8,466)
11,964
83,401
(36,344)
47,057
Estimated amortization for the year-ended:
2021
2022
2023
2024
2025
$
7,692
6,135
4,670
3,263
2,552
The core deposit intangibles recognized in connection with prior bank acquisitions are amortized over a ten-year period on an
accelerated basis. The customer list intangibles recognized in connection with the purchase of life insurance premium finance
assets in 2009 are being amortized over an 18-year period on an accelerated basis while the customer list intangibles recognized
in connection with prior acquisitions within the wealth management segment are being amortized over a period of up to ten-
years on a straight-line basis. Indefinite-lived intangible assets consist of certain trade and domain names recognized in
connection with the Veterans First acquisition. As indefinite-lived intangible assets are not amortized, the Company assesses
impairment on at least an annual basis.
Total amortization expense associated with finite-lived intangibles in 2020, 2019 and 2018 was $11.0 million, $11.8 million
and $4.6 million, respectively.
(9) Premises and Equipment, Net
A summary of premises and equipment at December 31, 2020 and 2019 is as follows:
(Dollars in thousands)
Land
Buildings and leasehold improvements
Furniture, equipment, and computer software
Construction in progress
Less: Accumulated depreciation and amortization
Total premises and equipment, net
December 31,
2020
2019
$
$
$
169,245 $
657,529
280,600
32,312
1,139,686 $
370,878
768,808 $
168,066
646,153
243,926
25,940
1,084,085
329,757
754,328
Depreciation and amortization expense related to premises and equipment totaled $46.4 million in 2020, $38.0 million in 2019
and $33.2 million in 2018.
138
(10) Deposits
The following is a summary of deposits at December 31, 2020 and 2019:
(Dollars in thousands)
Balance:
Non-interest bearing
NOW and interest-bearing demand deposits
Wealth management deposits
Money market
Savings
Time certificates of deposit
Total deposits
Mix:
Non-interest bearing
NOW and interest-bearing demand deposits
Wealth management deposits
Money market
Savings
Time certificates of deposit
Total deposits
2020
2019
$
$
11,748,455
3,349,021
4,138,712
9,348,806
3,531,029
4,976,628
37,092,651
$
$
7,216,758
3,093,159
3,123,063
7,854,189
3,196,698
5,623,271
30,107,138
32 %
9
11
25
10
13
100 %
24 %
10
10
26
11
19
100 %
Wealth management deposits represent deposit balances of the Company’s subsidiary banks from brokerage customers of
Wintrust Investments, CDEC, trust and asset management customers of the Company and brokerage customers from
unaffiliated companies which have been placed into deposit accounts.
The scheduled maturities of time certificates of deposit at December 31, 2020 and 2019 are as follows:
(Dollars in thousands)
Due within one year
Due in one to two years
Due in two to three years
Due in three to four years
Due in four to five years
Due after five years
Total time certificate of deposits
2020
2019
3,907,724 $
853,915
170,052
28,896
15,233
808
4,976,628 $
3,420,207
2,024,189
114,103
37,743
26,239
790
5,623,271
$
$
The following table sets forth the scheduled maturities of time deposits in denominations of $100,000 or more at December 31,
2020 and 2019:
(Dollars in thousands)
Maturing within three months
After three but within six months
After six but within 12 months
After 12 months
Total
2020
2019
584,956 $
913,216
1,156,401
701,993
3,356,566 $
756,974
893,023
728,255
1,466,201
3,844,453
$
$
Time deposits in denominations of $250,000 or more were $1.6 billion and $1.7 billion at December 31, 2020 and 2019,
respectively.
139
(11) Federal Home Loan Bank Advances
A summary of the outstanding FHLB advances at December 31, 2020 and 2019, is as follows:
(Dollars in thousands)
1.75% advance due June 2020
1.72% advance due June 2020
1.88% advance due June 2021
0.00% advance due May 2021
0.00% advance due April 2024
2.98% advance due August 2024
2.05% variable-rate advance due January 2028
2.18% advance due February 2029
1.36% advance due December 2029
1.11% advance due February 2030
Total FHLB advances
2020
2019
$
$
— $
—
2,987
60,000
442
25,000
100,000
440,000
100,000
500,000
1,228,429 $
3,981
2,487
2,960
—
442
25,000
100,000
440,000
100,000
—
674,870
FHLB advances consist of obligations of the banks and are collateralized by qualifying commercial and residential real estate
and home equity loans and certain securities. The banks have arrangements with the FHLB whereby, based on available
collateral, they could have borrowed an additional $3.4 billion at December 31, 2020.
FHLB advances are stated at par value of the debt adjusted for unamortized prepayment fees paid at the time of prior
restructurings of FHLB advances and unamortized fair value adjustments recorded in connection with advances acquired
through acquisitions and debt issuance costs. Unamortized prepayment fees are amortized as an adjustment to interest expense
using the effective interest method.
In 2019, the Company paid-off approximately $315.0 million of FHLB advances prior to the respective maturity date.
Approximately $640.0 million of the FHLB advances outstanding at December 31, 2020, have varying put or call dates ranging
from January 2019 to December 2021. At December 31, 2020, the weighted average contractual interest rate on FHLB
advances was 1.57%.
(12) Subordinated Notes
At December 31, 2020, the Company had outstanding subordinated notes totaling $436.5 million compared to $436.1 million at
December 31, 2019. In 2019, the Company issued $300.0 million of subordinated notes receiving $296.7 million in proceeds,
net of underwriting discount. The notes have a stated interest rate of 4.85% and mature in June 2029. In 2014, the Company
issued $140.0 million of subordinated notes receiving $139.1 million in proceeds, net of underwriting discount. The notes have
a stated interest rate of 5.00% and mature in June 2024.
In connection with the issuance of subordinated notes in 2019 and 2014, the Company incurred costs totaling $3.3 million and
$1.3 million, respectively. These costs are a direct deduction from the carrying amount of the subordinated notes and are
amortized to interest expense using the effective interest method. At December 31, 2020, the unamortized balances of costs for
both issuances were approximately $3.5 million. These subordinated notes qualify as Tier II capital under the regulatory capital
requirements, subject to restrictions.
(13) Other Borrowings
The following is a summary of other borrowings at December 31, 2020 and 2019:
(Dollars in thousands)
Notes payable
Short-term borrowings
Other
Secured borrowings
Total other borrowings
2020
2019
101,710 $
11,366
65,108
340,744
518,928 $
123,090
20,520
46,447
228,117
418,174
$
$
140
Notes Payable
On September 18, 2018, the Company established a $150.0 million term facility (“Term Facility”), which is part of a $200.0
million loan agreement (“Credit Agreement”) with unaffiliated banks. The Credit Agreement consists of the Term Facility with
an original outstanding balance of $150.0 million and a $50.0 million revolving credit facility (“Revolving Credit Facility”). At
December 31, 2020, the Company had a notes payable balance of $101.7 million under the Term Facility. The Term Facility is
stated at par of the current outstanding balance of the debt adjusted for unamortized costs paid by the Company in relation to
the debt issuance. The Company was contractually required to borrow the entire amount of the Term Facility on September 18,
2018 and all such borrowings must be repaid by September 18, 2023. Beginning December 31, 2018, the Company is required
to make quarterly payments of principal plus interest on the Term Facility. At December 31, 2020, the Company had no
outstanding balance under the Revolving Credit Facility. Unamortized costs paid by the Company in relation to the issuance of
the Revolving Credit Facility are classified in other assets on the Consolidated Statements of Condition.
An amendment to the Credit Agreement was executed on and effective as of September 15, 2020. The amendment provided for,
among other things, extension of the maturity date under the Revolving Credit Facility to September 14, 2021, revision of
certain financial covenants; and the addition of a mechanism to replace LIBOR with an alternate benchmark rate.
Borrowings under the Credit Agreement that are considered “Base Rate Loans” bear interest at a rate equal to the sum of (1) 60
basis points (in the case of a borrowing under the Revolving Credit Facility) or 75 basis points (in the case of a borrowing under
the Term Facility) plus (2) the highest of (a) the federal funds rate plus 50 basis points, (b) the lender's prime rate, and (c) the
Eurodollar Rate (as defined below) that would be applicable for an interest period of one month plus 100 basis points.
Borrowings under the agreement that are considered “Eurodollar Rate Loans” bear interest at a rate equal to the sum of (1) 135
basis points (in the case of a borrowing under the Revolving Credit Facility) or 125 basis points (in the case of a borrowing
under the Term Facility) plus (2) the LIBOR rate for the applicable period, as adjusted for statutory reserve requirements for
eurocurrency liabilities (the “Eurodollar Rate”). A commitment fee is payable quarterly equal to 0.30% of the actual daily
amount by which the lenders' commitment under the Revolving Credit Facility exceeded the amount outstanding under such
facility.
Borrowings under the amended Credit Agreement are secured by pledges of and first priority perfected security interests in the
Company's equity interest in its bank subsidiaries and contain several restrictive covenants, including the maintenance of
various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and other
indebtedness. In September 2020, the required levels to maintain for certain restrictive covenants within the Credit Agreement
were amended. At December 31, 2020, the Company was in compliance with all such covenants. The Revolving Credit Facility
and the Term Facility are available to be utilized, as needed, to provide capital to fund continued growth at the Company’s
banks and to serve as an interim source of funds for acquisitions, common stock repurchases or other general corporate
purposes.
In connection with the establishment of the Credit Agreement, all outstanding notes payable under a $150.0 million loan
agreement with unaffiliated banks dated December 15, 2014 (as subsequently amended) were paid in full. This loan agreement
consisted of a term facility with an original outstanding balance of $75.0 million and a $75.0 million revolving credit facility.
Short-term Borrowings
Short-term borrowings include securities sold under repurchase agreements and federal funds purchased. These borrowings
totaled $11.4 million and $20.5 million at December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019,
securities sold under repurchase agreements represent $11.4 million and $20.5 million, respectively, of customer sweep
accounts in connection with master repurchase agreements at the banks. The Company records securities sold under repurchase
agreements at their gross value and does not offset positions on the Consolidated Statements of Condition. As of December 31,
2020, the Company had pledged securities related to its customer balances in sweep accounts of $15.9 million. Securities
pledged for customer balances in sweep accounts and short-term borrowings from brokers are maintained under the Company’s
control and consist of U.S. Government agencies and mortgage-backed securities. These securities are included in the available-
for-sale portfolio as reflected on the Company’s Consolidated Statements of Condition.
141
The following is a summary of these securities pledged as of December 31, 2020 disaggregated by investment category and
maturity, and reconciled to the outstanding balance of securities sold under repurchase agreements:
(Dollars in thousands)
Available-for-sale securities pledged
U.S. Government agencies
Mortgage-backed securities
Total collateral pledged
Excess collateral
Securities sold under repurchase agreements
Other Borrowings
Overnight
Sweep
Collateral
$ 11,016
4,873
$ 15,889
4,523
$ 11,366
Other borrowings at December 31, 2020 and 2019 represent a fixed-rate promissory note issued by the Company in June 2017
and amended in March 2020 (“Fixed-Rate Promissory Note”) related to and secured by three office buildings owned by the
Company. At December 31, 2020, the Fixed-Rate Promissory Note had a balance of $65.1 million. Under the Fixed-Rate
Promissory Note, during the three months ended March 31, 2020, the Company made monthly principal payments and paid
interest at a fixed rate of 3.36%. An amendment to the Fixed-Rate Promissory Note was executed on and became effective as of
March 31, 2020. The amendment increased the principal amount to $66.4 million, reduced the interest rate to 3.00% and
extended the maturity date to March 31, 2025. The Fixed-Rate Promissory Note contains several restrictive covenants,
including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on
dividends and other indebtedness. At December 31, 2020, the Company was in compliance with all such covenants.
Secured Borrowings
Secured borrowings at December 31, 2020 primarily represent transactions to sell an undivided co-ownership interest in all
receivables owed to the Company's subsidiary, FIFC Canada. In December 2014, FIFC Canada sold such interest to an
unrelated third party in exchange for a cash payment of approximately C$150 million pursuant to a receivables purchase
agreement (“Receivables Purchase Agreement”). The Receivables Purchase Agreement was amended in December 2015,
extending the maturity date from December 15, 2015 to December 15, 2017. Additionally, at that time, the unrelated third party
paid an additional C$10 million, which increased the total payments to C$160 million. The Receivables Purchase Agreement
was again amended in December 2017, extending the maturity date from December 15, 2017 to December 16, 2019.
Additionally, at that time, the unrelated third party paid an additional C$10 million, which increased the total payments to
C$170 million. In June 2018, the unrelated third party paid an additional C$20 million, which increased the total payments to
C$190 million. The Receivables Purchase Agreement was again amended in February 2019, effectively extending the maturity
date from December 16, 2019 to December 15, 2020. Additionally, in February 2019, the unrelated third party paid an
additional C$20 million, which increased the total payments to C$210 million. In May 2019, the unrelated third party paid an
additional C$70 million, which increased the total payments to C$280 million. In January 2020, the unrelated third party paid
an additional C$40 million, which increased the total payments to C$320 million, and the Receivables Purchase Agreement was
amended to effectively extend the maturity date from December 15, 2020 to December 15, 2021. In May 2020, the unrelated
third party paid an additional C$100 million, which increased the total payments to C$420 million. These transactions were not
considered sales of receivables and, as such, related proceeds received are reflected on the Company’s Consolidated Statements
of Condition as a secured borrowing owed to the unrelated third party, net of unamortized debt issuance costs, and translated to
the Company’s reporting currency as of the respective date. At December 31, 2020, the translated balance of the secured
borrowing totaled $329.9 million compared to $215.5 million at December 31, 2019. Additionally, the interest rate under the
Receivables Purchase Agreement at December 31, 2020 was 1.193%. The remaining $10.8 million within secured borrowings
at December 31, 2020 represents other sold interests in certain loans by the Company that were not considered sales and, as
such, related proceeds received are reflected on the Company’s Consolidated Statements of Condition as a secured borrowing
owed to the various unrelated third parties.
(14) Junior Subordinated Debentures
As of December 31, 2020, the Company owned 100% of the common securities of eleven trusts, Wintrust Capital Trust III,
Wintrust Statutory Trust IV, Wintrust Statutory Trust V, Wintrust Capital Trust VII, Wintrust Capital Trust VIII, Wintrust
Capital Trust IX, Northview Capital Trust I, Town Bankshares Capital Trust I, First Northwest Capital Trust I, Suburban
Illinois Capital Trust II, and Community Financial Shares Statutory Trust II (the “Trusts”) set up to provide long-term
142
financing. The Northview, Town, First Northwest, Suburban and Community Financial Shares capital trusts were acquired as
part of the acquisitions of Northview Financial Corporation, Town Bankshares, Ltd., First Northwest Bancorp, Inc., Suburban
Illinois Bancorp, Inc. and Community Financial Shares, Inc., respectively. The Trusts were formed for purposes of issuing trust
preferred securities to third-party investors and investing the proceeds from the issuance of the trust preferred securities and
common securities solely in junior subordinated debentures issued by the Company (or assumed by the Company in connection
with an acquisition), with the same maturities and interest rates as the trust preferred securities. The junior subordinated
debentures are the sole assets of the Trusts. In each Trust, the common securities represent approximately 3% of the junior
subordinated debentures and the trust preferred securities represent approximately 97% of the junior subordinated debentures.
The Trusts are reported in the Company’s consolidated financial statements as unconsolidated subsidiaries. Accordingly, in the
Consolidated Statements of Condition, the junior subordinated debentures issued by the Company to the Trusts are reported as
liabilities and the common securities of the Trusts, all of which are owned by the Company, are included in investment
securities.
The following table provides a summary of the Company’s junior subordinated debentures as of December 31, 2020 and 2019.
The junior subordinated debentures represent the par value of the obligations owed to the Trusts.
(Dollars in thousands)
Wintrust Capital Trust III
Wintrust Statutory Trust IV
Wintrust Statutory Trust V
Wintrust Capital Trust VII
Wintrust Capital Trust VIII
Wintrust Capital Trust IX
Northview Capital Trust I
Town Bankshares Capital Trust I
First Northwest Capital Trust I
Suburban Illinois Capital Trust II
Community Financial Shares
Statutory Trust II
Total
Common
Securities
Trust
Preferred
Securities
Junior
Subordinated
Debentures
2020
2019
$
774 $ 25,000 $
25,774 $
25,774
20,000
40,000
50,000
25,000
50,000
6,000
6,000
5,000
20,619
41,238
51,550
26,238
51,547
6,186
6,186
5,155
20,619
41,238
51,550
26,238
51,547
6,186
6,186
5,155
15,000
15,464
15,464
619
1,238
1,550
1,238
1,547
186
186
155
464
109
Rate
Structure
Contractual
rate at
12/31/2020
Issue Date
Maturity
Date
Earliest
Redemption
Date
L+3.25
L+2.80
L+2.60
L+1.95
L+1.45
L+1.63
L+3.00
L+3.00
L+3.00
L+1.75
3.49 % 04/2003
04/2033
3.05
2.85
2.17
1.70
1.85
3.21
3.21
3.25
1.97
12/2003
12/2033
05/2004
05/2034
12/2004
03/2035
08/2005
09/2035
09/2006
09/2036
08/2003
11/2033
08/2003
11/2033
05/2004
05/2034
12/2006
12/2036
04/2008
12/2008
06/2009
03/2010
09/2010
09/2011
08/2008
08/2008
05/2009
12/2011
3,500
3,609
3,609
L+1.62
1.84
06/2007
09/2037
06/2012
$ 253,566 $ 253,566
2.43 %
The junior subordinated debentures totaled $253.6 million at December 31, 2020 and 2019.
The interest rates on the variable rate junior subordinated debentures are based on the three-month LIBOR rate and reset on a
quarterly basis. At December 31, 2020, the weighted average contractual interest rate on the junior subordinated debentures was
2.43%. The Company entered into interest rate swaps with an aggregate notional value of $210.0 million to hedge the variable
cash flows on certain junior subordinated debentures. The hedge-adjusted contractual interest rate on the junior subordinated
debentures as of December 31, 2020, was 3.99%. Distributions on the common and preferred securities issued by the Trusts are
payable quarterly at a rate per annum equal to the interest rates being earned by the Trusts on the junior subordinated
debentures. Interest expense on the junior subordinated debentures is deductible for income tax purposes.
The Company has guaranteed the payment of distributions and payments upon liquidation or redemption of the trust preferred
securities, in each case to the extent of funds held by the Trusts. The Company and the Trusts believe that, taken together, the
obligations of the Company under the guarantees, the junior subordinated debentures, and other related agreements provide, in
the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of all of the obligations of the Trusts
under the trust preferred securities. Subject to certain limitations, the Company has the right to defer the payment of interest on
the junior subordinated debentures at any time, or from time to time, for a period not to exceed 20 consecutive quarters. The
trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated
debentures at maturity or their earlier redemption. The junior subordinated debentures are redeemable in whole or in part prior
to maturity at any time after the earliest redemption dates shown in the table, and earlier at the discretion of the Company if
certain conditions are met, and, in any event, only after the Company has obtained Federal Reserve Bank (“FRB”) approval, if
then required under applicable guidelines or regulations.
At December 31, 2020, the Company included $245.5 million of the junior subordinated debentures, net of common securities,
in Tier 2 regulatory capital.
143
(15) Revenue from Contracts with Customers
Disaggregation of Revenue
The following table presents revenue from contracts with customers, disaggregated by the revenue source:
(Dollars in thousands)
Revenue from contracts with customers
Brokerage and insurance product
commissions
Trust
Asset management
Total wealth management
Location in income statement
Wealth management
Wealth management
Wealth management
Mortgage broker fees
Mortgage banking
Service charges on deposit accounts
Service charges on deposit accounts
Administrative services
Card related fees
Other deposit related fees
Other non-interest income
Other non-interest income
Other non-interest income
Total revenue from contracts
with customers
Wealth Management Revenue
December 31,
2020
Years Ended
December 31,
2019
December 31,
2018
$
18,731 $
18,825 $
18,392
63,213
100,336
368
45,023
4,385
7,579
12,439
18,767
59,522
97,114
768
39,070
4,197
7,816
12,500
22,391
13,263
55,309
90,963
1,188
36,404
4,625
7,441
11,892
$
170,130 $
161,465 $
152,513
Wealth management revenue is comprised of brokerage and insurance product commissions, managed money fees and trust and
asset management revenue of the Company's four wealth management subsidiaries: Wintrust Investments, Great Lakes
Advisors, CTC and CDEC. All wealth management revenue is recognized in the wealth management segment.
Brokerage and insurance product commissions consists primarily of commissions earned from trade execution services on
behalf of customers and from selling mutual funds, insurance and other investment products to customers. For trade execution
services, the Company recognizes commissions and receives payment from the brokerage customers at the point of transaction
execution. Commissions received from the investment or insurance product providers are recognized at the point of sale of the
product. The Company also receives trail and other commissions from providers for certain plans. These are generally based on
qualifying account values and are recognized once the performance obligation, specific to each provider, is satisfied on a
monthly, quarterly or annual basis.
Trust revenue is earned primarily from trust and custody services that are generally performed over time as well as fees earned
on funds held during the facilitation of tax-deferred like-kind exchange transactions. Revenue is determined periodically based
on a schedule of fees applied to the value of each customer account using a time-elapsed method to measure progress toward
complete satisfaction of the performance obligation. Fees are typically billed on a calendar month or quarter basis in advance or
in arrears depending upon the contract. Upfront fees received related to the facilitation of tax-deferred like-kind exchange
transactions are deferred until the transaction is completed. Additional fees earned for certain extraordinary services performed
on behalf of the customers are recognized when the service has been performed.
Asset management revenue is earned from money management and advisory services that are performed over time. Revenue is
based primarily on the market value of assets under management or administration using a time-elapsed method to measure
progress toward complete satisfaction of the performance obligation. Fees are typically billed on a calendar month or quarter
basis in advance or in arrears depending upon the contract. Certain programs provide the customer with an option of paying
fees as a percentage of the account value or incurring commission charges for each trade similar to brokerage and insurance
product commissions. Trade commissions and any other fees received for additional services are recognized at a point in time
once the performance obligation is satisfied.
Mortgage Broker Fees
For customers desiring a mortgage product not currently offered by the Company, the Company may refer such customers and,
with permission, direct such customers' applications to certain third party mortgage brokers. Mortgage broker fees are received
144
from these brokers for such customer referrals upon settlement of the underlying mortgage. The Company's entitlement to the
consideration is contingent on the settlement of the mortgage which is highly susceptible to factors outside of the Company's
influence, such as the third party broker's underwriting requirements. Also, the uncertainty surrounding the consideration could
be resolved in varying lengths of time, dependent upon the third party brokers. Therefore, mortgage broker fees are recognized
at the settlement of the underlying mortgage when the consideration is received. Broker fees are recognized in the community
banking segment.
Service Charges on Deposit Accounts
Service charges on deposit accounts include fees charged to deposit customers for various services, including account analysis
services, and are based on factors such as the size and type of customer, type of product and number of transactions. The fees
are based on a standard schedule of fees and, depending on the nature of the service performed, the service is performed at a
point in time or over a period of a month. When the service is performed at a point in time, the Company recognizes and
receives revenue when the service has been performed. When the service is performed over a period of a month, the Company
recognizes and receives revenue in the month the service has been performed. Service charges on deposit accounts are
recognized in the community banking segment.
Administrative Services
Administrative services revenue is earned from providing outsourced administrative services, such as data processing of
payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States. Fees
are charged periodically (typically a payroll cycle) and computed in accordance with the contractually determined rate applied
to the total gross billings administered for the period. The revenue is recognized over the period using a time-elapsed method to
measure progress toward complete satisfaction of the performance obligation. Other fees are charged on a per occurrence basis
as the service is provided in the billing cycle. The Company has certain contracts with customers to perform outsourced
administrative services and short-term accounts receivable financing. For these contracts, the total fee is allocated between the
administrative services revenue and interest income during the client onboarding process based on the specific client and
services provided. Administrative services revenue is recognized in the specialty finance segment.
Card and Deposit Related Fees
Card related fees include interchange and merchant revenue, and fees related to debit and credit cards. Interchange revenue is
related to the Company issued debit cards. Other deposit related fees primarily include pay by phone processing fees, ATM and
safe deposit box fees, check order charges and foreign currency related fees. Card and deposit related fees are generally based
on volume of transactions and are recognized at the point in time when the service has been performed. For any consideration
that is constrained, the revenue is recognized once the uncertainty is known. Upfront fees received from certain contracts are
recognized on a straight line basis over the term of the contract. Card and deposit related fees are recognized in the community
banking segment.
Contract Balances
The following table provides information about contract assets, contract liabilities and receivables from contracts with
customers:
(Dollars in thousands)
Contract assets
Contract liabilities
Mortgage broker fees receivable
Administrative services receivable
Wealth management receivable
Card related fees receivable
December 31,
2020
December 31,
2019
— $
—
1,548 $
1,356
$
$
$
20 $
64
10,144
783
19
194
9,118
266
9,597
Total receivables from contracts with customer
$
11,011 $
145
Contract liabilities represent upfront fees that the Company received at inception of certain contracts. The revenue recognized
that was included in the contract liability balance at beginning of the period totaled $1.4 million and $759,000 for the years
ended December 31, 2020 and 2019, respectively. Receivables are recognized in the period the Company provides services
when the Company's right to consideration is unconditional. Card related fee receivable is the result of volume based fee that
the Company receives from a customer on an annual basis in the second quarter of each year. Payment terms on other invoiced
amounts are typically 30 days or less. Contract liabilities and receivables from contracts with customers are included within the
accrued interest payable and other liabilities and accrued interest receivable and other assets line items, respectively, in the
Consolidated Statements of Condition.
Transaction price allocated to the remaining performance obligations
For contracts with an original expected length of more than one year, the following table presents the estimated future timing of
recognition of upfront fees related to card and deposit related fees. These upfront fees represent performance obligations that
are unsatisfied or partially unsatisfied at the end of the reporting period.
(Dollars in thousands)
Estimated—2021
Estimated—2022
Estimated—2023
Estimated—2024
Total
Practical Expedients and Exemptions
$
798
300
300
150
$
1,548
The Company does not adjust the promised amount of consideration for the effects of a significant financing component if the
Company expects, at contract inception, that the period between when the Company transfers a promised service to a customer
and when the customer pays for that services is one year or less.
The Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period
of the asset that the entity otherwise would have recognized is one year or less.
146
(16) Lease Commitments
The following tables provide a summary of lease costs and future required fixed payments related to the Company's leasing
arrangements in which it is the lessee:
(Dollars in thousands)
Operating lease cost
Finance lease cost:
Amortization of right-of-use asset
Interest on lease liability
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Cash paid for amounts included in the measurement of operating lease liabilities
Cash paid for amounts included in the measurement of finance lease liabilities
Right-of-use asset obtained in exchange for new operating lease liabilities
Right-of-use asset obtained in exchange for new finance lease liabilities
Weighted average remaining lease term - operating leases
Weighted average remaining lease term - finance leases
Weighted average discount rate - operating leases
Weighted average discount rate - finance leases
(In thousands)
2021
2022
2023
2024
2025
2026 and thereafter
Total minimum future amounts
Impact of measuring the lease liability on a discounted basis
Total lease liability
Year Ended
December 31,
2020
$
21,577
87
155
346
3,917
(696)
25,386
22,747
157
3,659
—
12.8 years
38.6 years
4.13 %
4.43 %
Payments
22,022
22,165
19,949
18,841
18,218
134,525
235,720
(55,248)
180,472
$
$
$
$
$
147
In addition to the lessee arrangements discussed above, the Company also leases certain owned premises and receives rental
income from such lessor agreements. Gross rental income related to the Company’s buildings totaled $8.7 million, $9.4 million
and $11.8 million, in 2020, 2019 and 2018, respectively. The approximate annual gross rental receipts under noncancelable
agreements with remaining terms in excess of one year as of December 31, 2020, are as follows (in thousands):
2021
2022
2023
2024
2025
2026 and thereafter
Total minimum future amounts
(17) Income Taxes
$
$
Receipts
5,208
3,411
2,176
763
328
588
12,474
Income tax expense (benefit) for the years ended December 31, 2020, 2019 and 2018 is summarized as follows:
(Dollars in thousands)
Current income taxes:
Federal
State
Foreign
Total current income taxes
Deferred income taxes:
Federal
State
Foreign
Total deferred income taxes
Total income tax expense
2020
Years Ended December 31,
2019
2018
$
$
$
$
$
75,154 $
19,194
6,501
100,849 $
284 $
(2,834)
(1,508)
(4,058) $
96,791 $
55,664 $
18,270
5,913
79,847 $
33,345 $
13,099
(1,887)
44,557 $
124,404 $
44,266
18,349
(872)
61,743
40,500
11,705
3,019
55,224
116,967
The Company's income before income taxes in 2020, 2019 and 2018 includes $15.4 million, $12.2 million and $5.3 million,
respectively, of foreign income attributable to its Canadian subsidiary.
The tax effects of certain transactions are recorded directly to shareholders’ equity rather than income tax expense. The tax
effect of fair value adjustments on securities available-for-sale and derivative instruments in cash flow hedges are recorded
directly to shareholders’ equity as part of other comprehensive income (loss) and are reflected on the Consolidated Statements
of Comprehensive Income. The tax effect of unrealized gains and losses on certain foreign currency transactions is also
recorded in shareholders’ equity as part of other comprehensive income (loss).
148
A reconciliation of the differences between taxes computed using the statutory Federal income tax rate and actual income tax
expense is as follows:
(Dollars in thousands)
Income tax expense using the statutory Federal income tax rate of
21% on income before taxes
Increase (decrease) in tax resulting from:
Tax-exempt interest, net of interest expense disallowance
State taxes, net of federal tax benefit
Income earned on bank owned life insurance
Deficient (excess) tax benefits on share based compensation
Enactment of Tax Act - Re-measurement of net deferred tax
liabilities
Meals, entertainment and related expenses
FDIC insurance expense
Non-deductible compensation expense
Foreign subsidiary, net
Tax benefits related to tax credits, net
Release of state uncertain tax positions
Other, net
Income tax expense
2020
Years Ended December 31,
2019
2018
$
81,854 $
100,821 $
96,628
(2,970)
20,098
(956)
466
—
992
4,605
398
2,080
(1,902)
(7,173)
(701)
96,791 $
(3,958)
24,600
(959)
(1,447)
—
2,148
1,274
1,019
1,979
(513)
—
(560)
124,404 $
(3,869)
23,584
(1,002)
(3,107)
(1,209)
1,840
1,832
1,366
1,591
(656)
—
(31)
116,967
$
In accordance with SAB 118, the Company recognized a net tax benefit of $1.2 million in 2018 as it finalized the provisional
impact of the enactment of the Tax Act initially recorded in 2017.
149
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at
December 31, 2020 and 2019 are as follows:
(Dollars in thousands)
Deferred tax assets:
Allowance for credit losses
Right-of-use liability
Deferred compensation
Net unrealized losses on derivatives included in other comprehensive income
Deferred loan fees and costs
Stock-based compensation
Federal net operating loss carryforward
Nonaccrued interest
Loans
Other real estate owned
AMT credit carryforward
Other
Total gross deferred tax assets
Deferred tax liabilities:
Equipment leasing
Premises and equipment
Right-of-use asset
Net unrealized gains on securities included in other comprehensive income
Capitalized servicing rights
Fair value adjustments on loans
Goodwill and intangible assets
Deferred loan fees and costs
Other
Total gross deferred tax liabilities
Net deferred tax liabilities
2020
2019
$
$
101,021 $
47,895
23,975
8,404
3,821
3,363
2,722
1,949
1,196
930
—
6,083
201,359
146,393
62,278
39,568
25,700
22,367
12,042
8,227
—
7,599
324,174
(122,815) $
41,809
52,472
23,555
4,781
—
8,487
4,016
2,164
5,673
2,198
1,338
2,366
148,859
120,114
51,544
43,912
5,443
20,277
3,603
12,819
4,604
5,397
267,713
(118,854)
Management has determined that a valuation allowance is not required for the deferred tax assets at December 31, 2020 because
it is more likely than not that these assets could be realized through future reversals of existing taxable temporary differences,
tax planning strategies and future taxable income. This conclusion is based on the Company’s historical earnings, its current
level of earnings and prospects for continued growth and profitability.
The Company has Federal net operating loss (“NOL”) carryforwards of $13.0 million that begin to expire in 2029 through 2037
and are subject to IRC Section 382 annual limitation. The NOL carryforwards were a result of acquisitions.
The Company accounts for uncertainties in income taxes in accordance with ASC 740, Income Taxes. The following table
provides a reconciliation of the beginning and ending amounts of gross unrecognized tax benefits:
(Dollars in thousands)
Unrecognized tax benefits at beginning of year
Gross increases for tax positions taken in current period
Gross (decreases) increases for positions taken in prior periods
Settlements with taxing authorities
Unrecognized tax benefits at end of year
2020
Years Ended December 31,
2019
2018
$
$
10,840 $
—
(10,571)
(269)
— $
11,538 $
—
(698)
—
10,840 $
10,821
—
717
—
11,538
At December 31, 2020, the Company had no unrecognized tax benefits related to uncertain tax positions that, if recognized,
would impact the effective tax rate. Interest and penalties on unrecognized tax positions are recorded in income tax expense.
There was no interest income accrued on unrecognized tax benefits, net of tax effects at December 31, 2020 compared to $1.7
million at December 31, 2019. Interest and penalties are included in the liability for uncertain tax positions, but are not included
150
in the unrecognized tax benefits rollforward presented above. The Company does not expect the total amount of unrecognized
tax benefits to significantly increase or decrease in the next twelve months.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in numerous state jurisdictions
and in Canada. In the ordinary course of business, we are routinely subject to audit by the taxing authorities of these
jurisdictions. Currently, the Company’s U.S. federal income tax returns are open and subject to audit for the 2017 tax return
year forward, and in general, the Company’s state income tax returns are open and subject to audit from the 2017 tax return
year forward, subject to individual state statutes of limitation. The Company’s Canadian subsidiary’s Canadian income tax
returns are also subject to audit for the 2017 tax return year forward.
(18) Stock Compensation Plans and Other Employee Benefit Plans
Stock Incentive Plan
In May 2015, the Company’s shareholders approved the 2015 Stock Incentive Plan (“the 2015 Plan”) which provides for the
issuance of up to 5,485,000 shares of common stock. The 2015 Plan replaced the 2007 Stock Incentive Plan (“the 2007 Plan”),
which replaced the 1997 Stock Incentive Plan (“the 1997 Plan”). The 2015 Plan, the 2007 Plan and the 1997 Plan are
collectively referred to as “the Plans.” The 2015 Plan has substantially similar terms to the 2007 Plan and the 1997 Plan.
Awards granted under the Plans for which common shares are not issued by reason of cancellation, forfeiture, lapse of such
award or settlement of such award in cash, are again available under the 2015 Plan. All grants made after the approval of the
2015 Plan have been made pursuant to the 2015 Plan. As of December 31, 2020, approximately 2.1 million shares were
available for future grants assuming the maximum number of shares are issued for the performance awards outstanding. The
Plans cover substantially all employees of Wintrust. The Compensation Committee of the Board of Directors administers all
stock-based compensation programs and authorizes all awards granted pursuant to the Plans.
The Plans permit the grant of incentive stock options, non-qualified stock options, stock appreciation rights, stock awards,
restricted share or unit awards, performance awards and other incentive awards valued in whole or in part by reference to the
Company’s common stock, all on a stand-alone, combination or tandem basis. The Company historically awarded stock-based
compensation in the form of time-vested non-qualified stock options and time-vested restricted share unit awards (“restricted
shares”). The grants of options provide for the purchase of shares of the Company’s common stock at the fair market value of
the stock on the date the options are granted. Stock options generally vest ratably over periods of three to five years and have a
maximum term of seven years from the date of grant. Restricted shares entitle the holders to receive, at no cost, shares of the
Company’s common stock. Restricted shares generally vest over periods of one to five years from the date of grant.
Beginning in 2011, the Company has awarded annual grants under the Long-Term Incentive Program (“LTIP”), which is
administered under the Plans. The LTIP is designed in part to align the interests of management with interests of shareholders,
foster retention, create a long-term focus based on sustainable results and provide participants a target long-term incentive
opportunity. LTIP grants in 2020 consisted of a combination of performance-based stock awards, performance-based cash
awards and time vested restricted shares. LTIP grants from 2017 through 2019 consisted of a combination of performance-
based stock awards and performance-based cash awards, and prior to 2017, nonqualified stock options were in the mix of award
types. It is anticipated that LTIP awards will continue to be granted annually. Performance-based stock and cash awards are
contingent upon the achievement of pre-established long-term performance goals set in advance by the Compensation
Committee over a three-year period starting at the beginning of each calendar year. These performance awards are granted at a
target level, and based on the Company’s achievement of the pre-established long-term goals, the actual payouts can range from
0% to 150% of the target award. The awards typically vest in the quarter after the end of the performance period upon
certification of the payout by the Compensation Committee of the Board of Directors. Holders of performance-based stock
awards are entitled to receive, at no cost, the shares earned based on the achievement of the pre-established long-term goals.
Holders of restricted share awards and performance-based stock awards received under the Plans are not entitled to vote or
receive cash dividends (or cash payments equal to the cash dividends) on the underlying common shares until the awards are
vested and shares are issued. Shares that are vested but are not issuable pursuant to deferred compensation arrangements accrue
additional shares based on the value of dividends otherwise paid. Except in limited circumstances, these awards are canceled
upon termination of employment without any payment of consideration by the Company.
Stock-based compensation is measured as the fair value of an award on the date of grant, and the measured cost is recognized
over the period which the recipient is required to provide service in exchange for the award. The fair value of restricted share
and performance-based stock awards is determined based on the average of the high and low trading prices on the grant date,
and the fair value of stock options is estimated using a Black-Scholes option-pricing model that utilizes various assumptions.
Option-pricing models require the input of highly subjective assumptions and are sensitive to changes in the option’s expected
life and the price volatility of the underlying stock, which can materially affect the fair value estimate. Options granted since the
151
inception of the LTIP in 2011 were primarily granted as LTIP awards. Expected life of the options granted since the inception
of the LTIP awards has been based on the safe harbor rule of the SEC Staff Accounting Bulletin No. 107 “Share-Based
Payment” as the Company believes historical exercise data may not provide a reasonable basis to estimate the expected term of
these options. Expected stock price volatility is based on historical volatility of the Company’s common stock, which correlates
with the expected life of the options. Management periodically reviews and adjusts the assumptions used to calculate the fair
value of an option in periods when options are granted. No options have been granted since 2016.
Stock based compensation is recognized based on the number of awards that are ultimately expected to vest, taking into account
expected forfeitures. In addition, for performance-based stock awards, an estimate is made of the number of shares expected to
vest as a result of actual performance against the performance criteria in the award to determine the amount of compensation
expense to recognize. The estimate is re-evaluated quarterly and total compensation expense is adjusted for any change in
estimate in the current period. Stock-based compensation expense recognized in the Consolidated Statements of Income was
$(4.9) million, $11.3 million and $13.5 million and the related tax (expense) benefits were $(914,000), $2.6 million and $3.1
million in 2020, 2019 and 2018, respectively.
A summary of the Plans’ stock option activity for the years ended December 31, 2020, 2019 and 2018 is as follows:
Stock Options
Outstanding at January 1, 2018
Granted
Exercised
Forfeited or canceled
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Outstanding at January 1, 2019
Granted
Options outstanding in acquired plans
Exercised
Forfeited or canceled
Outstanding at December 31, 2019
Exercisable at December 31, 2019
Outstanding at January 1, 2020
Granted
Exercised
Forfeited or canceled
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Vested or expected to vest at December 31, 2020
Common
Shares
Weighted Average
Strike Price
Remaining
Contractual Term
(1)
Intrinsic Value
($000)
(2)
1,084,756 $
—
(282,614)
(7,128)
795,014 $
613,932 $
795,014 $
—
106,748
(146,430)
—
755,332 $
735,396 $
755,332 $
—
(229,061)
(5,608)
520,663 $
512,762 $
520,663 $
41.98
—
41.25
39.84
42.25
42.54
42.25
—
38.83
38.84
—
42.43
42.42
42.43
—
42.29
44.34
42.47
42.46
42.47
3.1
3.1
2.8
2.7
1.9
1.8
1.9
$
$
$
$
$
$
$
19,268
14,705
21,503
20,947
9,694
9,555
9,694
(1) Represents the weighted average contractual remaining life in years.
(2) Aggregate intrinsic value represents the total pretax intrinsic value (i.e., the difference between the Company’s stock price at year end and the option
exercise price, multiplied by the number of shares) that would have been received by the option holders if they had exercised their options on the last
day of the year. Options with exercise prices above the year end stock price are excluded from the calculation of intrinsic value. The intrinsic value
will change based on the fair market value of the Company’s stock.
The aggregate intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018, was $4.1 million,
$4.7 million and $13.3 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled
$1.1 million, $1.3 million and $3.5 million for 2020, 2019 and 2018, respectively. Cash received from option exercises under
the Plans for the years ended December 31, 2020, 2019 and 2018 was $9.7 million, $5.7 million and $11.7 million, respectively.
152
A summary of the Plans’ restricted share activity for the years ended December 31, 2020, 2019 and 2018 is as follows:
Restricted Shares
Outstanding at January 1
Granted
Vested and issued
Forfeited or canceled
Outstanding at end of year
Vested, but not issuable at end of year
2020
2019
2018
Common
Shares
Weighted
Average
Grant-Date
Fair Value
144,328 $
117,571
(20,441)
(6,664)
234,794 $
93,969 $
60.37
60.85
74.42
73.54
59.02
52.11
Common
Shares
143,263 $
24,285
(21,529)
(1,691)
144,328 $
92,183 $
Weighted
Average
Grant-Date
Fair Value
60.80
68.58
70.99
79.50
60.37
52.24
Common
Shares
127,787 $
35,654
(18,324)
(1,854)
143,263 $
90,520 $
Weighted
Average
Grant-Date
Fair Value
53.33
84.36
54.31
63.50
60.80
51.94
A summary of the Plans’ performance-based stock award activity, based on the target level of the awards, for the years ended
December 31, 2020, 2019 and 2018 is as follows:
Performance Shares
Outstanding at January 1
Granted
Added by performance factor at vesting
Vested and issued
Forfeited or canceled
Outstanding at end of year
Vested, but deferred at year end
2020
2019
2018
Common
Shares
Weighted
Average
Grant-Date
Fair Value
465,515 $
170,032
48,831
(180,789)
(20,981)
482,608 $
34,609 $
74.37
63.61
72.59
72.59
72.46
71.15
43.14
Common
Shares
396,855 $
175,823
33,950
(128,238)
(12,875)
465,515 $
33,828 $
Weighted
Average
Grant-Date
Fair Value
67.71
71.56
40.99
41.00
75.08
74.37
43.01
Common
Shares
359,196 $
134,380
—
(82,307)
(14,414)
396,855 $
21,530 $
Weighted
Average
Grant-Date
Fair Value
54.37
88.27
—
44.39
60.05
67.71
43.54
At December 31, 2020, the maximum number of performance-based shares that could be issued on outstanding awards if
performance is attained at the maximum amount was approximately 707,000 shares.
The actual tax benefit realized upon the vesting and issuance of restricted shares and performance-based stock is based on the
fair value of the shares on the issue date and the estimated tax benefit of the awards is based on fair value of the awards on the
grant date. The actual tax benefit realized upon the vesting and issuance of restricted shares and performance-based stock in
2020 was $848,000 less than the expected tax benefit for those shares; in 2019 and 2018 the actual tax benefit was $870,000
and $994,000, respectively, more than the expected tax benefit for those shares. These differences in actual and expected tax
benefits were recorded to income tax expense.
As of December 31, 2020, there was $5.7 million of total unrecognized compensation cost related to non-vested share based
arrangements under the Plans. That cost is expected to be recognized over a weighted average period of approximately two
years. The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was $14.7 million, $9.8
million and $8.0 million, respectively.
The Company issues new shares to satisfy its obligation to issue shares granted pursuant to the Plans.
Cash Incentive and Retention Plan
The Cash Incentive and Retention Plan (“CIRP”) allows the Company to provide cash compensation to the Company’s and its
subsidiaries’ officers and employees. The CIRP is administered by the Compensation Committee of the Board of Directors. The
CIRP generally provides for the grants of cash awards, which may be earned pursuant to the achievement of performance
criteria established by the Compensation Committee and/or continued employment. The performance criteria, if any,
established by the Compensation Committee must relate to one or more of the criteria specified in the CIRP, which includes:
earnings, earnings growth, revenues, stock price, return on assets, return on equity, improvement of financial ratings,
achievement of balance sheet or income statement objectives and expenses. These criteria may relate to the Company, a
particular line of business or a specific subsidiary of the Company. The Company had no expense related to the CIRP in 2020,
2019 and 2018, and no awards were paid in those years. There were no outstanding awards under this plan at December 31,
2020.
153
Other Employee Benefits
Wintrust and its subsidiaries also provide 401(k) Retirement Savings Plans (“401(k) Plans”). The 401(k) Plans cover all
employees meeting certain eligibility requirements. Contributions by employees are made through salary deferrals at their
direction, subject to certain Plan and statutory limitations. Employer contributions to the 401(k) Plans are made at the
employer’s discretion. Generally, participants completing 501 hours of service are eligible to share in an allocation of employer
contributions. The Company’s expense for the employer contributions to the 401(k) Plans was approximately $13.8 million in
2020, $12.3 million in 2019, and $10.4 million in 2018.
The Wintrust Financial Corporation Employee Stock Purchase Plan (“ESPP”) is designed to encourage greater stock ownership
among employees, thereby enhancing employee commitment to the Company. The ESPP gives eligible employees the right to
accumulate funds over an offering period to purchase shares of common stock. All shares offered under the ESPP will be either
newly issued shares of the Company or shares issued from treasury, if any. In accordance with the ESPP, beginning January 1,
2015, the purchase price of the shares of common stock is equal to 95% of the closing price of the Company’s common stock
on the last day of the offering period. During 2020, 2019 and 2018, 75,763, 43,386 and 33,977, shares of common stock,
respectively, were purchased by participants and no compensation expense was recorded. The Company plans to continue to
offer common stock through this ESPP on an ongoing basis, and in 2018, increased the shares authorized under the ESPP by
200,000 shares. At December 31, 2020, the Company had an obligation to issue 14,056 shares of common stock to participants
and had 96,914 shares available for future grants under the ESPP.
As a result of the Company's acquisition of HPK Financial Corporation (“HPK”) in December 2012, the Company assumed the
obligations of a noncontributory pension plan. The HPK Plan was frozen as of December 31, 2006, with no additional credit
earned for service or compensation paid after that date. Similarly, in connection with the Company's acquisition of Diamond
Bancorp, Inc. ("Diamond") in October 2013, the Company assumed the obligation of Diamond's pension plan. The Diamond
Plan was frozen as of December 31, 2004, and only service and compensation prior to this date is considered in determining
benefits. In 2019, both of these plans were terminated and participant account balances were distributed. The Company
recorded no expense related to these plans in 2020, and $487,000 and ($38,000) of expense (income) in 2019 and 2018,
respectively.
The Company does not currently offer other postretirement benefits such as health care or other pension plans.
Directors Deferred Fee and Stock Plan
The Wintrust Financial Corporation Directors Deferred Fee and Stock Plan (“DDFS Plan”) allows directors of the Company
and its subsidiaries to choose to receive payment of directors’ fees in either cash or common stock of the Company and to defer
the receipt of the fees. The DDFS Plan is designed to encourage stock ownership by directors. All shares offered under the
DDFS Plan will be either newly issued shares of the Company or shares issued from treasury. The number of shares issued is
determined on a quarterly basis based on the fees earned during the quarter and the fair market value per share of the common
stock on the last trading day of the preceding quarter. The shares are issued annually and the directors are entitled to dividends
and voting rights upon the issuance of the shares. During 2020, an additional 200,000 shares were authorized under the DDFS
Plan. During 2020, 2019 and 2018, a total of 19,928 shares, 18,577 shares and 18,856 shares, respectively, were issued to
directors. For those directors that elect to defer the receipt of the common stock, the Company maintains records of stock units
representing an obligation to issue shares of common stock. The number of stock units equals the number of shares that would
have been issued had the director not elected to defer receipt of the shares. Additional stock units are credited at the time
dividends are paid, however no voting rights are associated with the stock units. The shares of common stock represented by the
stock units are issued in the year specified by the directors in their participation agreements. At December 31, 2020, the
Company has an obligation to issue 331,482 shares of common stock to directors and has 186,129 shares available for future
grants under the DDFS Plan.
(19) Regulatory Matters
Banking laws place restrictions upon the amount of dividends that can be paid to Wintrust by the banks. Based on these laws,
the banks could, subject to minimum capital requirements, declare dividends to Wintrust without obtaining regulatory approval
in an amount not exceeding (a) undivided profits, and (b) the amount of net income reduced by dividends paid for the current
and prior two years. During 2020, 2019 and 2018, cash dividends totaling $253.0 million, $139.0 million and $111.0 million,
respectively, were paid to Wintrust by the banks and other subsidiaries. As of December 31, 2020, the banks had approximately
$467.1 million available to be paid as dividends to Wintrust without prior regulatory approval and without reducing their capital
below the well-capitalized level.
154
The banks are also required by the Federal Reserve Act to maintain reserves against deposits. Reserves are held either in the
form of vault cash or balances maintained with the FRB and are based on the average daily deposit balances and statutory
reserve ratios prescribed by the type of deposit account. In March 2020, the FRB adopted a rule to amend its reserve regulation
which included lowering the reserve requirement to zero percent. As a result, at December 31, 2020, there was no reserve
balance required to be maintained at the FRB. At December 31, 2019, reserve balance of approximately $750.0 million was
required to be maintained at the FRB.
The Company and the banks are subject to various regulatory capital requirements established by the federal banking agencies
that take into account risk attributable to balance sheet and off-balance sheet activities. Failure to meet minimum capital
requirements can initiate certain mandatory — and possibly discretionary — actions by regulators, that if undertaken could
have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the banks must meet specific capital guidelines that involve
quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the banks to maintain
minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and
Tier 1 leverage capital (as defined) to average quarterly assets (as defined). The Federal Reserve’s capital guidelines require
bank holding companies to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8.0%, of which at
least 4.50% must be in the form of Common Equity Tier 1 capital and 6.0% must be in the form of Tier 1 capital. The Federal
Reserve also requires a minimum leverage ratio of Tier 1 capital to total assets of 4.0%. In addition, the Federal Reserve
continues to consider the Tier 1 leverage ratio in evaluating proposals for expansion or new activities.
As reflected in the following table, the Company met all minimum capital requirements at December 31, 2020 and 2019:
Total capital to risk weighted assets
Tier 1 capital to risk weighted assets
Common Equity Tier 1 capital to risk weighted assets
Tier 1 Leverage Ratio
2020
2019
12.6 %
10.0
8.8
8.1
12.2 %
9.6
9.2
8.7
Wintrust is designated as a financial holding company. Bank holding companies approved as financial holding companies may
engage in an expanded range of activities, including the businesses conducted by its wealth management subsidiaries. As a
financial holding company, Wintrust’s banks are required to maintain their capital positions at the “well-capitalized” level. As
of December 31, 2020, the banks were categorized as well capitalized under the regulatory framework for prompt corrective
action. The ratios required for the banks to be “well capitalized” by regulatory definition are 10.0%, 8.0%, 6.5% and 5.0% for
total capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, Common Equity Tier 1 capital to risk weighted assets
and Tier 1 leverage ratio, respectively.
155
The banks’ actual capital amounts and ratios as of December 31, 2020 and 2019 are presented in the following table:
December 31, 2020
December 31, 2019
Actual
Ratio
To Be Well
Capitalized by
Regulatory Definition
Amount
Ratio
Actual
Amount
Ratio
To Be Well
Capitalized by
Regulatory Definition
Amount
Ratio
Amount
$ 525,202
347,559
808,451
184,387
372,944
127,621
300,427
128,475
192,387
184,270
252,271
213,784
131,068
177,047
165,876
(Dollars in thousands)
Total Capital (to Risk Weighted Assets):
Lake Forest Bank
Hinsdale Bank
Wintrust Bank
Libertyville Bank
Barrington Bank
Crystal Lake Bank
Northbrook Bank
Schaumburg Bank
Village Bank
Beverly Bank
Town Bank
Wheaton Bank
State Bank of the Lakes
Old Plank Trail Bank
St. Charles Bank
Tier 1 Capital (to Risk Weighted Assets):
Lake Forest Bank
Hinsdale Bank
Wintrust Bank
Libertyville Bank
Barrington Bank
Crystal Lake Bank
Northbrook Bank
Schaumburg Bank
Village Bank
Beverly Bank
Town Bank
Wheaton Bank
State Bank of the Lakes
Old Plank Trail Bank
St. Charles Bank
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Lake Forest Bank
Hinsdale Bank
Wintrust Bank
Libertyville Bank
Barrington Bank
Crystal Lake Bank
Northbrook Bank
Schaumburg Bank
Village Bank
Beverly Bank
Town Bank
Wheaton Bank
State Bank of the Lakes
Old Plank Trail Bank
St. Charles Bank
$ 494,957
323,207
728,787
169,328
362,326
118,085
280,852
119,335
176,868
173,168
236,926
199,134
122,183
155,975
153,704
$ 494,957
323,207
728,787
169,328
362,326
118,085
280,852
119,335
176,868
173,168
236,926
199,134
122,183
155,975
153,704
12.0 % $ 436,884
274,208
12.7
697,039
11.6
161,448
11.4
316,946
11.8
111,594
11.4
257,849
11.7
113,610
11.3
161,866
11.9
152,521
12.1
213,661
11.8
186,919
11.4
113,363
11.6
147,607
12.0
138,774
12.0
11.3 % $ 349,507
219,366
11.8
557,631
10.5
129,158
10.5
253,556
11.4
89,275
10.6
206,279
10.9
90,888
10.5
129,493
10.9
122,017
11.4
170,929
11.1
149,535
10.7
90,690
10.8
118,085
10.9
111,019
11.1
11.3 % $ 283,975
178,235
11.8
453,075
10.5
104,941
10.5
206,015
11.4
72,536
10.6
167,602
10.9
73,846
10.5
105,213
10.9
99,139
11.4
138,880
11.1
121,497
10.7
73,686
10.8
95,944
10.9
90,203
11.1
10.0 % $ 461,643
339,158
10.0
709,328
10.0
173,298
10.0
320,347
10.0
124,373
10.0
273,571
10.0
123,145
10.0
171,084
10.0
170,716
10.0
226,252
10.0
187,518
10.0
127,003
10.0
161,899
10.0
156,023
10.0
8.0 % $ 440,585
328,046
8.0
668,922
8.0
164,915
8.0
313,195
8.0
119,374
8.0
260,577
8.0
118,260
8.0
161,666
8.0
164,827
8.0
217,958
8.0
181,195
8.0
119,740
8.0
155,975
8.0
151,665
8.0
6.5 % $ 440,585
328,046
6.5
668,922
6.5
164,915
6.5
313,195
6.5
119,374
6.5
260,577
6.5
118,260
6.5
161,666
6.5
164,827
6.5
217,958
6.5
181,195
6.5
119,740
6.5
155,975
6.5
151,665
6.5
12.0 % $ 386,358
268,915
12.6
602,969
11.8
148,745
11.7
263,235
12.1
102,488
12.1
213,524
12.5
102,250
12.0
149,803
11.4
148,838
11.5
197,639
11.5
165,019
11.4
110,369
11.5
139,529
11.6
133,119
11.7
11.4 % $ 309,087
215,132
12.2
482,375
11.1
118,996
11.1
210,588
11.9
81,991
11.7
170,819
11.9
81,800
11.6
119,842
10.8
119,071
11.1
158,111
11.0
132,015
11.0
88,295
10.9
111,623
11.2
106,495
11.4
11.4 % $ 251,133
174,795
12.2
391,930
11.1
96,684
11.1
171,102
11.9
66,617
11.7
138,791
11.9
66,463
11.6
97,372
10.8
96,745
11.1
128,465
11.0
107,262
11.0
71,740
10.9
90,694
11.2
86,528
11.4
10.0 %
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
10.0
8.0 %
8.0
8.0
8.0
8.0
8.0
8.0
8.0
8.0
8.0
8.0
8.0
8.0
8.0
8.0
6.5 %
6.5
6.5
6.5
6.5
6.5
6.5
6.5
6.5
6.5
6.5
6.5
6.5
6.5
6.5
156
(Dollars in thousands)
Tier 1 Leverage Ratio:
Lake Forest Bank
Hinsdale Bank
Wintrust Bank
Libertyville Bank
Barrington Bank
Crystal Lake Bank
Northbrook Bank
Schaumburg Bank
Village Bank
Beverly Bank
Town Bank
Wheaton Bank
State Bank of the Lakes
Old Plank Trail Bank
St. Charles Bank
December 31, 2020
December 31, 2019
Actual
Amount
Ratio
To Be Well
Capitalized by
Regulatory Definition
Amount
Ratio
Actual
Amount
Ratio
To Be Well
Capitalized by
Regulatory Definition
Amount
Ratio
$ 494,957
323,207
728,787
169,328
362,326
118,085
280,852
119,335
176,868
173,168
236,926
199,134
122,183
155,975
153,704
8.8 % $ 281,365
190,608
8.5
412,878
8.8
99,846
8.5
158,153
11.5
65,329
9.0
164,599
8.5
70,740
8.4
106,021
8.3
86,022
10.1
145,977
8.1
128,592
7.7
74,986
8.2
98,610
8.2
87,849
8.8
5.0 % $ 440,585
328,046
5.0
668,922
5.0
164,915
5.0
313,195
5.0
119,374
5.0
260,577
5.0
118,260
5.0
161,666
5.0
164,827
5.0
217,958
5.0
181,195
5.0
119,740
5.0
155,975
5.0
151,665
5.0
9.9 % $ 223,497
147,512
11.1
324,017
10.3
82,848
10.0
115,309
13.6
58,613
10.2
132,394
9.8
60,266
9.8
89,945
9.0
79,777
10.3
116,750
9.3
98,039
9.2
63,078
9.5
80,708
9.7
74,348
10.1
5.0 %
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
Wintrust’s mortgage banking division and broker/dealer subsidiary are also required to maintain minimum net worth capital
requirements with various governmental agencies. The mortgage banking division’s net worth requirements are governed by the
Department of Housing and Urban Development and the broker/dealer’s net worth requirements are governed by the SEC. As
of December 31, 2020, these business units met their minimum net worth capital requirements.
(20) Commitments and Contingencies
The Company has outstanding, at any time, a number of commitments to extend credit. These commitments include revolving
home equity line and other credit agreements, term loan commitments and standby and commercial letters of credit. Standby
and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third
party. Standby letters of credit are contingent upon the failure of the customer to perform according to the terms of the
underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate commerce and
typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and
the third party.
These commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in
the Consolidated Statements of Condition. Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash requirements. The Company uses the same credit
policies in making commitments as it does for on-balance sheet instruments. Commitments to extend commercial, commercial
real estate and construction loans totaled $6.4 billion and $5.1 billion as of December 31, 2020 and 2019, respectively, and
unused home equity lines totaled $756.2 million and $800.6 million as of December 31, 2020 and 2019, respectively. Standby
and commercial letters of credit totaled $348.2 million at December 31, 2020 and $291.8 million at December 31, 2019.
In addition, at December 31, 2020 and 2019, the Company had approximately $1.7 billion and $595.1 million, respectively, in
commitments to fund residential mortgage loans to be sold into the secondary market. These lending commitments are also
considered derivative instruments. The Company also enters into forward contracts for the future delivery of residential
mortgage loans at specified interest rates to reduce the interest rate risk associated with commitments to fund loans as well as
mortgage loans held-for-sale. These forward contracts are also considered derivative instruments and had contractual amounts
of approximately $2.3 billion at December 31, 2020 and $837.2 million at December 31, 2019. See Note 21, “Derivative
Financial Instruments,” for further discussion on derivative instruments.
The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. These
agreements usually require certain representations concerning credit information, loan documentation, collateral and
insurability. On occasion, investors have requested the Company to indemnify them against losses on certain loans or to
repurchase loans which the investors believe do not comply with applicable representations. Management maintains a liability
for estimated losses on loans expected to be repurchased or on which indemnification is expected to be provided and regularly
157
evaluates the adequacy of this recourse liability based on trends in repurchase and indemnification requests, actual loss
experience, known and inherent risks in the loans, and current economic conditions.
The Company sold approximately $7.6 billion of mortgage loans in 2020 and $4.5 billion in 2019. The liability for estimated
losses on repurchase and indemnification claims for residential mortgage loans previously sold to investors was $0.8 million
and $2.4 million at December 31, 2020 and 2019, respectively, and was included in other liabilities on the Consolidated
Statements of Condition. Losses charged against the liability were $187,000 in 2020 as compared to $639,000 in 2019. These
losses relate to mortgages which experienced early payment and other defaults meeting certain representation and warranty
recourse requirements.
The Company has unfunded commitments to investment partnerships that qualify for CRA purposes totaling $28.5 million as of
December 31, 2020. Of these commitments, $178,000 related to legally-binding unfunded commitments for tax-credit
investments and was included within other liabilities on the consolidated statements of financial condition.
The Company utilizes an out-sourced securities clearing platform and has agreed to indemnify the clearing broker of Wintrust
Investments for losses that it may sustain from the customer accounts introduced by Wintrust Investments. As of December 31,
2020, the total amount of customer balances maintained by the clearing broker and subject to indemnification was
approximately $16.8 million. Wintrust Investments seeks to control the risks associated with its customers’ activities by
requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines.
Litigation Matters
In accordance with applicable accounting principles, the Company establishes an accrued liability for litigation and threatened
litigation actions and proceedings when those actions present loss contingencies, which are both probable and estimable. In
actions for which a loss is reasonably possible in future periods, the Company determines whether it can estimate a loss or
range of possible loss. To determine whether a possible loss is estimable, the Company reviews and evaluates its material
litigation on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant
factual and legal developments. This review may include information learned through the discovery process, rulings on
substantive or dispositive motions, and settlement discussions.
Lehman Holdings Matter
On January 15, 2015, Lehman Brothers Holdings, Inc. (“Lehman Holdings”) sent a demand letter asserting that Wintrust
Mortgage must indemnify it for losses arising from loans sold by Wintrust Mortgage to Lehman Brothers Bank, FSB under a
Loan Purchase Agreement between Wintrust Mortgage, as successor to SGB Corporation, and Lehman Brothers Bank. The
demand was the precursor for triggering the alternative dispute resolution process mandated by the U.S. Bankruptcy Court for
the Southern District of New York. Lehman Holdings triggered the mandatory alternative dispute resolution process on October
16, 2015. On February 3, 2016, following an adverse ruling by the federal Court of Appeals for the Tenth Circuit concerning
the applicable statute of limitations on certain Lehman Holdings claims, Lehman Holdings filed a complaint against Wintrust
Mortgage and 150 other entities from which it had purchased loans in the U.S. Bankruptcy Court for the Southern District of
New York. On March 16, 2016, Wintrust Mortgage participated in the court-ordered mediation, but the mediation did not result
in a consensual resolution of the dispute. Lehman Holdings filed an amended complaint against Wintrust Mortgage on
December 29, 2016. On March 31, 2017, Wintrust Mortgage moved to dismiss the amended complaint for lack of subject
matter jurisdiction and improper venue or to transfer venue. The court heard argument on the motions on June 12, 2018. The
court denied the motion to dismiss for lack of subject matter jurisdiction on August 14, 2018 and the defendants’ motion to
transfer venue on October 2, 2018. Wintrust Mortgage appealed the denial of its motion to dismiss based on improper venue
and the denial of its motion to transfer venue.
On October 2, 2018, Lehman Holdings asked the court for permission to amend its complaints against Wintrust Mortgage and
the other defendants to add loans allegedly purchased from the defendants and sold to various RMBS trusts. The court granted
this request and allowed Lehman Holdings to assert the additional claims against existing defendants as a supplemental
complaint. Lehman Holdings filed its supplemental complaint against Wintrust Mortgage on December 4, 2018. Wintrust
Mortgage filed its response to the supplemental complaint on May 13, 2019. On October 5, 2020, Wintrust Mortgage and
Lehman Holdings executed a settlement agreement to resolve the dispute for an amount that is immaterial to the company’s
results of operations or financial condition. On October 15, 2020, the court entered an order dismissing the entire suit against
Wintrust Mortgage with prejudice.
158
Wintrust Mortgage Matter
On October 17, 2018, a former Wintrust Mortgage employee filed a lawsuit in the Superior Court of Los Angeles County,
California against Wintrust Mortgage alleging violation of California wage payment statutes on behalf of herself and all other
hourly, non-exempt employees of Wintrust Mortgage in California. Wintrust Mortgage received service of the complaint on
November 4, 2018. Wintrust Mortgage filed its response to the complaint on February 25, 2019. On November 1, 2019, the
plaintiff’s counsel filed a letter with the California Department of Labor advising that it was initiating an action under
California’s Private Attorney General Act statute based on the same alleged violations. In November 2019, the parties reached a
settlement agreement. The parties executed a settlement agreement and on February 26, 2020, plaintiff moved the court for
approval. A hearing on the motion to approve settlement was originally set for June 16, 2020, but the court continued the
motion to September 8, 2020. On September 8, 2020, the court requested the parties make certain changes to the settlement
agreement that were immaterial to the parties’ settlement terms. The parties have revised the settlement agreement consistent
with the court’s recommendations and submitted the revised settlement agreement to the court for its approval. On January 27,
2021, the court entered its preliminary approval of the settlement. Notices of settlement are to be sent to class members by
March 3, 2021 who will have until May 2, 2021 to opt out of the settlement. The Company has reserved an amount for this
proposed settlement that is immaterial to its results of operations or financial condition.
Northbrook Bank Matter
On October 17, 2018, two individual plaintiffs filed suit in the Circuit Court of Cook County, Illinois against Northbrook Bank
and Tamer Moumen on behalf of themselves and a class of approximately 42 investors in a hedge fund run by defendant
Moumen. Plaintiffs allege that defendant Moumen ran a fraudulent Ponzi scheme and ran those funds through deposit accounts
at Northbrook Bank. They allege the bank was negligent in failing to close the deposit accounts and that it intentionally aided
and abetted defendant Moumen in the alleged fraud. They contend that Northbrook Bank is liable for losses in excess of
$6 million. Northbrook Bank filed its motion to dismiss the complaint on January 15, 2019, which the court granted on March
5, 2019. On April 3, 2019, Plaintiffs filed an amended complaint based on similar allegations. Northbrook Bank again moved to
dismiss. The court heard this motion on July 17, 2019 and once again dismissed the complaint without prejudice. Plaintiffs filed
a second amended complaint on August 12, 2019. Northbrook moved to dismiss the second amended complaint. On November
6, 2019, the court dismissed the complaint with prejudice. Plaintiffs filed an appeal on December 2, 2019. After this appeal was
fully briefed, on September 4, 2020, the Appellate Court for the First District of Illinois remanded the case back to the trial
court for lack of appellate jurisdiction. The Appellate Court determined it did not have jurisdiction to hear the appeal because
the trial court did not dismiss the suit against defendant Moumen and plaintiffs did not obtain the trial court’s consent for
immediate appeal of the dismissal order against Northbrook Bank. On October 29, 2020, Plaintiffs cured the jurisdictional issue
identified by the Appellate Court by dismissing defendant Moumen. Plaintiffs filed their renewed appeal on November 4, 2020.
The appeal remains pending. Northbrook Bank believes plaintiffs’ allegations are legally and factually meritless and otherwise
lacks sufficient information to estimate the amount of any potential liability.
Wintrust Bank Matter
On April 30, 2020, A.D. Sims LLC on behalf of itself and other similarly situated plaintiffs filed suit in the federal district court
for the Northern District of Illinois against Wintrust Financial Corporation, Wintrust Bank, N.A., Bank of America, N.A., Cross
River Bank, and an additional 4,971 named and unnamed defendants. Plaintiffs allege the defendant financial institutions failed
to pay agent fees on loans issued by them under the federal CARES Act’s Payroll Protection Program (“PPP”) in violation of
applicable law. Plaintiffs allege the collective damages could exceed $3.8 billion and have asked the court to require the
defendants to establish, on a pro rata basis, a fund that could be used to pay agent fees due. Plaintiffs voluntarily dismissed
Wintrust Financial Corporation as a defendant in this suit on June 29, 2020. On September 28, 2020, the class defendants filed
an omnibus motion to dismiss the lawsuit. This motion was fully briefed on November 23, 2020. On December 27, 2020,
legislation amending the CARES Act was enacted. The new legislation expressly stated that lenders do not owe fees to agents
for assisting borrowers to obtain PPP loans absent a fee agreement between the lender and the agent. In light of this legislation,
plaintiff asked the court to dismiss the case. On January 22, 2021, the district court entered plaintiff’s voluntary dismissal order.
In addition, the Company and its subsidiaries, from time to time, are subject to pending and threatened legal action and
proceedings arising in the ordinary course of business.
Based on information currently available and upon consultation with counsel, management believes that the eventual outcome
of any pending or threatened legal actions and proceedings described above, including our ordinary course litigation, will not
have a material adverse effect on the operations or financial condition of the Company. However, it is possible that the ultimate
159
resolution of these matters, if unfavorable, may be material to the results of operations or financial condition for a particular
period.
(21) Derivative Financial Instruments
The Company primarily enters into derivative financial instruments as part of its strategy to manage its exposure to changes in
interest rates. Derivative instruments represent contracts between parties that result in one party delivering cash to the other
party based on a notional amount and an underlying term (such as a rate, security price or price index) as specified in the
contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional
amount of the contract with the underlying term. Derivatives are also implicit in certain contracts and commitments.
The derivative financial instruments currently used by the Company to manage its exposure to interest rate risk include:
(1) interest rate swaps and collars to manage the interest rate risk of certain fixed and variable rate assets and variable rate
liabilities; (2) interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary
market; (3) forward commitments for the future delivery of such mortgage loans to protect the Company from adverse changes
in interest rates and corresponding changes in the value of mortgage loans held-for-sale; (4) covered call options to
economically hedge specific investment securities and receive fee income effectively enhancing the overall yield on such
securities to compensate for net interest margin compression; and (5) options and swaps to economically hedge a portion of the
fair value adjustments related to the Company's mortgage servicing rights portfolio. The Company also enters into derivatives
(typically interest rate swaps) with certain qualified borrowers to facilitate the borrowers’ risk management strategies and
concurrently enters into mirror-image derivatives with a third party counterparty, effectively making a market in the derivatives
for such borrowers. Additionally, the Company enters into foreign currency contracts to manage foreign exchange risk
associated with certain foreign currency denominated assets.
The Company recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the
purpose or intent for holding the instrument. The Company records derivative assets and derivative liabilities on the
Consolidated Statements of Condition within accrued interest receivable and other assets and accrued interest payable and other
liabilities, respectively. Changes in the fair value of derivative financial instruments are either recognized in income or in
shareholders’ equity as a component of accumulated other comprehensive income or loss depending on whether the derivative
financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge.
Changes in fair values of derivatives accounted for as fair value hedges are recorded in income in the same period and in the
same income statement line as changes in the fair values of the hedged items that relate to the hedged risk(s). Changes in fair
values of derivative financial instruments accounted for as cash flow hedges are recorded as a component of accumulated other
comprehensive income or loss, net of deferred taxes, and reclassified to earnings when the hedged transaction affects earnings.
Changes in fair values of derivative financial instruments not designated in a hedging relationship pursuant to ASC 815 are
reported in non-interest income during the period of the change. Derivative financial instruments are valued by a third party and
are corroborated by comparison with valuations provided by the respective counterparties. Fair values of certain mortgage
banking derivatives (interest rate lock commitments and forward commitments to sell mortgage loans) are estimated based on
changes in mortgage interest rates from the date of the loan commitment. The fair value of foreign currency derivatives is
computed based on changes in foreign currency rates stated in the contract compared to those prevailing at the measurement
date.
160
The table below presents the fair value of the Company’s derivative financial instruments as of December 31, 2020 and
December 31, 2019:
(Dollars in thousands)
Derivatives designated as hedging instruments under ASC 815:
Interest rate derivatives designated as Cash Flow Hedges
Interest rate derivatives designated as Fair Value Hedges
Total derivatives designated as hedging instruments under ASC 815
Derivatives not designated as hedging instruments under ASC 815:
Interest rate derivatives
Interest rate lock commitments
Forward commitments to sell mortgage loans
Foreign exchange contracts
Total derivatives not designated as hedging instruments under ASC 815
Total Derivatives
Cash Flow Hedges of Interest Rate Risk
Derivative Assets
Derivative Liabilities
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
$
$
8,182 $
—
$
39,715 $
—
8,182 $
310
310
14,520
$
54,235 $
19,385
6,523
25,908
$
221,205 $
100,259
$
221,608 $
100,897
48,925
—
111
2,860
142
73
—
12,510
112
259
2,070
70
$
$
270,241 $
278,423 $
103,334
103,644
$
$
234,230 $
288,465 $
103,296
129,204
The Company’s objectives in using interest rate derivatives are to add stability to net interest income and to manage its
exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of
its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate
amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without
the exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the receipt of
amounts in which the interest rate specified in the contract exceeds the agreed upon cap strike price or the payment of amounts
in which the interest rate specified in the contract is below the agreed upon floor strike price at the end of each period.
As of December 31, 2020, the Company had 27 interest rate swap derivatives designated as cash flow hedges of variable rate
deposits and certain junior subordinated debentures, and one interest rate collar derivative designated as a cash flow hedge of
the Company’s variable rate Term Facility. When the relationship between the hedged item and hedging instrument is highly
effective at achieving offsetting changes in cash flows attributable to the hedged risk, changes in the fair value of these cash
flow hedges are recorded in accumulated other comprehensive income or loss and are subsequently reclassified to interest
expense as interest payments are made on such variable rate deposits. The changes in fair value (net of tax) are separately
disclosed in the Consolidated Statements of Comprehensive Income.
161
The table below provides details on these cash flow hedges, summarized by derivative type and maturity, as of December 31,
2020:
(Dollars in thousands)
Maturity Date
Interest Rate Swaps:
October 2021
November 2021
December 2021
March 2022
May 2022
June 2022
July 2022
August 2022
March 2023
April 2024
July 2027
Interest Rate Collars:
September 2023
Total Cash Flow Hedges
December 31, 2020
Notional
Amount
Fair Value
Asset (Liability)
$
25,000 $
20,000
165,000
500,000
370,000
160,000
230,000
235,000
250,000
250,000
1,000,000
(423)
(397)
(3,519)
(294)
(9,670)
(4,412)
(6,452)
(7,073)
(698)
(1,248)
8,182
101,786
3,306,786 $
$
(5,529)
(31,533)
In 2018, the Company terminated five interest rate swap derivatives designated as cash flow hedges of variable rate deposits
with a total notional value of $650.0 million. As the hedged forecasted transactions (interest payments on variable rate deposits)
will still occur over the remaining term of the terminated derivatives, any prior changes in the fair value of these cash flow
hedges will continue to be included within accumulated other comprehensive income or loss and reclassified to interest expense
as interest payments continue to be made. In 2020, 2019 and 2018, the Company reclassified approximately $1.4 million, $4.7
million and $427,000, respectively, from accumulated other comprehensive income to interest expense related to these
terminated interest rate swap derivatives.
A rollforward of the amounts in accumulated other comprehensive income or loss related to interest rate derivatives designated
as cash flow hedges follows:
(Dollars in thousands)
Unrealized (loss) gain at beginning of period
Amount reclassified from accumulated other comprehensive income to interest
expense on deposits, other borrowings and junior subordinated debentures
Amount of loss recognized in other comprehensive income
Unrealized loss at end of period
Years Ended December 31,
2019
2020
(17,943) $
10,742
18,471
(32,061)
(31,533) $
(10,250)
(18,435)
(17,943)
$
$
As of December 31, 2020, the Company estimates that during the next twelve months, $19.9 million will be reclassified from
accumulated other comprehensive income or loss as an increase to interest expense.
Fair Value Hedges of Interest Rate Risk
Interest rate swaps designated as fair value hedges involve the payment of fixed amounts to a counterparty in exchange for the
Company receiving variable payments over the life of the agreements without the exchange of the underlying notional amount.
As of December 31, 2020, the Company has 17 interest rate swaps with an aggregate notional amount of $168.7 million that
were designated as fair value hedges primarily associated with fixed rate commercial and industrial and commercial real estate
loans as well as life insurance premium finance receivables.
162
For derivatives designated and that qualify as fair value hedges, the net gain or loss from the entire change in the fair value of
the derivative instrument is recognized in the same income statement line item as the earnings effect, including the net gain or
loss, of the hedged item (interest income earned on fixed rate loans) when the hedged item affects earnings.
The following table presents the carrying amount of the hedged assets/(liabilities) and the cumulative amount of fair value
hedging adjustment included in the carrying amount of the hedged assets/(liabilities) that are designated as a fair value hedge
accounting relationship as of December 31, 2020:
(Dollars in
thousands)
Derivatives in
Fair Value
Hedging
Relationships
Interest rate
swaps
Location in the Statement of Condition
Loans, net of unearned income
Available-for-sale debt securities
December 31, 2020
Carrying Amount of the
Hedged Assets/(Liabilities)
Cumulative Amount of Fair
Value Hedging Adjustment
Included in the Carrying
Amount of the Hedged
Assets/(Liabilities)
Cumulative Amount of Fair
Value Hedging Adjustment
Remaining for any Hedged
Assets (Liabilities) for which
Hedge Accounting has been
Discontinued
$
181,831 $
1,373
14,317 $
125
(157)
—
The following table presents the gain or loss recognized related to derivative instruments that are designated as fair value
hedges for the respective period:
(Dollars in thousands)
Derivatives in Fair Value
Hedging Relationships
Interest rate swaps
Location of Gain or (Loss) Recognized in Income on Derivative
Interest and fees on loans
$
Interest income - investment securities
Year Ended
December 31,
2020
(52)
—
In 2018, one interest rate swap designated as a fair value hedge accounting relationship was terminated as a result of the full
prepayment of the underlying loan (hedged asset). At the time of the termination, the fair value of the interest rate swap asset
was approximately $1.4 million with an offsetting cumulative amount of fair value hedging adjustments included in the
carrying value of the underlying loan totaling $1.6 million. As the underlying loan was fully paid-off, the remaining cumulative
amount of fair value hedging adjustments included in the carrying value of the underlying loan was recorded to interest income.
Non-Designated Hedges
The Company does not use derivatives for speculative purposes. Derivatives not designated as accounting hedges are used to
manage the Company’s economic exposure to interest rate movements and other identified risks but do not meet the strict
hedge accounting requirements of ASC 815. Changes in the fair value of derivatives not designated in hedging relationships are
recorded directly in earnings.
Interest Rate Derivatives—Periodically, the Company may purchase interest rate cap derivatives designed to act as an economic
hedge of the risk of the negative impact on its fixed-rate loan portfolios from rising interest rates, most notably the LIBOR
index. As of December 31, 2020, the Company held interest rate caps with an aggregate notional value of $1.0 billion.
Additionally, the Company has interest rate derivatives, including swaps and option products, resulting from a service the
Company provides to certain qualified borrowers. The Company’s banking subsidiaries execute certain derivative products
(typically interest rate swaps) directly with qualified commercial borrowers to facilitate their respective risk management
strategies. For example, these arrangements allow the Company’s commercial borrowers to effectively convert a variable rate
loan to a fixed rate. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes
offsetting derivatives with third parties. In most cases, the offsetting derivatives have mirror-image terms, which result in the
positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives
are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset
resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest
income. At December 31, 2020, the Company had interest rate derivative transactions with an aggregate notional amount of
approximately $9.0 billion (all interest rate swaps and caps with customers and third parties) related to this program. These
interest rate derivatives had maturity dates ranging from January 2021 to February 2045.
163
Mortgage Banking Derivatives—These derivatives include interest rate lock commitments provided to customers to fund certain
mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. It is the
Company’s practice to enter into forward commitments for the future delivery of a portion of our residential mortgage loan
production when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in
interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale. The Company’s
mortgage banking derivatives have not been designated as being in hedge relationships. At December 31, 2020, the Company
had forward commitments to sell mortgage loans with an aggregate notional amount of approximately $2.3 billion and interest
rate lock commitments with an aggregate notional amount of approximately $1.5 billion. The fair values of these derivatives
were estimated based on changes in mortgage rates from the dates of the commitments. Changes in the fair value of these
mortgage banking derivatives are included in mortgage banking revenue.
Foreign Currency Derivatives—These derivatives include foreign currency contracts used to manage the foreign exchange risk
associated with foreign currency denominated assets and transactions. Foreign currency contracts, which include spot and
forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an
agreed-upon price on an agreed-upon settlement date. As a result of fluctuations in foreign currencies, the U.S. dollar-
equivalent value of the foreign currency denominated assets or forecasted transactions increase or decrease. Gains or losses on
the derivative instruments related to these foreign currency denominated assets or forecasted transactions are expected to
substantially offset this variability. As of December 31, 2020, the Company held foreign currency derivatives with an aggregate
notional amount of approximately $4.8 million.
Other Derivatives—Periodically, the Company will sell options to a bank or dealer for the right to purchase certain securities
held within the banks’ investment portfolios (covered call options). These option transactions are designed primarily to mitigate
overall interest rate risk and to increase the total return associated with the investment securities portfolio. These options do not
qualify as accounting hedges pursuant to ASC 815, and, accordingly, changes in fair value of these contracts are recognized as
other non-interest income. There were no covered call options outstanding as of December 31, 2020 or December 31, 2019.
Periodically, the Company will purchase options for the right to purchase securities not currently held within the banks'
investment portfolios or enter into interest rate swaps in which the Company elects to not designate such derivatives as hedging
instruments. These option and swap transactions are designed primarily to economically hedge a portion of the fair value
adjustments related to the Company's mortgage servicing rights portfolio. The gain or loss associated with these derivative
contracts are included in mortgage banking revenue. There were no such options or swaps outstanding as of December 31,
2020 as well as no such options outstanding as of December 31, 2019. As of December 31, 2019, the Company held four
interest rate swaps with an aggregate notional value of $55.0 million for such purpose of economically hedging a portion of the
fair value adjustment related to its mortgage servicing rights portfolio.
Amounts included in the Consolidated Statements of Income related to derivative instruments not designated in hedge
relationships were as follows:
(Dollars in thousands)
Derivative
Interest rate swaps and caps
Mortgage banking derivatives
Covered call options
Foreign exchange contracts
Derivative contract held as economic
hedge on MSRs
Credit Risk
Location in income statement
2020
2019
Trading gains (losses), net
$
(1,107) $
December 31,
Mortgage banking revenue
Fees from covered call options
Trading gains (losses), net
Mortgage banking revenue
50,183
2,292
(13)
4,749
(380)
100
3,670
43
519
Derivative instruments have inherent risks, primarily market risk and credit risk. Market risk is associated with changes in
interest rates and credit risk relates to the risk that the counterparty will fail to perform according to the terms of the agreement.
The amounts potentially subject to market and credit risks are the streams of interest payments under the contracts and the
market value of the derivative instrument and not the notional principal amounts used to express the volume of the transactions.
Market and credit risks are managed and monitored as part of the Company’s overall asset-liability management process, except
that the credit risk related to derivatives entered into with certain qualified borrowers is managed through the Company’s
standard loan underwriting process since these derivatives are secured through collateral provided by the loan agreements.
164
Actual exposures are monitored against various types of credit limits established to contain risk within parameters. When
deemed necessary, appropriate types and amounts of collateral are obtained to minimize credit exposure.
The Company has agreements with certain of its interest rate derivative counterparties that contain cross-default provisions,
which provide that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness
has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The
Company also has agreements with certain of its derivative counterparties that contain a provision allowing the counterparty to
terminate the derivative positions if the Company fails to maintain its status as a well or adequately capitalized institution,
which would require the Company to settle its obligations under the agreements. As of December 31, 2020, the fair value of
interest rate derivatives in a net liability position that were subject to such agreements, which includes accrued interest related
to these agreements, was $272.1 million. If the Company had breached any of these provisions and the derivatives were
terminated as a result, the Company would have been required to settle its obligations under the agreements at the termination
value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral
with the respective counterparty.
The Company is also exposed to the credit risk of its commercial borrowers who are counterparties to interest rate derivatives
with the banks. This counterparty risk related to the commercial borrowers is managed and monitored through the banks’
standard underwriting process applicable to loans since these derivatives are secured through collateral provided by the loan
agreement. The counterparty risk associated with the mirror-image swaps executed with third parties is monitored and managed
in connection with the Company’s overall asset liability management process.
The Company records interest rate derivatives subject to master netting agreements at their gross value and does not offset
derivative assets and liabilities on the Consolidated Statements of Condition. The table below summarizes the Company's
interest rate derivatives and offsetting positions as of the dates shown.
(Dollars in thousands)
Gross Amounts Recognized
Less: Amounts offset in the Statements of Condition
Net amount presented in the Statements of Condition
Gross amounts not offset in the Statements of Condition
Offsetting Derivative Positions
Collateral Posted
Net Credit Exposure
(22) Fair Value of Assets and Liabilities
Derivative Assets
Fair Value
Derivative Liabilities
Fair Value
December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
$
$
$
$
229,387 $
100,569 $
275,843 $
126,805
—
—
—
—
229,387 $
100,569 $
275,843 $
126,805
(8,647) $
(2,561) $
(8,647) $
—
—
(266,832)
220,740 $
98,008 $
364 $
(2,561)
(124,244)
—
The Company measures, monitors and discloses certain of its assets and liabilities on a fair value basis. These financial assets
and financial liabilities are measured at fair value in three levels, based on the markets in which the assets and liabilities are
traded and the observability of the inputs used to determine fair value. These levels are:
•
•
•
Level 1 — unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset
or liability or inputs that are derived principally from or corroborated by observable market data by correlation or other
means.
Level 3 — significant unobservable inputs that reflect the Company’s own assumptions that market participants would
use in pricing the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is
determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for
which the determination of fair value requires significant management judgment or estimation.
165
A financial instrument’s categorization within the above valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to the assets or liabilities. Following is a
description of the valuation methodologies used for the Company’s assets and liabilities measured at fair value on a recurring
basis.
Available-for-sale debt securities, trading account securities and equity securities with readily determinable fair value —Fair
values for available-for-sale debt securities, trading account securities and equity securities with readily determinable fair value
are typically based on prices obtained from independent pricing vendors. Securities measured with these valuation techniques
are generally classified as Level 2 of the fair value hierarchy. Typically, standard inputs such as benchmark yields, reported
trades for similar securities, issuer spreads, benchmark securities, bids, offers and reference data including market research
publications are used to fair value these securities. When these inputs are not available, broker/dealer quotes may be obtained
by the vendor to determine the fair value of the security. We review the vendor’s pricing methodologies to determine if
observable market information is being used, versus unobservable inputs. Fair value measurements using significant inputs that
are unobservable in the market due to limited activity or a less liquid market are classified as Level 3 in the fair value hierarchy.
The fair value of U.S. Treasury securities and certain equity securities with readily determinable fair value are based on
unadjusted quoted prices in active markets for identical securities. As such, these securities are classified as Level 1 in the fair
value hierarchy.
The Company’s Investment Operations Department is responsible for the valuation of Level 3 available-for-sale debt securities.
The methodology and variables used as inputs in pricing Level 3 securities are derived from a combination of observable and
unobservable inputs. The unobservable inputs are determined through internal assumptions that may vary from period to period
due to external factors, such as market movement and credit rating adjustments.
At December 31, 2020, the Company classified $109.9 million of municipal securities as Level 3. These municipal securities
are bond issues for various municipal government entities primarily located in the Chicago metropolitan area and southern
Wisconsin and are privately placed, non-rated bonds without CUSIP numbers. The Company also classified $2.0 million of
U.S. Government agencies as Level 3 at December 31, 2020. The Company’s methodology for pricing these securities focuses
on three distinct inputs: equivalent rating, yield and other pricing terms. To determine the rating for a given non-rated municipal
bond, the Investment Operations Department references a rated, publicly issued bond by the same issuer if available. A
reduction is then applied to the rating obtained from the comparable bond, as the Company believes if liquidated, a non-rated
bond would be valued less than a similar bond with a verifiable rating. The reduction applied by the Company is one complete
rating grade (i.e. a “AA” rating for a comparable bond would be reduced to “A” for the Company’s valuation). For bond issues
without comparable bond proxies, a rating of "BBB" was assigned. At the year ended 2020, all of the ratings derived by the
Investment Operations Department using the above process were "BBB" or better. The fair value measurement of municipal
bonds is sensitive to the rating input, as a higher rating typically results in an increased valuation. The remaining pricing inputs
used in the bond valuation are observable. Based on the rating determined in the above process, Investment Operations obtains
a corresponding current market yield curve available to market participants. Other terms including coupon, maturity date,
redemption price, number of coupon payments per year, and accrual method are obtained from the individual bond term sheets.
Certain municipal bonds held by the Company at December 31, 2020 are continuously callable. When valuing these bonds, the
fair value is capped at par value as the Company assumes a market participant would not pay more than par for a continuously
callable bond. To determine the rating for the U.S. Government agency securities, the Investment Operations Department
assigned a AAA rating as it is guaranteed by the U.S. government.
Mortgage loans held-for-sale—The fair value of mortgage loans held-for-sale is determined by reference to investor price
sheets for loan products with similar characteristics. As such, these loans are classified as Level 2 in the fair value hierarchy.
Loans held-for-investment—The fair value for loans in which the Company elected the fair value option is estimated by
discounting future scheduled cash flows for the specific loan through maturity, adjusted for estimated credit losses and
prepayments. The Company uses a discount rate based on the actual coupon rate of the underlying loan. At December 31, 2020,
the Company classified $10.3 million of loans held-for-investment as Level 3. The discount rate used as an input to value these
loans at December 31, 2020 was 2.50%. The higher the rate utilized to discount estimated future cash flows, the lower the fair
value measurement. As noted above, the fair value estimate includes assumptions of prepayment speeds and credit losses. The
Company included a prepayment speed assumption of 17.88% at December 31, 2020. Prepayment speeds are inversely related
to the fair value of these loans as an increase in prepayment speeds results in a decreased valuation. Additionally, the weighted
average credit discount used as an input to value the specific loans was 0.19% with credit discounts ranging from 0%-3% at
December 31, 2020.
166
MSRs—Fair value for MSRs is determined utilizing a valuation model which calculates the fair value of each servicing rights
based on the present value of estimated future cash flows. The Company uses a discount rate commensurate with the risk
associated with each servicing rights, given current market conditions. At December 31, 2020, the Company classified $92.1
million of MSRs as Level 3. The weighted average discount rate used as an input to value the pool of MSRs at December 31,
2020 was 9.93% with discount rates applied ranging from 4%-19%. The higher the rate utilized to discount estimated future
cash flows, the lower the fair value measurement. The fair value of MSRs was also estimated based on other assumptions
including prepayment speeds and the cost to service. Prepayment speeds ranged from 0%-84% or a weighted average
prepayment speed of 17.88%. Further, for current and delinquent loans, the Company assumed the weighted average cost of
servicing of $76 and $309, respectively, per loan. Prepayment speeds and the cost to service are both inversely related to the
fair value of MSRs as an increase in prepayment speeds or the cost to service results in a decreased valuation. See Note 6,
“Mortgage Servicing Rights (“MSRs”),” for further discussion of MSRs.
Derivative instruments—The Company’s derivative instruments include interest rate swaps, caps and collars, commitments to
fund mortgages for sale into the secondary market (interest rate locks), forward commitments to end investors for the sale of
mortgage loans and foreign currency contracts. Interest rate swaps, caps and collars are valued by a third party, using models
that primarily use market observable inputs, such as yield curves, and are classified as Level 2 in the fair value hierarchy. The
credit risk associated with derivative financial instruments that are subject to master netting agreements is measured on a net
basis by counterparty portfolio. The fair value for mortgage-related derivatives is based on changes in mortgage rates from the
date of the commitments. The fair value of foreign currency derivatives is computed based on change in foreign currency rates
stated in the contract compared to those prevailing at the measurement date.
At December 31, 2020, the Company classified $48.1 million of derivative assets related to interest rate locks as Level 3. The
fair value of interest rate locks is based on prices obtained for loans with similar characteristics from third parties, adjusted for
the pull-through rate, which represents the Company’s best estimate of the likelihood that a committed loan will ultimately
fund. The weighted-average pull-through rate at December 31, 2020 was 76.13% with pull-through rates applied ranging from
0% to 100%. Pull-through rates are directly related to the fair value of interest rate locks as an increase in the pull-through rate
results in an increased valuation.
Nonqualified deferred compensation assets—The underlying assets relating to the nonqualified deferred compensation plan are
included in a trust and primarily consist of non-exchange traded institutional funds which are priced based by an independent
third party service. These assets are classified as Level 2 in the fair value hierarchy.
167
The following tables present the balances of assets and liabilities measured at fair value on a recurring basis for the periods
presented:
(Dollars in thousands)
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Municipal
Corporate notes
Mortgage-backed
Trading account securities
Equity securities with readily determinable fair value
Mortgage loans held-for-sale
Loans held-for-investment
MSRs
Nonqualified deferred compensations assets
Derivative assets
Total
Derivative liabilities
(Dollars in thousands)
Available-for-sale securities
U.S. Treasury
U.S. Government agencies
Municipal
Corporate notes
Mortgage-backed
Trading account securities
Equity securities with readily determinable fair value
Mortgage loans held-for-sale
Loans held-for-investment
MSRs
Nonqualified deferred compensations assets
Derivative assets
Total
Derivative liabilities
Total
Level 1
Level 2
Level 3
December 31, 2020
304,971 $
84,513
146,910
91,405
2,428,040
671
90,862
1,272,090
55,134
92,081
15,398
278,423
4,860,498 $
288,465 $
304,971 $
—
—
—
—
—
82,796
—
—
—
—
—
387,767 $
— $
— $
82,547
37,034
91,405
2,428,040
671
8,066
1,272,090
44,854
—
15,398
230,332
4,210,437 $
288,465 $
—
1,966
109,876
—
—
—
—
—
10,280
92,081
—
48,091
262,294
—
Total
Level 1
Level 2
Level 3
December 31, 2019
121,088 $
365,442
145,318
94,841
2,379,525
1,068
50,840
377,313
132,718
85,638
14,213
103,644
3,871,648 $
129,204 $
121,088 $
—
—
—
—
—
42,774
—
—
—
—
—
163,862 $
— $
— $
362,796
33,368
94,841
2,379,525
1,068
8,066
377,313
123,098
—
14,213
101,013
3,495,301 $
129,204 $
—
2,646
111,950
—
—
—
—
—
9,620
85,638
—
2,631
212,485
—
$
$
$
$
$
$
The aggregate remaining contractual principal balance outstanding as of December 31, 2020 and 2019 for mortgage loans held-
for-sale measured at fair value under ASC 825 was $1.2 billion and $368.0 million, respectively, while the aggregate fair value
of mortgage loans held-for-sale was $1.3 billion and $377.3 million, respectively, as shown in the above tables. There were
$134.1 million of loans past due greater than 90 days and still accruing interest in the mortgage loans held-for-sale portfolio as
of December 31, 2020 and $1.8 million of loans as of December 31, 2019.
168
The changes in Level 3 assets measured at fair value on a recurring basis during the years ended December 31, 2020 and 2019
are summarized as follows:
(Dollars in thousands)
Balance at January 1, 2020
Total net gains (losses) included in:
Net income (1)
Other comprehensive income
Purchases (2)
Issuances
Sales
Settlements
Net transfers into/(out of) Level 3
Balance at December 31, 2020
(Dollars in thousands)
Balance at January 1, 2019
Total net gains included in:
Net income (1)
Other comprehensive income
Purchases (2)
Issuances
Sales
Settlements
Net transfers into/(out of) Level 3
Balance at December 31, 2019
Municipal
$ 111,950 $
U.S. Government
Agencies
Loans held-for-
investment
MSRs
Derivative
assets
2,646 $
9,620 $ 85,638 $
2,631
—
(1,302)
39,365
—
—
(40,137)
—
$ 109,876 $
—
(50)
—
—
—
(630)
—
1,966 $
184
—
—
—
—
45,460
—
—
—
—
(21,025)
—
—
21,501
10,280 $ 92,081 $ 48,091
6,443
—
—
—
—
—
—
Municipal
$ 108,926 $
U.S. Government
Agencies
Loans held-for-
investment
MSRs
Derivative
assets
3,150 $
11,347 $ 75,183 $
2,457
—
3,147
38,686
—
—
(38,809)
—
$ 111,950 $
—
126
—
—
—
(630)
827
10,047
174
—
—
—
—
(5,447)
—
408
—
—
—
—
—
—
—
—
—
2,646 $
2,893
9,620 $ 85,638 $
—
—
2,631
(1) Changes in the balance of MSRs and derivative assets related to fair value adjustments are recorded as a component of
mortgage banking revenue. Changes in the balance of loans held-for-investment related to fair value adjustments are
recorded as other non-interest income.
(2) Mortgage servicing rights purchased as a part of the ROC business combination in 2019. See Note 7 - Business
Combinations and Asset Acquisitions for further discussion.
Also, the Company may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring
basis in accordance with GAAP. These adjustments to fair value usually result from impairment charges on individual assets.
For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at the end of the period, the
following table provides the carrying value of the related individual assets or portfolios at December 31, 2020.
(Dollars in thousands)
Individually assessed loans -
foreclosure probable and collateral-
dependent
Other real estate owned (1)
Total
December 31, 2020
Total
Level 1
Level 2
Level 3
Year Ended
December 31, 2020
Fair Value Losses
Recognized, net
$
100,154 $
16,558
116,712 $
$
— $
—
— $
— $
100,154 $
—
— $
16,558
116,712 $
33,369
1,076
34,445
(1) Fair value losses recognized, net on other real estate owned include valuation adjustments and charge-offs during the
respective period.
169
Individually assessed loans—In accordance with ASC 326, the allowance for credit losses for loans and other financial assets
held at amortized cost should be measured on a collective or pooled basis when such assets exhibit similar risk characteristics.
In instances in which a financial asset does not exhibit similar risk characteristics to a pool, the Company is required to measure
such allowance for credit losses on an individual asset basis. For the Company's loan portfolio, nonaccrual loans and TDRs are
considered to not exhibit similar risk characteristics as pools and thus are individually assessed. Credit losses are measured by
estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the fair
value of the underlying collateral. Individually assessed loans are considered a fair value measurement where an allowance for
credit loss is established based on the fair value of collateral. Appraised values, which may require adjustments to market-based
valuation inputs, are generally used on real estate foreclosure probable and collateral-dependent loans.
The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 inputs of individually assessed
loans. For more information on individually assessed loans refer to Note 5 – Allowance for Credit Losses. At December 31,
2020, the Company had $139.7 million of impaired loans classified as Level 3. Of the $139.7 million of impaired loans, $100.2
million were measured at fair value based on the underlying collateral of the loan as shown in the table above. The remaining
$39.5 million were valued based on discounted cash flows in accordance with ASC 310.
Other real estate owned—Other real estate owned is comprised of real estate acquired in partial or full satisfaction of loans and
is included in other assets. Other real estate owned is recorded at its estimated fair value less estimated selling costs at the date
of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the allowance
for loan losses. Subsequent changes in value are reported as adjustments to the carrying amount and are recorded in other non-
interest expense. Gains and losses upon sale, if any, are also charged to other non-interest expense. Fair value is generally based
on third party appraisals and internal estimates that are adjusted by a discount representing the estimated cost of sale and is
therefore considered a Level 3 valuation.
The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 inputs for other real estate
owned. At December 31, 2020, the Company had $16.6 million of other real estate owned classified as Level 3. The
unobservable input applied to other real estate owned relates to the 10% reduction to the appraisal value representing the
estimated cost of sale of the foreclosed property. A higher discount for the estimated cost of sale results in a decreased carrying
value.
The valuation techniques and significant unobservable inputs used to measure both recurring and non-recurring Level 3 fair
value measurements at December 31, 2020 were as follows:
(Dollars in thousands)
Measured at fair value on a recurring basis:
Fair Value
Valuation
Methodology
Significant Unobservable
Input
Range
of Inputs
Weighted
Average
of Inputs
Impact to valuation
from an increased or
higher input value
Municipal securities
U.S. Government agencies
Loans held-for-investment
$ 109,876 Bond pricing
1,966 Bond pricing
10,280 Discounted cash
flows
Equivalent rating
Equivalent rating
Discount rate
Credit discount
Constant prepayment
rate (CPR)
BBB-AA+
AAA
2.50%
0%-3%
17.88%
N/A
AAA
2.50%
0.19%
17.88%
Increase
Increase
Decrease
Decrease
Decrease
MSRs
92,081 Discounted cash
flows
Discount rate
4%-19%
9.93%
Decrease
Derivatives
48,091 Discounted cash
flows
Measured at fair value on a non-recurring basis:
Impaired loans—collateral
based
100,154 Appraisal value
Other real estate owned
16,558 Appraisal value
Constant prepayment
rate (CPR)
0%-84%
17.88%
Decrease
Cost of servicing
$70-$200
$
76
Cost of servicing -
delinquent
$200-1,000
$ 309
Decrease
Decrease
Pull-through rate
0%-100%
76.13 %
Increase
Appraisal adjustment -
cost of sale
Appraisal adjustment -
cost of sale
10%
10%
10.00%
Decrease
10.00%
Decrease
170
The Company is required under applicable accounting guidance to report the fair value of all financial instruments on the
Consolidated Statements of Condition, including those financial instruments carried at cost. The table below presents the
carrying amounts and estimated fair values of the Company’s financial instruments as of the dates shown:
(Dollars in thousands)
Financial Assets:
December 31, 2020
December 31, 2019
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Cash and cash equivalents
Interest-bearing deposits with banks
Available-for-sale securities
Held-to-maturity securities
Trading account securities
Equity securities with readily determinable fair value
$
322,474 $
322,474 $
286,476 $
4,802,527
3,055,839
579,138
671
90,862
4,802,527
3,055,839
593,767
671
90,862
2,164,560
3,106,214
1,134,400
1,068
50,840
286,476
2,164,560
3,106,214
1,138,396
1,068
50,840
FHLB and FRB stock, at cost
Brokerage customer receivables
Mortgage loans held-for-sale, at fair value
Loans held-for-investment, at fair value
Loans held-for-investment, at amortized cost
Nonqualified deferred compensation assets
Derivative assets
Accrued interest receivable and other
Total financial assets
Financial Liabilities:
Non-maturity deposits
Deposits with stated maturities
FHLB advances
Other borrowings
Subordinated notes
Junior subordinated debentures
Derivative liabilities
Accrued interest payable
Total financial liabilities
135,588
17,436
1,272,090
55,134
32,023,939
15,398
278,423
272,339
100,739
16,573
377,313
132,718
26,659,903
14,213
103,644
303,090
$ 42,921,858 $ 42,784,231 $ 34,459,420 $ 34,455,747
100,739
16,573
377,313
132,718
26,667,572
14,213
103,644
303,090
135,588
17,436
1,272,090
55,134
31,871,683
15,398
278,423
272,339
$ 32,116,023 $ 32,116,023 $ 24,483,867 $ 24,483,867
5,635,475
715,129
418,174
458,796
243,158
129,204
19,940
$ 39,834,190 $ 39,759,031 $ 32,038,987 $ 32,103,743
4,976,628
1,228,429
518,928
436,506
253,566
288,465
15,645
5,623,271
674,870
418,174
436,095
253,566
129,204
19,940
4,969,849
1,172,315
518,928
473,093
204,713
288,465
15,645
Not all the financial instruments listed in the table above are subject to the disclosure provisions of ASC Topic 820, as certain
assets and liabilities result in their carrying value approximating fair value. These include cash and cash equivalents, interest
bearing deposits with banks, brokerage customer receivables, FHLB and FRB stock, accrued interest receivable and accrued
interest payable and non-maturity deposits.
The following methods and assumptions were used by the Company in estimating fair values of financial instruments that were
not previously disclosed.
Held-to-maturity securities. Held-to-maturity securities include U.S. Government-sponsored agency securities, municipal bonds
issued by various municipal government entities primarily located in the Chicago metropolitan area and southern Wisconsin
and mortgage-backed securities. Fair values for held-to-maturity securities are typically based on prices obtained from
independent pricing vendors. In accordance with ASC 820, the Company has generally categorized these held-to-maturity
securities as a Level 2 fair value measurement. Fair values for certain other held-to-maturity securities are based on the bond
pricing methodology discussed previously related to certain available-for-sale securities. In accordance with ASC 820, the
Company has categorized these held-to-maturity securities as a Level 3 fair value measurement.
Loans held-for-investment, at amortized cost. Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are analyzed by type such as commercial, residential real estate, etc. Each category is further segmented
by interest rate type (fixed and variable) and term. For variable-rate loans that reprice frequently, estimated fair values are based
on carrying values. The fair value of residential loans is based on secondary market sources for securities backed by similar
171
loans, adjusted for differences in loan characteristics. The fair value for other fixed rate loans is estimated by discounting
scheduled cash flows through the estimated maturity using estimated market discount rates that reflect credit and interest rate
risks inherent in the loan. In accordance with ASC 820, the Company has categorized loans as a Level 3 fair value
measurement.
Deposits with stated maturities. The fair value of certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently in effect for deposits of similar remaining maturities. In
accordance with ASC 820, the Company has categorized deposits with stated maturities as a Level 3 fair value measurement.
FHLB advances. The fair value of FHLB advances is obtained from the FHLB, which uses a discounted cash flow analysis
based on current market rates of similar maturity debt securities to discount cash flows. In accordance with ASC 820, the
Company has categorized FHLB advances as a Level 3 fair value measurement.
Subordinated notes. The fair value of the subordinated notes is based on a market price obtained from an independent pricing
vendor. In accordance with ASC 820, the Company has categorized subordinated notes as a Level 2 fair value measurement.
Junior subordinated debentures. The fair value of the junior subordinated debentures is based on the discounted value of
contractual cash flows. In accordance with ASC 820, the Company has categorized junior subordinated debentures as a Level 3
fair value measurement.
(23) Shareholders’ Equity
A summary of the Company’s common and preferred stock at December 31, 2020 and 2019 is as follows:
Common Stock:
Shares authorized
Shares issued
Shares outstanding
Cash dividend per share
Preferred Stock:
Shares authorized
Shares issued
Shares outstanding
2020
2019
100,000,000
58,473,252
56,769,625
$
1.12 $
20,000,000
5,011,500
5,011,500
100,000,000
57,950,803
57,821,891
1.00
20,000,000
5,000,000
5,000,000
The Company reserves shares of its authorized common stock specifically for the 2015 Plan, the ESPP and the DDFS. The
reserved shares and these plans are detailed in Note 18 - Stock Compensation Plans and Other Employee Benefit Plans.
Series D Preferred Stock
In June 2015, the Company issued and sold 5,000,000 shares of fixed-to-floating non-cumulative perpetual preferred stock,
Series D, liquidation preference $25 per share (the “Series D Preferred Stock”) for $125.0 million in a public offering. When, as
and if declared, dividends on the Series D Preferred Stock are payable quarterly in arrears at a fixed rate of 6.50% per annum
from the original issuance date to, but excluding, July 15, 2025, and from (and including) that date at a floating rate equal to
three-month LIBOR plus a spread of 4.06% per annum.
Series E Preferred Stock
In May 2020, the Company issued 11,500 shares of fixed-rate reset non-cumulative perpetual preferred stock, Series E,
liquidation preference $25,000 per share (the “Series E Preferred Stock”) as part of a $287.5 million public offering of
11,500,000 depositary shares, each representing a 1/1,000th interest in a share of Series E Preferred Stock. When, as and if
declared, dividends on the Series E Preferred Stock are payable quarterly in arrears at a fixed rate of 6.875% per annum.
172
Other
At the January 2021 Board of Directors meeting, a quarterly cash dividend of $0.31 per share of common stock ($1.24 on an
annualized basis) was declared. It was paid on February 25, 2021 to shareholders of record as of February 11, 2021.
Accumulated Other Comprehensive Income (Loss)
The following tables summarize the components of other comprehensive income (loss), including the related income tax
effects, and the related amount reclassified to net income for the years ended December 31, 2020, 2019 and 2018:
(In thousands)
Balance at January 1, 2020
Other comprehensive income (loss) during the period, net of tax, before
reclassification
Amount reclassified from accumulated other comprehensive income into net
income, net of tax
Amount reclassified from accumulated other comprehensive income related
to amortization of unrealized gains on investment securities transferred to
held-to-maturity from available-for-sale
Net other comprehensive income (loss) during the period, net of tax
Balance at December 31, 2020
Balance at January 1, 2019
Other comprehensive income (loss) during the period, net of tax, before
reclassification
Amount reclassified from accumulated other comprehensive income into net
income, net of tax
Amount reclassified from accumulated other comprehensive income related
to amortization of unrealized gains on investment securities transferred to
held-to-maturity from available-for-sale
Net other comprehensive income (loss) during the period, net of tax
Balance at December 31, 2019
Balance at January 1, 2018
Cumulative effect adjustment from the adoption of:
ASU 2016-01
ASU 2018-02
Other comprehensive (loss) income during the period, net of tax, before
reclassification
Amount reclassified from accumulated other comprehensive income into net
income, net of tax
Amount reclassified from accumulated other comprehensive income related
to amortization of unrealized gains on investment securities transferred to
held-to-maturity from available-for-sale
Net other comprehensive loss during the period, net of tax
Balance at December 31, 2018
Accumulated
Unrealized
Gains
(Losses) on
Securities
Accumulated
Unrealized
Gains (Losses)
on Derivative
Instruments
Accumulated
Foreign
Currency
Translation
Adjustments
Total
Accumulated
Other
Comprehensive
Income (Loss)
$
14,982 $
(13,141) $
(36,519) $
(34,678)
56,086
(23,497)
4,254
36,843
(162)
13,548
—
13,386
(169)
55,755 $
70,737 $
—
(9,949) $
(23,090) $
—
4,254 $
(32,265) $
$
$
(169)
50,060
15,382
$
(42,353) $
7,857 $
(42,376) $
(76,872)
58,341
(13,481)
5,857
50,717
(658)
(7,517)
—
(8,175)
(348)
57,335 $
14,982 $
—
(20,998) $
(13,141) $
—
5,857 $
(36,519) $
$
$
(348)
42,194
(34,678)
$
(15,813) $
7,164 $
(33,186) $
(41,835)
(1,880)
(4,517)
—
1,543
—
—
(1,880)
(2,974)
(20,054)
4,498
(9,190)
(24,746)
(24)
(5,348)
—
(5,372)
(65)
(20,143) $
(42,353) $
$
$
—
(850) $
7,857 $
—
(9,190) $
(42,376) $
(65)
(30,183)
(76,872)
173
Details Regarding the Component of
Accumulated Other Comprehensive Income (Loss)
Accumulated unrealized gains on available-for-sale securities
Gains included in net income
Tax effect
Net of tax
Amount Reclassified from Accumulated
Other Comprehensive Income (Loss) for
the Year Ended,
December 31,
2020
2019
(In thousands)
Impacted Line on the
Consolidated Statements of Income
$
$
221 $
221
(59)
899
899
Gains (losses) on investment securities,
net
Income before taxes
(241) Income tax expense
162 $
658 Net income
Accumulated unrealized gains (losses) on derivative
instruments
Amount reclassified to interest expense on deposits
$
13,209 $
(10,954) Interest on deposits
Amount reclassified to interest expense on other borrowings
Amount reclassified to interest expense on junior subordinated
debentures
Tax effect
Net of tax
(24) Segment Information
2,187
3,075
(18,471)
4,923
576
128
Interest on other borrowings
Interest on junior subordinated
debentures
10,250
Income before taxes
(2,733) Income tax expense
$
(13,548) $
7,517 Net income
The Company’s operations consist of three primary segments: community banking, specialty finance and wealth management.
The three reportable segments are strategic business units that are separately managed as they offer different products and
services and have different marketing strategies. In addition, each segment’s customer base has varying characteristics and each
segment has a different regulatory environment. While the Company’s management monitors each of the fifteen bank
subsidiaries’ operations and profitability separately, these subsidiaries have been aggregated into one reportable operating
segment due to the similarities in products and services, customer base, operations, profitability measures and economic
characteristics.
For purposes of internal segment profitability, management allocates certain intersegment and parent company balances.
Management allocates a portion of revenues to the specialty finance segment related to loans and leases originated by the
specialty finance segment and sold or assigned to the community banking segment. Similarly, for purposes of analyzing the
contribution from the wealth management segment, management allocates a portion of the net interest income earned by the
community banking segment on deposit balances of customers of the wealth management segment to the wealth management
segment. See Note 10, “Deposits,” for more information on these deposits. Finally, expenses incurred at the Wintrust parent
company are allocated to each segment based on each segment's risk-weighted assets.
The segment financial information provided in the following tables has been derived from the internal profitability reporting
system used by management to monitor and manage the financial performance of the Company. The accounting policies of the
segments are substantially similar to those described in the “Summary of Significant Accounting Policies” in Note 1. The
Company evaluates segment performance based on after-tax profit or loss and other appropriate profitability measures common
to each segment.
174
The following is a summary of certain operating information for reportable segments:
(Dollars in thousands)
2020
Net interest income
Provision for credit losses
Non-interest income
Non-interest expense
Income tax expense
Net income
Total assets at end of year
2019
Net interest income
Provision for credit losses
Non-interest income
Non-interest expense
Income tax expense
Net income
Total assets at end of year
2018
Net interest income
Provision for credit losses
Non-interest income
Non-interest expense
Income tax expense
Net income
Total assets at end of year
Community
Banking
Specialty
Finance
Wealth
Management
Total
Operating
Segments
Intersegment
Eliminations
Consolidated
$
808,443 $
206,774
469,187
855,797
51,439
163,620 $
177,025 $ 30,612 $ 1,016,080 $
—
103,438
96,615
8,396
214,220
658,893
1,070,972
96,791
292,990 $
$
$ 36,769,640 $ 7,015,590 $ 1,295,538 $ 45,080,768 $
7,446
86,268
118,560
36,956
100,331 $ 29,039 $
—
23,827 $ 1,039,907
214,220
(54,704)
604,189
(30,877) 1,040,095
96,791
—
292,990
— $
— $ 45,080,768
—
(47,068)
(25,588)
21,480 $ 1,054,919
53,864
407,172
928,126
124,404
—
— $
355,697
— $ 36,620,583
18,629 $
—
(40,312)
(21,683)
964,903
34,832
356,150
826,088
116,967
—
— $
343,166
— $ 31,244,849
$
841,601 $
47,914
274,652
747,202
82,639
238,498 $
161,720 $ 30,118 $ 1,033,439 $
—
100,121
95,135
7,341
53,864
454,240
953,714
124,404
$
355,697 $
$ 29,583,112 $ 5,916,835 $ 1,120,636 $ 36,620,583 $
5,950
79,467
111,377
34,424
89,436 $ 27,763 $
$
136,981 $ 17,455 $
791,838 $
28,586
238,668
681,749
79,361
240,810 $
946,274 $
34,832
396,462
847,771
116,967
$
343,166 $
$ 25,438,454 $ 5,073,011 $ 733,384 $ 31,244,849 $
6,246
65,898
84,248
30,325
82,060 $ 20,296 $
—
91,896
81,774
7,281
175
(25) Condensed Parent Company Financial Statements
Condensed parent company only financial statements of Wintrust follow:
Statements of Financial Condition
(In thousands)
Assets
Cash
Available-for-sale debt securities and equity securities with readily determinable fair value
Investment in and receivable from subsidiaries
Loans, net of unearned income
Allowance for loan losses
Net loans
Goodwill
Other assets
Total assets
Liabilities and Shareholders’ Equity
Other liabilities
Subordinated notes
Other borrowings
Junior subordinated debentures
Shareholders’ equity
Total liabilities and shareholders’ equity
Statements of Income
December 31,
2020
2019
$
322,607 $
96,245
15,250
4,464,747
—
—
— $
14,695
4,266,278
75
(5)
70
8,371
353,064
$ 5,177,184 $ 4,738,723
8,371
366,209
$
$
204,299 $
436,506
166,818
253,566
4,115,995
188,275
436,095
169,537
253,566
3,691,250
$ 5,177,184 $ 4,738,723
(In thousands)
Income
Dividends and other revenue from subsidiaries
Investment securities (losses) gains and other income
Total income
Expenses
Interest expense
Salaries and employee benefits
Other expenses
Total expenses
Income (loss) before income taxes and equity in undistributed income
of subsidiaries
Income tax benefit
Income before equity in undistributed net income of subsidiaries
Equity in undistributed net income of subsidiaries
Net income
Years Ended December 31,
2020
2019
2018
$
$
$
$
$
$
$
317,839 $
(1,890)
315,949 $
39,581 $
75,179
113,886
228,646 $
87,303 $
42,745
130,048 $
162,942
292,990 $
198,918 $
3,044
201,962 $
34,649 $
72,925
116,132
223,706 $
(21,744) $
40,776
19,032 $
336,665
355,697 $
171,388
4
171,392
22,375
64,726
108,038
195,139
(23,747)
34,186
10,439
332,727
343,166
176
Statements of Cash Flows
(In thousands)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities
Provision for credit losses
(Gains) losses on investment securities, net
Depreciation and amortization
Deferred income tax expense
Stock-based compensation expense
Decrease in other assets
Increase (decrease) in other liabilities
Equity in undistributed net income of subsidiaries
Net Cash Provided by Operating Activities
Investing Activities:
Capital (contributions to) distributions from subsidiaries, net
Net cash paid for acquisitions, net
Other investing activity, net
Net Cash Used for Investing Activities
Financing Activities:
(Decrease) increase in subordinated notes, other borrowings and junior
subordinated debentures, net
Net proceeds from issuance of Series E Preferred Stock
Issuance of common shares resulting from exercise of stock options,
employee stock purchase plan and conversion of common stock warrants
Dividends paid
Common stock repurchases under authorized program
Common stock repurchases for tax withholdings related to stock-based
compensation
Net Cash Provided by Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
Years Ended December 31,
2020
2019
2018
$
292,990 $
355,697 $
343,166
—
(192)
22,224
11,336
(2,813)
4,838
2,388
(162,942)
167,829 $
(18)
(1,900)
15,675
8,342
5,611
4,940
(13,181)
(336,665)
38,501 $
56
957
11,943
502
6,025
2,728
650
(332,727)
33,300
(12,000) $
—
(40,127)
(52,127) $
(22,500) $
(124,338)
(51,495)
(198,333) $
4,632
(87,081)
(57,143)
(139,592)
$
$
$
$
(2,690) $
273,886 $
101,910
277,613
—
—
15,059
(85,890)
(92,055)
10,667
(65,110)
—
15,903
(50,987)
—
(1,377)
110,660 $
(1,297)
218,146 $
(648)
66,178
226,362 $
96,245
322,607 $
58,314 $
37,931
96,245 $
(40,114)
78,045
37,931
$
$
$
177
(26) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per common share for 2020, 2019 and 2018:
(In thousands, except per share data)
Net income
Less: Preferred stock dividends
Net income applicable to common shares
Weighted average common shares outstanding
Effect of dilutive potential common shares:
Common stock equivalents
(A)
(B)
Weighted average common shares and effect of dilutive potential common
shares
(C)
2020
2019
2018
$
292,990 $
355,697 $
343,166
21,377
8,200
8,200
$
271,613 $
347,497 $
334,966
57,523
56,857
56,300
496
762
908
58,019
57,619
57,208
Net income per common share:
Basic
Diluted
(A/B) $
(A/C)
4.72 $
6.11 $
4.68
6.03
5.95
5.86
Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants and shares to be
issued under the ESPP and the DDFS 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.
(27) Quarterly Financial Summary (Unaudited)
The following is a summary of quarterly financial information for the years ended December 31, 2020 and 2019:
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Provision for credit losses
2020 Quarters
2019 Quarters
First
Second
Third
Fourth
First
Second
Third
Fourth
$ 344,067 $ 329,816 $ 311,156 $ 307,981 $ 333,970 $ 346,814 $ 354,627 $ 349,731
82,624
66,685
55,220
48,584
71,984
80,612
89,775
87,852
261,443
263,131
255,936
259,397
261,986
266,202
264,852
261,879
52,961
135,053
25,026
1,180
10,624
24,580
10,834
7,826
Net interest income after provision for credit losses
208,482
128,078
230,910
258,217
251,362
241,622
254,018
254,053
Non-interest income, excluding net securities (losses)
gains
(Losses) gains on investment securities, net
Non-interest expense
Income before taxes
Income tax expense
Net income
Preferred stock dividends
Net income applicable to common shares
Net income per common share:
Basic
Diluted
Cash dividends declared per common share
117,601
161,185
170,182
157,147
80,293
97,294
114,427
111,633
(4,359)
808
411
1,214
1,364
864
710
587
234,641
259,368
264,219
281,867
214,374
229,607
234,554
249,591
87,083
24,271
30,703
137,284
134,711
118,645
110,173
134,601
116,682
9,044
29,969
33,507
29,499
28,707
35,480
30,718
$ 62,812 $ 21,659 $ 107,315 $ 101,204 $ 89,146 $ 81,466 $ 99,121 $ 85,964
2,050
2,050
10,286
6,991
2,050
2,050
2,050
2,050
$ 60,762 $ 19,609 $ 97,029 $ 94,213 $ 87,096 $ 79,416 $ 97,071 $ 83,914
$
1.05 $
0.34 $
1.68 $
1.64 $
1.54 $
1.40 $
1.71 $
1.04
0.28
0.34
0.28
1.67
0.28
1.63
0.28
1.52
0.25
1.38
0.25
1.69
0.25
1.46
1.44
0.25
178
(28) Subsequent Events
On December 27, 2020, the President of the United States signed the CAA, which authorized an additional funding of PPP for
small businesses who meet the necessary eligibility requirements in order to keep their workers on the payroll. The Company
began accepting applications on January 11, 2021 and as of February 25, 2021, the Company had secured authorization from
the SBA to fund over 6,700 PPP loans totaling approximately $1.2 billion.
179
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company made no changes in and had no disagreements with its independent accountants during the two most recent fiscal
years or any subsequent interim period.
180
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, management of the Company, under the supervision
and with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined under Rules
13a-15(e) and 15d-15(e) of the Exchange Act. Based upon, and as of the date of that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective, in ensuring the
information relating to the Company (and its consolidated subsidiaries) required to be disclosed by the Company in the reports
it files or submits under the Exchange Act was recorded, processed, summarized and reported in a timely manner.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended
December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
181
Report on Management’s Assessment of Internal Control Over Financial Reporting
Wintrust Financial Corporation is responsible for the preparation, integrity, and fair presentation of the consolidated financial
statements included in this Annual Report on Form 10-K. The consolidated financial statements and notes included in this
Annual Report on Form 10-K have been prepared in conformity with generally accepted accounting principles in the United
States and necessarily include some amounts that are based on management’s best estimates and judgments.
We, as management of Wintrust Financial Corporation, are responsible for establishing and maintaining adequate internal
control over financial reporting that is designed to produce reliable financial statements in conformity with generally accepted
accounting principles in the United States. The system of internal control over financial reporting as it relates to the financial
statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions
are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed,
has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to
error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary
over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to
financial statement preparation.
Management assessed the Company’s system of internal control over financial reporting as of December 31, 2020, in relation to
criteria for the effective internal control over financial reporting as described in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO Criteria). Based on
this assessment, management concluded that, as of December 31, 2020, the Company's system of internal control over financial
reporting is effective and meets the criteria of the COSO Criteria. Ernst & Young LLP, the independent registered public
accounting firm that audited the Company's financial statements included in this Annual Report on Form 10-K, has issued an
attestation report on management’s assessment of the Corporation’s internal control over financial reporting. Their report
expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2020.
/s/ Edward J. Wehmer
Edward J. Wehmer
Founder and
Chief Executive Officer
Rosemont, Illinois
February 26, 2021
/s/ David L. Stoehr
David L. Stoehr
Executive Vice President &
Chief Financial Officer
182
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Wintrust Financial Corporation
Opinion on Internal Control over Financial Reporting
We have audited Wintrust Financial Corporation and subsidiaries’ internal control over financial reporting as of December 31,
2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wintrust Financial
Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statements of condition of the Company as of December 31, 2020 and 2019, the related
consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2020, and the related notes and our report dated February 26, 2021 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Report on
Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitation of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 26, 2021
183
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required in response to this item will be contained in the Company’s Proxy Statement for its Annual Meeting
of Shareholders to be held May 27, 2021 (the “Proxy Statement”) under the captions “Election of Directors,” “Executive
Officers of the Company,” “Board of Directors’ Committees and Governance” and is incorporated herein by reference.
The Company has adopted a Corporate Code of Ethics which complies with the rules of the SEC and the listing standards of the
NASDAQ Global Select Market. The code applies to all of the Company’s directors, officers and employees and is posted on
the Company’s website (www.wintrust.com), under the “Corporate Governance” section of the “Investor Relations” tab. The
Company will post on its website any amendments to, or waivers from, its Corporate Code of Ethics as the code applies to its
directors or executive officers.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item will be contained in the Company’s Proxy Statement under the captions
“Executive Compensation,” “Director Compensation” “Compensation Committee Interlocks and Insider Participation” “CEO
Pay Ratio Disclosure” and “Compensation Committee Report” and is incorporated herein by reference. The information
included under the heading “Compensation Committee Report” in the Proxy Statement shall not be deemed “soliciting”
materials or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management is incorporated by reference to the
materials under the caption “Security Ownership of Certain Beneficial Owners, Directors and Management” that will be
included in the Company’s Proxy Statement.
The following table summarizes information as of December 31, 2020, relating to the Company’s equity compensation plans
pursuant to which common stock is authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
Plan Category
Equity compensation plans approved by security holders
WTFC 1997 Stock Incentive Plan, as amended
WTFC 2007 Stock Incentive Plan
WTFC 2015 Stock Incentive Plan
WTFC Employee Stock Purchase Plan
WTFC Directors Deferred Fee and Stock Plan
Equity compensation plans not approved by security holders (1)
N/A
Total
Number of
securities to be issued
upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
85,000
247,594 $
1,088,262 $
—
—
1,420,856 $
—
1,420,856 $
—
40.21
9.65
—
—
14.40
—
14.40
—
—
2,082,745
110,970
517,611
2,711,326
—
2,711,326
(1) Excludes 41,208 shares of the Company's common stock issuable pursuant to the exercise of options granted under the plan of STC
Bancshares Corporation. The weighted average exercise price of these options is $40.05. No additional awards will be made under
this plan.
184
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required in response to this item will be contained in the Company’s Proxy Statement under the caption
“Related Party Transactions” and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required in response to this item will be contained in the Company’s Proxy Statement under the caption “Audit
and Non-Audit Fees Paid” and is incorporated herein by reference.
185
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this Annual Report on Form 10-K.
1
Financial Statements
The following financial statements of Wintrust Financial Corporation, incorporated herein by reference to Item 8,
Financial Statements and Supplementary Data:
•
•
•
•
•
•
•
Consolidated Statements of Condition as of December 31, 2020 and 2019
Consolidated Statements of Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2020, 2019
and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Financial Statement Schedules
Financial statement schedules have been omitted as they are not applicable or the required information is shown in
the Consolidated Financial Statements or notes thereto.
Exhibits (Exhibits marked with a “*” denote management contracts or compensatory plans or arrangements)
Exhibit Description
Amended and Restated Articles of Incorporation of the Company, as amended (incorporated by reference to
Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, Exhibits 3.1
and 3.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July
29, 2011 and Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012).
Certificate of Designations of the Company filed on June 24, 2015 with the Secretary of State of the State of
Illinois designating the preferences, limitations, voting powers and relative rights of the Series D Preferred Stock
(incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission on June 25, 2015).
Certificate of Designations of the Company filed on May 7, 2020 with the Secretary of State of the State of Illinois
designating the preferences, limitations, voting powers and relative rights of the Series E Preferred Stock
(incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on May 8, 2020).
Amended and Restated By-laws of the Company, as amended (incorporated by reference to Exhibit 3.2 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 13, 2020).
Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
Certain instruments defining the rights of the holders of long-term debt of the Company and certain of its
subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the
Company and its subsidiaries on a consolidated basis, have not been filed as Exhibits. The Company hereby agrees
to furnish a copy of any of these agreements to the Securities and Exchange Commission upon request.
Form of Subordinated Indenture between the Company and U.S. Bank National Association, as trustee
(incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on May 6, 2020).
Form of Depositary Receipt (included as Exhibit A to Exhibit 4.3 hereto) (incorporated by reference to Exhibit 4.2
of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 15,
2020).
2
3
Exhibit
No.
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
186
4.5
4.6
4.7
4.8
4.9
4.10
4.11
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Deposit Agreement, dated as of May 15, 2020, among Wintrust Financial Corporation, U.S. Bank National
Association, as Depositary, and the holders from time to time of the Depositary Receipts issued thereunder
(incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on May 15, 2020).
Subordinated Indenture, dated June 13, 2014, between the Company and U.S. Bank National Association, as
trustee (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 13, 2014).
First Supplemental Indenture, dated June 13, 2014 between the Company and U.S. Bank National Association, as
trustee (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 13, 2014).
Form of 5.000% Subordinated Note due 2024 (incorporated by reference to Exhibit A in Exhibit 4.2 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 13, 2014).
Second Supplemental Indenture, dated June 6, 2019 between the Company and U.S. Bank National Association, as
trustee (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 6, 2019).
Form of 4.850% Subordinated Notes due 2029 (incorporated by reference to Exhibit A in Exhibit 4.2 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2019).
Form of Subordinated Indenture (incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement
on Form S-3 filed with the Securities and Exchange Commission on May 6, 2020).
Credit Agreement, dated as of September 18, 2018, among the Company, the lenders named therein, and Wells
Fargo Bank, National Association, as administrative agent and sole lead arranger (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission
on September 19, 2018).
First Amendment, dated as of September 17, 2019, to the Credit Agreement dated as of September 18, 2018, as
amended, among Wintrust Financial Corporation, the lenders named therein, and Wells Fargo Bank, National
Association, as administrative agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on September 19, 2019).
Second Amendment, dated as of September 15, 2020, to the Credit Agreement dated as of September 18, 2018, as
amended, among Wintrust Financial Corporation, the lenders named therein, and Wells Fargo Bank, National
Association, as administrative agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on September 17, 2020).
Receivables Purchase Agreement, dated as of December 16, 2014, by and among First Insurance Funding of
Canada Inc. and CIBC Mellon Trust Company, in its capacity as Trustee of PLAZA Trust (incorporated by
reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 19, 2014).
First Amending Agreement to the Receivables Purchase Agreement, dated December 15, 2015, by and among First
Insurance Funding of Canada Inc. and CIBC Mellon Trust Company, in its capacity as Trustee of PLAZA Trust
(incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on February 29, 2016).
Second Amending Agreement to the Receivables Purchase Agreement, dated September 9, 2016, by and among
First Insurance Funding of Canada, Inc. and CIBC Mellon Trust Company, in its capacity as Trustee of PLAZA
Trust (incorporated by reference to Exhibit 10.9 of the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 28, 2018).
Third Amending Agreement to the Receivables Purchase Agreement, dated December 15, 2017, by and among
First Insurance Funding of Canada Inc. and CIBC Mellon Trust Company, in its capacity as Trustee of PLAZA
Trust (incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 8-K filed with the
Securities and Exchange Commission on December 18, 2017).
Fourth Amending Agreement to the Receivables Purchase Agreement, dated June 29, 2018, by and among First
Insurance Funding of Canada Inc. and CIBC Mellon Trust Company, in its capacity as Trustee of PLAZA Trust
(incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 8-K filed with the Securities
and Exchange Commission on July 3, 2018).
187
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
Fifth Amending Agreement to the Receivables Purchase Agreement, dated as of February 15, 2019 by and between
First Insurance Funding of Canada Inc. and CIBC Mellon Trust, in its capacity as trustee of Plaza Trust, by its
Financial Service Agent, Royal Bank of Canada (incorporated by reference to Exhibit 10.1 of the Company's
Annual Report on Form 8-K filed with the Securities and Exchange Commission on February 22, 2019).
Sixth Amending Agreement to the Receivables Purchase Agreement, dated as of May 27, 2019 by and between
First Insurance Funding of Canada Inc. and CIBC Mellon Trust, in its capacity as trustee of Plaza Trust, by its
Financial Service Agent, Royal Bank of Canada (incorporated by reference to Exhibit 10.1 of the Company's
Annual Report on Form 8-K filed with the Securities and Exchange Commission on May 30, 2019).
Seventh Amending Agreement, date as of January 15, 2020 by and between First Insurance Funding of Canada Inc.
and CIBC Mellon Trust, in its capacity of Plaza Trust, by its Financial Service Agent, Royal Bank of Canada
(incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 8-K filed with the Securities
and Exchange Commission on January 17, 2020).
Eighth Amending Agreement to the Receivables Purchase Agreement, dated May 20, 2020, by and between First
Insurance Funding of Canada Inc. and CIBC Mellon Trust, in its capacity as trustee of the PLAZA Trust, by its
Financial Service Agent, Royal Bank of Canada (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2020).
Ninth Amending Agreement to the Receivables Purchase Agreement, dated January 15, 2021, by and between First
Insurance Funding of Canada Inc. and CIBC Mellon Trust, in its capacity as trustee of the PLAZA Trust, by its
Financial Service Agent, Royal Bank of Canada (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 20, 2021).
Performance Guarantee, made as of December 16, 2014, by the Company in favor of CIBC Mellon Trust
Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.3 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on December 19, 2014).
Performance Guarantee Confirmation, made as of December 15, 2017, by the Company in favor of CIBC Mellon
Trust Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.2 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18,
2017).
Performance Guarantee Confirmation, made as of June 28, 2018, by the Company in favor of CIBC Mellon Trust
Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.2 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on July 3, 2018).
Performance Guarantee Confirmation, made as of February 15, 2019, by the Company in favor of CIBC Mellon
Trust Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.2 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 22,
2019).
Performance Guarantee Confirmation, made as of May 27, 2019, by the Company in favor of CIBC Mellon Trust
Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.2 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on May 30, 2019).
Performance Guarantee Confirmation, made as of January 15, 2020, by the Company in favor of CIBC Mellon
Trust Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.2 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2020).
Performance Guarantee Confirmation, made as of May 20, 2020, by the Company in favor of CIBC Mellon Trust
Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.2 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2020).
Performance Guarantee Confirmation, made as of January 15, 2021, by the Company in favor of CIBC Mellon
Trust Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.2 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 20, 2021).
Fee Letter, dated May 27, 2019, between First Insurance Funding of Canada Inc. and CIBC Mellon Trust
Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.3 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on May 30, 2019).
188
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Fee Letter, dated January 15, 2020, between First Insurance Funding of Canada Inc. and CIBC Mellon Trust
Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.3 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 17, 2020).
Fee Letter, dated May 20, 2020, between First Insurance Funding of Canada Inc. and CIBC Mellon Trust
Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.3 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2020).
Fee Letter, dated January 15, 2021, between First Insurance Funding of Canada Inc. and CIBC Mellon Trust
Company, in its capacity as trustee of PLAZA Trust (incorporated by reference to Exhibit 10.3 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on January 20, 2021).
Junior Subordinated Indenture, dated as of August 2, 2005, between the Company and Wilmington Trust
Company, as trustee (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on August 4, 2005).
Amended and Restated Trust Agreement, dated as of August 2, 2005, among the Company, as depositor,
Wilmington Trust Company, as property trustee and Delaware trustee, and the Administrative Trustees listed
therein (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 4, 2005).
Guarantee Agreement, dated as of August 2, 2005, between the Company, as Guarantor, and Wilmington Trust
Company, as trustee (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on August 4, 2005).
Indenture, dated as of September 1, 2006, between the Company and LaSalle Bank National Association, as trustee
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on September 6, 2006).
Amended and Restated Declaration of Trust, dated as of September 1, 2006, among the Company, as depositor,
LaSalle Bank National Association, as institutional trustee, Christiana Bank & Trust Company, as Delaware
trustee, and the Administrators listed therein (incorporated by reference to Exhibit 10.2 of the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on September 6, 2006).
Guarantee Agreement, dated as of September 1, 2006, between the Company, as Guarantor, and LaSalle Bank
National Association, as trustee (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on September 6, 2006).
Amended and Restated Employment Agreement, dated December 19, 2008, between the Company and Edward J.
Wehmer, President and Chief Executive Officer (incorporated by reference to Exhibit 10.4 of the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on December 24, 2008).*
Amended and Restated Employment Agreement, dated December 19, 2008, between the Company and David A.
Dykstra, Senior Executive Vice President and Chief Operating Officer (incorporated by reference to Exhibit 10.5
of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December
24, 2008).*
Amended and Restated Employment Agreement, dated December 19, 2008, between the Company and Richard B.
Murphy, Executive Vice President and Chief Credit Officer (incorporated by reference to Exhibit 10.7 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 24,
2008).*
Amended and Restated Employment Agreement, dated December 19, 2008, between the Company and David L.
Stoehr, Executive Vice President and Chief Financial Officer (incorporated by reference to Exhibit 10.6 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 24,
2008).*
Employment Agreement, dated August 11, 2008, between the Company and Timothy Crane (incorporated by
reference to Exhibit 10.18 of the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 29, 2016).*
First Amendment to Employment Agreement, dated November 30, 2010, between the Company and Timothy
Crane (incorporated by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 29, 2016).*
189
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
Wintrust Financial Corporation 1997 Stock Incentive Plan (incorporated by reference to Appendix A of the Proxy
Statement relating to the May 22, 1997 Annual Meeting of Shareholders of the Company).*
First Amendment to Wintrust Financial Corporation 1997 Stock Incentive Plan (incorporated by reference to
Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).*
Second Amendment to Wintrust Financial Corporation 1997 Stock Incentive Plan adopted by the Board of
Directors on January 24, 2002 (incorporated by reference to Exhibit 99.3 of the Company’s Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on July 1, 2004).*
Third Amendment to Wintrust Financial Corporation 1997 Stock Incentive Plan adopted by the Board of Directors
on May 27, 2004 (incorporated by reference to Exhibit 99.4 of the Company’s Registration Statement on Form S-8
filed with the Securities and Exchange Commission on July 1, 2004).*
Wintrust Financial Corporation 2007 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 4.6 to
the Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on
November 8, 2011).*
Wintrust Financial Corporation 2015 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the
Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 1, 2015).*
Form of Nonqualified Stock Option Agreement under the Company’s 2007 Stock Incentive Plan (incorporated by
reference to Exhibit 10.31 of the Company’s Annual Report on Form 10-K for the year ended December 31,
2006).*
Form of Nonqualified Stock Option Agreement under the Company’s 2015 Stock Incentive Plan (incorporated by
reference to Exhibit 10.2 of the Company’s Quarter Report on Form 10-Q for the quarter ended March 31, 2016).*
Form of Restricted Stock Unit Award Agreement under the Company’s 2007 Stock Incentive Plan (incorporated by
reference to Exhibit 10.32 of the Company’s Annual Report on Form 10-K for the year ended December 31,
2006).*
Form of Performance Share Unit Award - Stock Settled under the Company's 2007 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2013).*
Form of Performance Award Agreement - Share Settled under the Company's 2015 Stock Incentive Plan
(incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2016).*
Form of Performance Share Unit Award - Cash Settled under the Company's 2007 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2013).*
Form of Performance Share Unit Award - Cash Settled under the Company's 2015 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2016).*
Form of Performance Award Agreement - Cash Settled under the Company's 2015 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2016).*
Form of Performance Cash Award under the Company's 2007 Stock Incentive Plan (incorporated by reference to
Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013).*
Form of Performance Share Unit Award - Shares Settled - Deferral Option under the Company’s 2007 Stock
Incentive Plan (incorporated by reference to Exhibit 10.30 of the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on February 29, 2016).*
Form of Performance Award Agreement - Cash Settled/Share Settled under the Company’s 2015 Stock Incentive
Plan (incorporated by reference to Exhibit 10.41 of the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 28, 2018).*
190
10.55
10.56
10.57
10.58
10.59
10.60
10.61
10.62
21.1
23.1
31.1
31.2
32.1
Form of Performance Share Unit Award - Cash Settled - Deferral Option under the Company’s 2007 Stock
Incentive Plan (incorporated by reference to Exhibit 10.31 the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission on February 29, 2016).*
Wintrust Financial Corporation Employee Stock Purchase Plan, as amended (incorporated by reference to Annex A
of the Company's definitive Proxy Statement filed with the Securities and Exchange Commission on April 24,
2012).*
Amended and Restated Wintrust Financial Corporation Employee Stock Purchase Plan, (incorporated by reference
to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission
on May 25, 2018).*
Wintrust Financial Corporation Directors Deferred Fee and Stock Plan (incorporated by reference to Appendix B
of the Proxy Statement relating to the May 24, 2001 Annual Meeting of Shareholders of the Company).*
Wintrust Financial Corporation 2005 Directors Deferred Fee and Stock Plan, as amended and restated
(incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K, filed with the Securities
and Exchange Commission on July 29, 2014).*
Form of Cash Incentive and Retention Award Agreement under the Company’s 2008 Long-Term Cash and
Incentive Retention Plan with no Minimum Payout (incorporated by reference to Exhibit 10.3 of the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).*
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.2 of the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2009).
Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2009).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document (1)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1) Includes the following financial information included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated
Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of
Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated
Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
191
ITEM 16. FORM 10-K SUMMARY
None.
192
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
WINTRUST FINANCIAL CORPORATION (Registrant)
February 26, 2021
By:
/s/ EDWARD J. WEHMER
Edward J. Wehmer, Founder and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ H. PATRICK HACKETT, JR.
H. Patrick Hackett, Jr.
Chairman of the Board of Directors
February 26, 2021
/s/ EDWARD J. WEHMER
Edward J. Wehmer
Founder, Chief Executive Officer and Director
(Principal Executive Officer)
February 26, 2021
/s/ DAVID L. STOEHR
David L. Stoehr
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 26, 2021
/s/ PETER D. CRIST
Peter D. Crist
/s/ BRUCE K. CROWTHER
Bruce K. Crowther
/s/ WILLIAM J. DOYLE
William J. Doyle
/s/ MARLA F. GLABE
Marla F. Glabe
/s/ SCOTT K. HEITMANN
Scott K. Heitmann
/s/ DEBORAH L. HALL LEFEVRE
Deborah L. Hall Lefevre
/s/ CHRISTOPHER J. PERRY
Christopher J. Perry
/s/ INGRID S. STAFFORD
Ingrid S. Stafford
/s/ GARY D. “JOE” SWEENEY
Gary D. “Joe” Sweeney
/s/ KARIN GUSTAFSON TEGLIA
Karin Gustafson Teglia
/s/ ALEX E. WASHINGTON, III
Alex E. Washington, III
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
193
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021