Higher rates a mixed blessing for Wintrust in first quarter

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Higher interest rates, a lower provision for loan losses and lower expenses helped Wintrust Financial in Rosemont, Ill., offset a major drop-off in mortgage revenue in the first quarter.

The $25.7 billion-asset company reported earnings of $58.4 million, or $1 a share, in the first quarter, up 19% from a year earlier. Earnings per share bested by 10 cents the average estimate of analysts compiled by FactSet Research Systems.

Casey Haire, an analyst at Jefferies, referred to Wintrust's results as a “low-quality beat as credit/expenses overcome sharp drop in mortgage banking.”

Haire’s comments largely reflected the company’s first-quarter performance in relation to the fourth quarter of 2016. Given Wintrust’s acquisitive nature, quarter-to-quarter comparisons are often a better way to measure its organic performance.

Net interest margin increased by 15 basis points to 3.36%. It was up seven basis points from a year earlier. The company attributed the margin expansion to the Federal Reserve's raising of interest rates in December as well as better utilization of excess liquidity.

The increased margin helped Wintrust push its net interest income to $192.6 million, up about 1% from the previous quarter and up 12% from a year earlier.

Its total loans were $19.9 billion, up 5% from the previous quarter and up 14% from a year earlier.

The loan growth was attributed largely to its commercial portfolio and life insurance premium finance receivables business, Ed Wehmer, Wintrust's president and CEO, said in a press release.

The provision for loan losses was $5.2 million, down 29% from the prior quarter and down 35% from a year earlier.

Noninterest income was $68.7 million, flat from a year earlier, but down 20%. The drop was largely caused by 38% drop in mortgage banking revenues.

The mortgage revenue decrease was a “result of the recent rise in interest rates and typical seasonality in January and February,” Wehmer said. “Our mortgage pipeline strengthened in March and is expected to continue to strengthen in the second quarter.”

Wehmer added that the company continues to look for ways to build its mortgage banking business organically or through acquisitions. In the first quarter it acquired American Homestead Mortgage in Montana.

Finally, the company reported expenses of $168 million, a 6.8% decrease from the prior quarter, including a 5% reduction in salaries and employee benefits.

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Earnings Mortgages Interest rates Expense management