Wintrust Financial (WTFC) Q3 2026 earnings call transcript

Good morning, and welcome to Wintrust's third quarter 2026 earnings call. In addition to those Lateef introduced, I'm joined by Chief Financial Officer Dave Starr and Chief Legal Officer Kate Bogey. I will begin with a brief overview of the quarter. Dave Dykstra and Rich will provide a deeper look at the key results, and I'll be back to share some final thoughts before we open to your questions.

In the third quarter, we recorded our seventh consecutive quarter of record net income. Net income was $239 million, up from $234 million in the prior quarter. Net income and net interest income growth continue to be a function of a stable margin and solid core business growth. Both loans and deposits were up nicely during the quarter, in line with our historical results and our expectations for the quarter. Our efficiency ratio improved and we continue to generate operating leverage as expenses remain appropriate relative to revenue growth.

To generate these results, we continue to deliver on our three key strategic priorities, to deliver an exceptional and differentiated customer experience, to pursue strategic and disciplined growth, and further built out our foundation by investing for our future. On September 1st, we closed the previously announced acquisition to grow our guardianship services business. This transaction will help boost wealth management revenues and income going forward.

We also opened four new branches during the quarter, with two others opening this month. They're all off to a good start in terms of deposit gathering and growing new Wintrust households. These new branches help fill in our Midwestern footprint as we continue to deliver our high-touch, high-tech approach to meeting customer banking needs.

In fact, the latest FDIC deposit market share data shows that Wintrust outperformed both Illinois and the U. S. banking industry on deposit growth. To be more specific, in our core Illinois market, Wintrust continued to gain market share, growing deposits 9.2% year-over-year, more than double the state's 4.4% growth rate, and well above the U. S. industry average of 5.2%. We remain well-positioned in Wisconsin and West Michigan as well, with plenty of growth opportunities in all of our markets. Growing core deposits remains the single most important thing we do to enhance the value of a franchise and to ensure our continued success.

Overall, I'm pleased with our results this quarter, another consistent quarter of solid performance, driving continued value for our shareholders. Let me turn it over to Dave for more on what drove our results.

Great. Thanks, Tim. Let me start with the balance sheet. Both loans and deposits grew at an annualized rate of 8% for the third quarter relative to the prior quarter. Total deposits were up approximately $1.3 billion during the quarter, which funded solid third quarter loan growth of roughly $1.1 billion. Yields and rates in major balance sheet categories were essentially flat with the prior quarter. We were particularly pleased that given the strong deposit growth during the quarter, that interest-bearing deposit costs were actually down one basis point, matching the one basis point decline in loan yields.

I would note that period-end loans were approximately $822 million higher than average loans for the third quarter, giving us a great start to achieving a higher level of average earning assets in the final quarter of 2026.

Turning to the income statement results, this was a very solid operating quarter, producing another record level of quarterly net income. income, net interest income improved by $24.2 million compared to the second quarter of 2026 to $621.6 million. The improvement in net interest income was primarily the result of an increase of $2.1 billion in average earning assets, which was offset slightly by a one basis point decline in the net interest margin, which was 3.51% for the third quarter. The The one basis point decline in the net interest margin was caused by the impact of having one additional day in the quarter. Interest rate changes and business mix changes essentially netted to no impact on the margin.

The net interest margin has remained in the range of 350 to 359 during the last 11 quarters, showing the sustainability of this metric. And given our balance sheet structure and our established interest rate hedging positions, believe that our interest rate sensitivity should continue to remain relatively neutral even with a few rate cuts in either direction. The provision for credit losses continue to remain relatively consistent with prior quarters staying in the 20 to 30 million dollar range for the seventh consecutive quarter as the overall credit environment and our asset quality has remained stable.

Turning to other non-interest income and non-interest expenses, total non-interest income was $136.3 million in the third quarter, which was a decrease from the $141.3 million recorded in the prior quarter. This roughly $5 million decline was primarily a result of a $1.9 million of lower mortgage banking revenue as higher rates weighed on mortgage loan originations and approximately $3.5 million less security gains and losses as the unrealized gains in the second quarter swing around to unrealized losses in the third quarter.

As to non-interest expense categories, non-interest expenses were consistent with our expectations noted during a second quarter conference call and totaled $405.7 million in the third quarter, up $8.1 million from the prior quarter. The second quarter included a $5.2 million reversal of an accrued FDIC insurance expense expense related to the final true of the previously imposed special assessments by the FDIC.

So if we adjust for that reversal, expenses were up only $2.9 million from the prior quarter and reflect smaller levels of increases in a variety of other expense categories to support the continued growth of the company. Additionally, the net overhead and efficiency ratios have remained relatively stable through the first nine months of the year, helping the company produced solid operating leverage thus far in 2026.

In summary, I'll reiterate what Tim said. This was another very solid and consistent operating quarter. The company achieved strong loan and deposit growth, a relatively stable net interest margin, another record of level of net income, and a continued low level of non-performing assets. In addition to the operating performance, I'll have one additional comment regarding the planned use of cash in the fourth quarter. The company has already, or intends to, redeemed seven issuances of our trust-referred securities, which are shown on our balance sheet as junior subordinated debentures.

The redemptions will total approximately $108 million and will retire higher-priced loading rate debentures that on average have a spread to three months SOFR of approximately 309 basis points. So some of our highest rate debt will be retired during the fourth quarter.

So with that, I'll conclude my comments and turn it over to Rich to discuss credit.

Thanks, Dave. As detailed on Slide 7 of the investor presentation, third quarter loan growth was strong and broad-based. The three primary drivers were $690 million in core commercial real estate loan growth, reflecting both new lending opportunities and funding of previously committed loans, $226 million in growth in Wintrust Life loans, and $153 million in residential mortgage loan growth. Every lending segment recorded positive growth during the quarter.

On a year-over-year basis, total loans increased by $4.7 billion, or 9%. Turning to credit quality, slide 15 details continued strong performance across our portfolio. Non-performing loans decreased slightly from $179.3 million, or 0.32%, of total loans, to $176.9 million, or 0.31%, and remained at very manageable levels. Charge-offs were 15 basis points for the quarter, up slightly from the prior quarter, and continue to reflect a stable and benign credit environment.

That assessment is further supported by the historical non-performing asset trends on slide 16 and the consistent levels of special mention and substandard loans on slide 15. This quarter again demonstrates our commitment to identifying problems early and charging down loans where appropriate. Our goal, as always, is to stay ahead of potential credit challenges. As we've noted on recent calls, we remain highly focused on a commercial real estate exposure, particularly in light of potential higher interest rates in the environment.

As detailed on slide 19, this portfolio continued to perform well during the third quarter. CRE non-performing loans declined from 12 basis points to 9 basis points. Charge-offs of 2 basis points in the second quarter shifted to 5 basis points of recoveries in the third quarter. Overall, customers have remained resilient despite continued uncertainty around the geopolitical environment, interest rates, inflation, and the broader economy.

We continue to see healthy activity across our markets, and client conversations reflect cautious optimism about the business environment. These close relationships provide valuable real-time insights into changing conditions, while our disciplined risk management approach positions us well as the economic environment continues to evolve. That concludes my comments on lending and credit. And, Jim, I'll turn it back to you.

Great. Thank you, Rich. Just some final thoughts. As we close out the year, our targets remain unchanged for the fourth quarter. Based on continued positive feedback from clients, solid pipelines, and the unique market position we occupy, we expect loan and deposit growth in the mid to high single digits. We've consistently funded our loan growth with appropriately priced deposits, and we expect that to continue in the fourth quarter.

The net interest margin should remain stable, plus or minus 3.5%. We believe that any further rate increases will result in loan yields and deposit costs moving roughly in concert and accordingly should not materially impact the margin. That said, as our loan book is largely variable priced, increases in SOFR or other loan index rates in advance of a rate increase or market factors that moderate increases in deposit costs could be supportive of a slightly higher margin. Our capital position remains strong and increased during the quarter. The capital priorities we have discussed on prior calls remain unchanged.

As always, our team focuses on delivering the exceptional customer service that is our key differentiator. Going into 2027, we feel good about our competitive position in the market. our ability to continue to grow our business and to deliver value for our shareholders.

With that, Lateef, could you please open the line for questions?

Sure. Yeah, the pipelines are good, John. I mean, we've said this really for the last few calls. You know, I think it's indicative of the economy that's holding together pretty well, but, you know, we continue to have a really nice position in our market, you know, both in, you know, Chicago, but, you know, Michigan, Wisconsin, all, you know, seem to be taking market share, you know, pretty nicely. And so, you know, as long as we can continue to execute on that, you know, the pipelines are going to reflect some pretty good numbers. So, you know, if I look down the major categories, I mean, CRE, you know, shows pretty good momentum there. You know, C&I, we've had some really nice wins here over the last couple quarters, and that continues to show up in the pipeline.

So, you know, again, feel pretty good about that. Now, you know, we don't know where the economy is going to go and, you know, where things will happen, But generally speaking, as I look at the pipelines, we feel good. As it relates to the CRE, I mean, CRE for the quarter is a little bit of a timing issue.

If you look back at last quarter, we were just over $100 million in total funding. So if you add those two quarters together, they kind of come in right where the last four quarters are, which is right around $300 million or around 9%. And as I look at what funded during the third quarter, we had a number of larger owner-occupied and kind of strong investor-type deals that we feel good about. The thing about real estate, too, for us is that these are not transactional deals. These are very much relationship-oriented deals that, if I look at the names that we funded in the third quarter, are people that we've been doing business with for a long time.

So in general, it's more just it's a timing issue more than anything else.

Yeah, John, thanks. We do feel good about the deposit growth, probably a little more commercial than retail. But the Chicago and both West Michigan and Milwaukee markets are largely rational. You know, we see promotional pricing, you know, four or low fours. We continue to win business at those levels. We've started to get a little bit of a lift from the new branches we've opened. We'll get more of that in the fourth quarter.

And continued build-out of our commercial franchise as well. So a nice mix of deposits, you know, many of them interest-bearing, but we controlled the interest-bearing deposit costs well during the quarter. and overall feel like we did a very nice job during the quarter.

Well, I think it's both, Danny. You know, we're growing the denominator rapidly and doing that at a reasonable cost, so we're comfortable that we continue to build the franchise and happy with those results. You know, that said, we very much would like the non-interest bearing to stay around 19%, and we'll work to do that. But, you know, the mix, you know, comes to us as our customers dictate at times, and we just kind of look at it on an overall basis.

Yeah, and Danny, this is Dave. I do think you pointed to the average balance. I do think you need to look at the average balance a little bit more than point in time because monies flow in and out, sometimes a quarter in, and make that move around a little bit. But the average balance is trending up, which shows we're gaining most of that as commercial, obviously. And so we're gaining middle market and small business accounts. And we think we'll keep doing that. But, you know, we're fortunate that we have to fund good loan growth. And if you fund that higher loan growth, you generally have to do some of that with interest-bearing deposits more so than DDA.

And so we'll try to hold that number there, but it's a good problem to have.

You know, we can speculate on that. and my guess is it will have some impact, certainly borrowing costs in the CRE space are a big driver. But at this point, we don't see that. And if you think back about the last four quarters and really beyond that, the Midwest economy that we pretty much lend into has been amazingly resilient. I mean, so whether it's been tariffs or increased rates or transportation costs or whatever those shocks have been, they've continued to work their way through it. And our customers kind of reflect that same attitude, that they will, those might be impactful, but they think that they can manage through it. So at this point, I wouldn't anticipate it would have a meaningful effect.

Yeah, I might just throw on there, 80% of our loans repriced or mature within a year, and the short end of the curve was 50 basis points higher in June of last year. So prime was 50 base points higher than where we are now, and our production was very good at that point in time. So as Rich said, you'll have to see what happens with the economy, and the shape of the curve is a little bit different. But we still think these rates are good for new business development.

Morning, Ben.

Yeah, I would say, you know, we do have the swaps in place that hedge part of that floating rate SOFR portfolio. But I would say that in a rising rate scenario, as Tim said in his comments, if deposit rates lag a little bit, as they historically do when rates go up, which our competition is doing, and then if SOFR gets out ahead of Fed increases, that would put us to a bias to the upside of the 350 plus or minus a few basis points. And then over time, all else being equal, you will have your premium finance books reprice over time. But you also have some CDs repricing over time. So I think you're right.

An up-rate environment, we have a slight bias to an increased margin, but a lot of moving parts there.

I mean, given our overall size with, you know, more than 210 branches, I don't think the five or six that we've talked about are going to be trajectory changing. But we continue to add households. We continue to add retail deposits. And we, as you know, focus on deposits as the core of our franchise. And so we're filling in in communities that we would like to have been in. We're building, you know, in adjacent communities.

And I would just view it as kind of normal progress. I don't think you're going to see major changes, but it will contribute to the deposit growth over time.

You bet.

Yeah, one of the things I'll note in that table is that assumes instantaneous, you know, change of deposit rates and to the extent we can lag deposit rates, that would actually probably bring that 2.9% to more of a neutral position. And so we assume our competition is going to move quickly in our models, but to the extent that the market moderates a little bit and deposit betas take time to get up to the full amount, then that will benefit us.

So this is a conservative view of the world, and really the impact of that is deposit lacking.

I think that's a good way to summarize it.

Yeah, we've talked about this in the past, Nate, where we saw just a lot of competition out there, particularly on fully funded CRE loans. And I think it's still very competitive, but some of that downward pricing pressure, I think, has stabilized a little bit. When it's a really good credit and you get lots of deposits, still people are fighting very hard over it But you know at this point I think people are genuinely focused on getting reasonably paid given where we at in the market and the potential risks out there But we like to kind of be in that six and a half range when we're looking at opportunities. And if we can't get appropriately priced in a decent relationship with it, we'll pass on it.

Yeah, well, the SDIC recovery was the second quarter, so the third quarter here was a pretty clean quarter for us. I'd expect it to be roughly the same in the fourth quarter, you know, plus or minus just a hair. So I think we'll be able to hold the expenses fairly consistent in the fourth quarter. And then, you know, we have said this for years now in a row that probably without the impact of any acquisitions into the equation or a big jump up in the mortgage business, that we would expect expenses generally to grow, you know, in the mid-single digits each year if we're getting that mid-to-high single-digit loan growth. So I think we've been consistent quarter after quarter, year after year here with those forecasts.

And given what we see right now, I think that's probably still a consistent way to look at us going forward.

No, I don't think so. Our relationship model and our presence in the market and our ability to differentiate with service will continue regardless of size. I think on the technology front, we're well positioned from treasury management services and wealth services to compete effectively. I don't see scale being a limitation, you know, given where we are right now.

And I'd probably add to that, I think it's a benefit to be surrounded by those banks because we can provide better service and take market share. If you look at the deposit market share, that slide that we put in on slide 22 of the deck, we grew our market share more than those banks did, and a number of the big banks actually lost market share. So I think our relationship style of banking against the big guys is what we've always done for 30 years very effectively. So I think it's actually good for us.

No, I think if you've gone through a number of different cycles, 60% to 65% has sort of been the beta on the ways up and the way down, and we would expect that to behave similarly on the way up here.

Yeah, still some conversations, mostly smaller banks, I would suggest exploring their options in an environment that still feels like a pretty good time to exit if that's your plan. I would say, you know, larger size conversations have been few and far between.

I think, yeah, I mean, it is softer. But we would still think that, you know, we would see positive growth in deal sizes next year, albeit not at the same level that we used to see, because of that softening in the market. But we're still taking share.

We continue to, I think, be a premium provider in that space. Our technology, you know, the investments that we make allow us to continue to take market share. So I'm optimistic there that we'll continue to see that class continue to grow in line with, you know, that mid to high single digits.

But, you know, it depends on where those markets go. But I'm pretty optimistic about that business right now.

Yeah, I don't think it affects our ability to continue to duck business. I mean, our long-term approach is to add franchise value by adding clients. You know, you can tell from the way we've positioned the balance sheet for interest rates that, you know, we are very neutral and want to continue to grow. You know, there's been a little bit of a recovery since the end of the quarter, and so, you know, some of the AOCI change, we've probably recovered. But it's, you know, one quarter, it's not a major element.

Morning, Janet.

Yeah, so I was talking through the cycle, that 60 to 65 is the beta that we see through the cycle. You know, initially I think we generally see close to, you know, 40%, so 10 basis points of the 25, and then it works its way up over time. So spot rates were just slightly higher, four or five basis points higher than the average for the third quarter.

But that 40% initial beta or 10 basis points would then eventually work its way up to 60, 65% through the cycle.

Yes.

I think it's a little bit seasonal, Janet. We clearly think we will benefit from some of the, what I would characterize as refinance shops or independents that, you know, haven't survived the cycle. And so our share of the mortgage business, whatever that is, should be higher. And we believe that mortgages are a core component of our offerings. So I think the market will drive that. But as we've said for several quarters, it's a pretty tough market right now. And the financial changes that you'll see over the next few quarters probably won't be very material.

As we've said in the past, too, about half of the mortgage-related revenue is related to servicing. So it's just not a big impact anymore at this level.

And on the balance sheet, which you might be referring to, we add $100 million, $200 million a quarter. and they're generally our customers in our footprint and ones that we like to do. And it works well within our asset liability positioning also. So probably that will grow gradually, but not dramatically.

No. Well, we talked about last quarter is that the one basis point impact was impacting the third quarter. And so we should be done in the third quarter. And now rates are going up. So we should start to see that actually start to benefit and price up.

Yeah, I think it could, Chris. I mean, we said when we get north of 10.5, we would start to more materially look at other options. As you know, even at 10.5, we feel like we're very well capitalized from a risk-adjusted basis. So I think fourth quarter and into 2027, we will be looking at other ways to deploy capital in the same order and sort of with the same priorities we've talked about on prior calls.

No. A fourth quarter tends to be a soft quarter generally, and with the bump up in rates, I would expect that to continue. So, you know, originations in our markets in the winter months tend to be lower generally, and I would just expect it to continue to be soft. But as Tim said, half of that revenue, $10-11 million of it is servicing income.

So we'll see where originations are, but probably low 20s, maybe just million plus or minus for the fourth quarter just because of the rates and the seasonality Can go much lower I mean there a certain amount of purchases that just occur because people move or have other life events going on, and I think we're sort of close to that bottom. But it doesn't materially, if you think about it, it doesn't materially impact the bottom line after you take that revenue and back off commissions and other expenses and taxes. So we're going to stay in the business. We're committed to it to serve our customers.

We're just going to be as efficient as we can and wait for the rates to rebound and get more of the market share, as Tim referred to earlier.

Yeah, I mean, think about it. It's $100 million on, you know, $76 billion balance sheet. So it's not a big impact, But, you know, maybe it adds one basis point to the margin. But most of that, you know, it pays off during the quarter. A lot of it pays off on the last day of the quarter. So it's not going to have much of an impact in the fourth quarter.

No, I think if you look at it, it's in the over 90 and still accruing from time to time. We have administrative past dues, and we don't see any loss in that. But if you go back, we have one of those every now and then. It's just administratively. We work on deals to accommodate customers or for whatever other reason. And so we don't think there's anything there.

Yeah, I mean, as you know, these are a little bit dated. They reflect the data as of, you know, June when the prior year. So you would have some conversion-related activities. I think I'd look at it over the two-year period, and we continue to have very good momentum in Michigan and feel great about the opportunities there. So I don't think there's anything to read into that.

Yeah, I mean, we feel good about our wealth management business and have kind of seen it moving the right direction in 26 and expect that that will continue in 27. The guardianship deal brings a very, very small number of deposits. That's not going to affect the number very materially there, but we continue to view the wealth business as an opportunity and have good traction in all of our markets.

Just the competitive environment is really the biggest, Jared. I mean, we just don't know what we're going to see. Again, we feel pretty good about pipelines, and our MO has been a relatively stable margin and then grow the business to produce more net interest income and franchise values. So, you know, we're hopeful that we get a little bit of help here, but we're not counting on it.

Yeah. We haven't disclosed all of it yet, Bernie, but you're right. We brought over $1.2 billion of assets under management related to that business. We were in that business already, so we didn't bring over their technology. We put the business on our systems. So it just gave us better leverage and gave us a better market position in especially the Chicago market area for those services. So we think it's just a nice addition to our wealth management business. And from a revenue perspective, generally, again, we haven't disclosed the details, but our guardianship business to get you sort of in the ballpark, generally it's about a 1% fee range, plus or minus. So if you take a billion to it, 1%, it should get you in the range of the additive revenue.

I don't know that we would handicap any of the three against each other. They have their own elements and, in some ways, different competitors.

We've talked about in the past Michigan and Wisconsin have more credit unions. It sort of makes the numbers a little bit harder to look at. But we feel good and would intend to grow in each of the markets. The branches we've opened, a couple were in Indiana. One that opens this quarter is in Wisconsin. So, again, we're not going to do anything crazy. We're disciplined with respect to pricing, but we do add households. And small business activity is good. Wealth activity is good. And these branches are nice fill-ins for us.

I'd say it's a combination of both. Getting new opportunities from, as we talked about before, bringing in customers from some of the other larger banks. but it's also from long-time customers that have a lot of experience in that space. It's an area that we've had a lot of success in over the years. We think we are pretty good at underwriting those opportunities and definitely an asset class we feel pretty good about, particularly with that type of sponsorship.

You bet.

Yeah, payoff activity was pretty consistent over the first three quarters. So there's still borrowers who are going out to secondary markets, and there's a lot of liquidity still out there. But I think you're right. I think that what we would maybe anticipate here over Q4 and into next year is that you might want to hold on to a property for an existing loan for a little bit longer and then wait for the end markets to right themselves.

So maybe that slows down payoff activity over the next few quarters, but to be seen. So we haven't quite seen that yet, but I would agree with you that that might be in effect. As it relates to CRE growth, we've always been very, very disciplined. I mean, our portfolio mix is, we always talk about a third, a third, a third, which is a third CNI, third CRE, third niche businesses. Right now, our CRE growth is actually less than that, not to say that we want to fill that out to that level, but we'd like to have a nice balanced portfolio. CRE has always been a piece of that. But again, if you look at our performance over time, you look at the quality of the sponsors that we deal with, you look at the mix of different types of properties within that subset of CRE, we try to be very, very disciplined in that space.

We underwrite, I'd say, very conservatively. So while I would agree that as rates move up, you have to be very mindful of that, but we like our positioning right now. We like our customers. We like that portfolio.

You know, last quarter I got the question, you know, where are we at on a spectrum of competitiveness? And I would have said at that time, you know, we would have definitely been, you know, at the higher end of the curve. Seems to have moderated a little bit, you know, maybe for some of the reasons that you touched on. But, you know, right now it's competitive, as I said earlier in the call. You know, if you have a well-structured, you know, good credit that we are looking at, there's going to be a lot of other people looking at it as well. So you have to be, you know, thoughtful. But it's got a hurdle and it's got to bring relationship for us to have it make sense.

Thank you, Lateef. and for those of you on the phone, I always thank you for your questions. I know we'll see some of you between now and the end of the year. For those that we don't, on behalf of Dave, Rich, and our team, we want to wish you the best for safe and happy holiday season. Our team will be focused on finishing the year strong.

We anticipate carrying our momentum into 2027, and hopefully we'll do some celebrating too. Thank you for joining us on the call today. Have a great rest of the day.