WTFC - NASDAQ

Welcome to Wintrust Financial Corporation's Fourth Quarter and Full Year 2024 Earnings Conference Call. A review of the results will be made by Tim Crane, President and Chief Executive Officer; David Dykstra, Vice Chairman and Chief Operating Officer; and Richard Murphy, Vice Chairman and Chief Lending Officer. As part of their review, the presenters may make reference to both the earnings press release and the earnings release presentation. Following their presentations, there will be a formal question-and-answer session. During the course of today's call, Wintrust's management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Actual results could differ materially from the results anticipated or projected in any such forward-looking statements. The company's forward-looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in our earnings press release and in the company's most recent Form 10-K and any subsequent filings with the SEC. Also, our remarks may reference certain non-GAAP financial measures. Our earnings press release and earnings release presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure. As a reminder, this conference call is being recorded. I would now turn the conference over to Mr. Tim Crane.

Good morning. Thank you, Latif, and thank you for joining the Wintrust Financial fourth quarter earnings call. In addition to Latif's introductions, with me this morning are Dave Starr, Chief Financial Officer; and Kate Boege, our General Counsel. In terms of an agenda, I'll share some high level highlights, Dave Dykstra will speak to the financial results, and Rich will add some additional information and color on credit performance and loan activity. We will cover both fourth quarter and, in some cases, full year 2024 results. I'll be back to wrap up with some summary thoughts on what we expect in 2025, and of course, we'll do our best to answer some questions at the end. For the year, we reported record net income of $695 million, up over 11.5% from 2023. These results reflect our efforts to generate the solid and continued growth of our franchise with a stable net interest margin. We target steady growth in both loans and deposits, the expansion of our non-interest revenue, sound and conservative liquidity and risk management and an unwavering commitment to take care of our clients. In our presentation materials, as we do at every year end, we've included a series of historical charts that show solid progress on key metrics over the last 10 years, evidence that our approach not only works, but differentiates us from many of our peers. While this is not new information, we think these charts illustrate, perhaps better than I can describe to you verbally, our strong and consistent historical performance. If you haven't already had a chance to review these materials, I would encourage you to take a few minutes to do so. For the fourth quarter, we reported net income of approximately $185.4 million. Net interest income increased 4.5% quarter-over-quarter and almost 12% versus last year's fourth quarter. For the quarter, we grew loans and deposits by approximately $1 billion each, importantly, adding clients on both sides of the balance sheet that we believe will be with us for years to come. The net interest margin of 3.51% was in line with our expectations and represents good success in our effort to reduce margin volatility independent of interest rate fluctuations. I know many of you remember us as historically asset sensitive, it's important, I think, to note that we're now well positioned for an orderly movement of rates and/or shift in the slope of the yield curve. On the credit front, non-performing loans and charge-offs were down relative to last quarter, and again, Rich will spend some time walking you through the credit results and to offer some additional detail on the loan growth experienced during the quarter in just a few minutes. Except for fair value related movements, the mortgage business remains relatively insignificant in terms of financial impact. While we are hopeful to see our seasonal spring pickup in activity, current mortgage activity remains muted. Our other two major fee-based businesses, our treasury management business and our wealth businesses continue to exhibit very steady growth. Overall, a solid and clean quarter. In particular, I think our teams continue to do a very nice job with respect to pricing and credit discipline, which will continue to show up in our results and, specifically, our margin going forward. With that, I'll turn this over to Dave and to Rich and will be back to wrap up.

Thanks, Tim. First, with respect to the balance sheet growth. Tim mentioned another strong quarter of balanced loan and deposit growth. Specifically, the company recorded $1 billion of growth for loans and $1.1 billion of deposit growth. The loan growth was 8% on an annualized basis, that was in line with our prior guidance of being in the mid to high-single digit growth range, and deposit growth for the quarter was approximately 9% on an annualized basis. And for the period, loan-to-deposit ratio remained stable compared to the prior quarter at roughly 91.5%. Non-interest bearing deposits remained relatively stable during the quarter and increased slightly to 22% of total deposits, and interesting to note, that non-interest bearing deposits stayed in a fairly tight range during the course of 2024, in the 21% to 22% range. As to other aspects of the balance sheet results, total assets grew approximately $1.1 billion to $64.9 billion and our risk based capital ratios were relatively stable or slightly increased due to the strong earnings, which supported the balance sheet growth. Overall, it's another successful quarter for our franchise. Our differentiated business model, exceptional team and service and our unique position in our respective markets that we serve continue to serve us very well. Turning to the income statement. Again, a solid operating quarter with just a few moving pieces. To that end, I'll start off by highlighting what we consider the uncommon items to be for the quarter. From our perspective, the quarter included acquisition related costs of approximately $1.8 million, security losses of approximately $2.8 million, unfavorable fair value mortgage banking revenue marks of $1.5 million and approximately $5.7 million of additional quarterly expense related to the inclusion of the Macatawa Bank operations for a full quarter compared to just two-thirds of a quarter in the third quarter of this year. Each of these items are discussed in the first two pages of the earnings release, if you'd like to refer to them later. With those items in mind, I'll now touch on some of the major balance sheet -- our major income statement categories. Our net interest income increased $22.6 million from the prior quarter and represented a record high amount of quarterly net interest income. A $2.6 billion increase in average earning assets and a stable net interest margin contributed to the increase. Our fourth quarter net interest margin was 3.51%, which was equal to the net interest margin in the prior quarter. Yields and rates on major balance sheet categories were lower because of recent market declines in short-term interest rates with loan yields moving down 22 basis points to 6.68% in the fourth quarter and interest-bearing deposits declining 33 basis points from the third quarter to 3.39%. It's also interesting to note that as a result of these changes in loan and deposit rates and the balance sheet growth was that the interest income increased during the quarter while interest expense actually decreased during the quarter. Given the current interest rate environment, consensus forecast for future interest rates, we remain confident that our net interest margin can continue to be in a narrow range around 3.5% throughout 2025. We recorded provision for credit losses of $17 million in the fourth quarter, which was lower than the $22.3 million amount recorded in the prior quarter. The lower provision for credit losses recognized in the fourth quarter as compared to the prior quarter is primarily attributable to the day one provision for credit losses of approximately $15.5 million related to the Macatawa acquisition, which was recognized in the third quarter of this year. Turning to other non-interest income and non-interest expense sections. Total non-interest income remained stable at approximately $113 million in both the third and the fourth quarter. Wealth management revenue, mortgage revenue and service charge income had the largest gains during the quarter, with those gains offset by security losses, foreign currency remeasurement losses and miscellaneous other changes with the net result for the non-interest income increasing just $304,000. As to mortgage banking revenue, it increased by $4.5 million in the fourth quarter compared to the third quarter, primarily due to a change in fair value marks, a favorable $5.5 million impact. Offsetting this positive impact was a decrease in operational mortgage banking revenue of approximately $1 million in the fourth quarter compared to the prior quarter, and that was due to slightly lower originations of mortgage loans and slightly lower gain on sale margins. As to non-interest expenses, total non-interest expenses totaled $368.5 million in the fourth quarter and were up approximately $7.9 million from the third quarter. The primary reasons were, one, the non-interest expenses associated with the Macatawa Bank acquisition, which were approximately $5.7 million higher in the fourth quarter, including the core deposit intangible amortization to account for a full quarter of activity rather than two-thirds of the quarter recorded in the third quarter. The remaining increase of approximately $2.2 million was a combination of relatively normal fluctuations with one of the largest increases of $2.7 million related to increased software expense associated with upgrading, maintaining our IT and information security infrastructure, and furthering our investments in digital products and services and the largest decrease of approximately $5.1 million related to less advertising and marketing costs as this category of expenses tends to be lower in the fourth and the first quarters due primarily to less marketing for sponsorship, expenditures related to various major league and minor league sponsorships and other summertime sponsorship events that we hold in our communities. Total non-interest expenses as a percent of average assets declined to 2.31% for the fourth quarter compared to 2.36% in the prior quarter and 2.62% in the fourth quarter of last year, demonstrating an improved expense leverage. In summary, this is a very solid quarter with good loan and deposit growth, a stable net interest margin with a steady outlook, a record level of net interest income and a continued low level of nonperforming assets. Our team delivered net income that was a record for any full fiscal year in the company's history, and we have a positive outlook for continued growth in asset revenue and earnings. We also continue to build our tangible book value per common share in 2024. And as you can see on Slide 10 of our presentation deck, we've grown tangible book value per common share every year since we've been a public company. And although, it's easy to get caught up in these quarterly results, I think it's instructive to look back over time. And as Tim referred to the 10 year charts that we included in our earnings release, I think if you look at those, they really provide impressive evidence that our approach to running the business has provided for consistent growth in loans, deposits, earnings and tangible book value per share over an extended period of time, all while managing our credit risk very well. And we'll continue to work hard continue those trends into 2025 and beyond. And with that, I'll conclude my comments and turn it over to Rich Murphy to discuss credit.

Thanks, Dave. As Tim and Dave both noted, credit performance continue to be very solid in the fourth quarter. As detailed in the earnings release, loan growth for the quarter was $1 billion or 8% annualized. As noted on Slide 7, we saw a strong and consistent growth across all major portfolios. A couple of specific areas of note include: the mortgage warehouse team, which had another strong quarter as we continue to onboard new relationships which have come with some meaningful deposit opportunities; portfolio residential real estate loans, which grew by $225 million, down from $321 million in Q3, but indicative of the pickup of mortgage activity we saw in the second half of the year. We also saw growth in both the commercial premium finance and life premium finance segments. Loan growth for all 2024 was $5.9 billion or 14%, including the acquisition of Macatawa Bank, and organic growth was $4.6 billion or 11%. We believe that loan growth for the first quarter of 2025 will continue to be strong and aligned with our previous guidance of mid- to high single digits for a number of reasons. Our core C&I and leasing pipelines remain very solid, and we have very strong momentum in our niche businesses, including leasing, mortgage warehouse and Wintrust Life. Offsetting this growth are signs of increased competition -- competitive pressure as other banks and non-banks look to deploy their capital by offering more aggressive pricing and structures that will not meet our standards. In summary, we continue to be optimistic about our ability to grow loans at attractive rates and maintain our credit discipline. From a credit quality perspective, as detailed on Slide 15, we continue to see strong performance with signs of stabilization across the portfolio. This can be seen in a number of metrics. Non-performing loans as a percentage of total loans decreased slightly from 38 basis points to 36 basis points. NPLs in total were down for the quarter from $180 million to $171 million. It's interesting to note that we have seen three straight quarters of lower NPLs in our commercial premium finance portfolio as we continue to manage the stress from the transportation segment of that portfolio. We are pleased to see this trend improve as a result of tighter loan structures and enhanced underwriting. Charge-offs for the quarter were $15.9 million or 13 basis points, down from $26.7 million or 23 basis points in Q3. This reduction in charge-offs is primarily the result of improved performance in our core commercial loan portfolio. Our portfolio continues to be very solid, well diversified and very granular. Additional evidence of this can be seen on Slide 15, where we saw stable to improving levels in our special mention and substandard loans. We believe that this quarter's level of NPLs and charge-offs reflect a more stabilized credit environment as evidenced by the chart of historical non-performing asset levels on Slide 16. Finally, we are firmly committed to identifying problems early and charging them down where appropriate. Our goal, as always, is to stay ahead of any credit challenges. As noted in our last few earnings calls, we continue to be highly focused on our exposure to commercial real estate loans, which comprise roughly a quarter of our total portfolio. A prolonged higher interest rate environment and continued pressure on occupancy and lease rates has affected CRE valuations, particularly in the office category. As detailed on Slide 19, we saw promising signs of stabilization during the third quarter as CRE NPLs decreased from 0.33% to 0.16%. As noted earlier, we also saw CRE charge-offs reduced from 53 basis points in Q2 to essentially zero for the third and fourth quarter. On Slide 20, we continue to provide enhanced detail on our CRE office exposure. Currently, this portfolio remains steady at $1.7 billion or 12.8% of our total CRE portfolio and only 3.5% of our total loan portfolio. Of the $1.7 billion in office exposure, 44% is medical office or owner occupied. The average sizeable loan in the office portfolio is only $1.5 million, and we have eight -- only eight loans above $20 million and only five of which are non-medical or owner occupied. We perform portfolio reviews regularly on our CRE portfolio, and we stay very engaged with our borrowers. As mentioned on prior calls, our CRE credit team regularly updates our deep dive analysis of every non-owner occupied loan over $2.5 million, which will be renewing between now and the end of the third quarter of 2025. This analysis, which covered 84% of all non-owner occupied CRE loans maturing this period, resulted in the following. Roughly half of the loans reviewed will clearly qualify for a renewal at prevailing rates. Roughly 34% of these loans are anticipated to be paid-off or which will require a short-term extension at prevailing rates. The remaining loans will require some additional attention, which could include a paydown or a pledge of additional collateral. We continue to back check the results of portfolio reviews conducted during prior quarters and have found that the projected outcomes versus the actual outcomes were very tightly correlated, and generally speaking, borrowers of loans deemed to require additional attention continue to support those loans. As we have stated on prior calls, our portfolio's not immune from the effects of higher rates or the market forces behind lease rates, but we continue to proactively identify weaknesses in the portfolio and work with our borrowers to identify the best possible outcomes. We are also focused on the effects on our portfolio from the tragic wildfires in California, particularly in light of the relationship FIRST Insurance Funding has with the insurance industry. We have done a thorough review of our entire portfolio, and we would anticipate little impact, particularly in our premium finance portfolio, which is primarily secured by commercial policies. Our thoughts and prayers are with those who have been impacted by these tragic events. As many of you know, we have been in this business almost since our inception, and we have seen minimal impact on our results from the numerous natural disasters experienced during this time. However, it does provide our teams the opportunity to utilize their industry expertise to service and support our clients during these difficult times. In summary, we continue to be encouraged by the trends we saw in the fourth quarter and throughout 2024, and we believe that our portfolio is in reasonably good shape and appropriately reserved. That concludes my comments on credit, and now, I'll turn it back to Tim.

Great. Thanks, Rich. To wrap up our prepared remarks, I'd like to offer a couple of observations. This past year, our diverse businesses, specifically those related to asset generation allowed us to grow loans and add clients when many others did not. The growth this quarter was evidence of that. It was spread nicely across all categories. And while we're not immune to macro market factors, these diverse businesses allow us to effectively manage our growth, risk and to a degree pricing. When we believe the market moves to an area where pricing or credit structures become pressured, we're not compelled to compete and can adjust accordingly, often without compromising our target results. We believe the margin will be relatively stable into 2025. You might ask if we would benefit from a steepening yield curve. The answer is that we may, but as Rich mentioned, we are also seeing some early signs of spread compression in loan pricing. We believe this is a reaction to muted loan growth at some competitor financial institutions in 2024. We enter 2025 with a lot of momentum. We're optimistic about our ability to continue to profitably grow our franchise. Pipelines are good. We remain excited about the opportunities in West Michigan as a result of the Macatawa acquisition and in other markets where we've expanded, for example, Rockford, Illinois, the fourth largest city in Illinois, where we recently added three locations and are seeing very nice early results. We have a great team. They focus every day on taking care of clients in a way that others don't and, in some cases, can't and managing the related risks. That's how we win, and that's what will generate continued strong financial results going forward. I'm pleased with the fourth quarter and 2024 results. And at this point, I'll pause and we can take some questions.

[Operator Instructions] Our first question comes from the line of Jon Arfstrom of RBC Capital Markets. Your question, please, Jon.

Good morning, Jon.

Hey. Good morning, guys. Tim, just on some of your -- and maybe, Rich, as well on some of your comments on loan growth. I think -- I understand what you're saying. You alluded to it. You've grown when others have not, but you're seeing some more competition. Can you just talk about what you're hearing from your clients from a sentiment point of view and curious what you're really seeing and what you're flagging for growth expectations for '25 based on what you're seeing today?

Yeah. I mean we're -- the guidance that we provided, I think is very realistic. And as you know, we've actually done better this past year than the guidance. And I think that where I do get nervous, and I think I kind of point out in my comments and Tim's comments is that, a lot of the opportunities that we saw, like, in CRE I would point to, in particular, that we saw some really good opportunities over the course of the last two years that were priced right, structured right, really, an opportunity to grow our portfolio and also to grow relationships, those have in, I'd say, in the last 60 days become much more price sensitive. A lot more people in the market right now looking to do deals. I think people who may have been a little bit anxious about their exposure in that category had kind of pulled out and now are back in. And again, as Tim pointed out, we're just not going to chase deals that we got to get appropriately paid for it. So I'm not overly concerned about those issues. I think, again, that's why we have all these different asset categories. When something is not working, generally speaking, something else will. But just -- we just -- it's a reminder to ourselves that we don't need to grow if it's not going to work for us. So again, we're not changing our guidance. We're not suggesting anything other than it's going to be a little bit of a headwind that we hadn't experienced over the last couple of years.

Okay. Fair enough on that. And then maybe Tim or Dave, for you. I know it's a difficult question, but Tim, you mentioned muted activity in mortgage. I actually thought you had a decent production quarter, given the environment. But curious how you guys are feeling about the near to medium-term outlook. And is there a rate level or a mortgage rate level where activity really starts to pick up?

Yeah. I mean, Jon, we're obviously hopeful that there'll be some sort of pickup in the spring. There are signs that inventory's getting a little bit better. That was certainly one of the issues. On the rate front, as we've mentioned last quarter, when in the third quarter we saw rates dip down to near 6%, we saw a pickup in activity that was pretty material and pretty rapid at 7%. That's less the case, and then many of our markets were hopefully on the tail end of kind of winter here. So I would say something close to 6% would help. Inventory is going to get better, but we're still bouncing along the bottom right now.

Okay. All right. Thank you, guys. I’ll step back.

Yeah. Thanks, Jon.

Thank you. Our next question comes from the line of Jeff Rulis of D.A. Davidson. Please go ahead, Jeff.

Thanks. Good morning.

Good morning, Jeff.

Early part of the press release, you kind of called out some of the thematics or the focal points for '25, and you included the expense management. And just wanted to recheck if that's a course of just general good practice or if there's some real focal points you want to tighten up or areas that you're looking at on that front -- on the expense, specifically.

No. I think it's just an area of good practice to watch your expenses. We're still a growing company, and so we're still investing in our digital products and our infrastructure and supporting the growth of the company. We certainly expect, as Rich said, that our loan growth will be the mid to high-single digits for the year, and we expect our expense growth to be less than that and, I think we said on the last call, sort of maybe mid-single digits over the current run rate for expense growth and then you would get operating leverage out of that. To the extent that loan growth didn't come, we have levers that we could pull, and we could pull back on the expense growth. But our goal is to watch expenses closely, but continue to invest in the business to support the growth. And we think that that's prudent as we have always done in our life is invest in the business and grow and get new customers and that investment pays dividends to compete with the big guys. So just more watching the expenses closely, and that characterization, I think, is the best.

Okay. Thanks, Dave. On the – maybe, if I can just check in on M&A and appetite post Macatawa, kind of see about interest levels on your end, and then maybe if you could just touch on the priorities on capital if M&A is quiet, if you don't find those partnerships.

Well, with respect to M&A, we obviously field phone calls, and post-election, there's a level of enthusiasm that is perhaps increased. I would expect that we would continue to be disciplined. To Dave's point, we're investing in the business. We're building an infrastructure that can support a larger institution. And if we find an opportunity, great. If not, we're very good at organic growth on a de novo basis. And Rockford, that I mentioned, would be an example of that where we've added several locations in the fourth largest city in Illinois. And there's been some disruption in that market, and we're doing quite well. So I think time will tell. But certainly, there's a higher level of enthusiasm, but nothing to -- specific to talk about. And Dave, do you want to do the second part of that?

I mean from a capital perspective is our capital ratios were relatively stable. CET1 went up a tenth (ph) of a point. We'd expect that to continue to grow with our mid to high-single digit loan growth projections and our earnings levels. So I think we'll just continue to grow the capital over time and look for the acquisition opportunities. But I think the -- supporting the growth is the best use of capital right now, and we don't have so much excess capital that we would look at a buyback right now, so.

Okay. And then just a housekeeping item. Nice NPL move lower, did see OREO up. Just anything on -- is that acquired or legacy or just things flowing through on the OREO side?

They're just things flowing through, taking in nonperforming, taking possession of the asset, getting the asset marketed, moving it out. That's just kind of what we do.

Okay. Thank you.

Thank you. Our next question comes from the line of Terry McEvoy of Stephens Inc. Your line is open, Terry.

Thanks. Good morning, everyone. Maybe just starting with the 3.50%-ish margin outlook. Could you just talk about some of your deposit repricing and beta assumptions in that 3.50% and also where you see non-interest-bearing deposits trending?

Sure. The non -- or the interest-bearing deposit beta is around 67%, 65%, which is very close to what we saw kind of in the other side of the cycle here. Incremental interest-bearing deposits coming on in kind of the 4% range for CDs, the 3% range for money market, kind of on a blended basis, the deposit growth in the low 3s and with incremental asset generation in the kind of high 6s, it continues to support a margin in the 3.50% range. So feel very good about the matched loan and deposit growth as we go forward. We did see a bump up a little bit in non-interest bearing deposits at the end of the quarter as we sometimes do. But to Dave's point earlier, pretty consistent for the year in the 21% plus range and expect that, that would continue going forward. We'd like it to continue going forward. Especially -- the reason -- I think that's a good result for us in particular because we've experienced very material deposit growth this year. So as the denominator moves, to be able to keep that flat is a good indication that we're adding commercial relationships and commercial deposits.

Understood. And then as a follow-up, Rich, I think you talked about just larger banks committing to loan growth in 2025, and it sounds like more of that is back-end loaded. But when you look at your mix of businesses, core leasing, niche, what areas have kind of a moat around it where you think you're better protected from market competition should that occur this year or as this occurs this year?

Yeah. No, it's a great question. I think that the -- certainly, I think you'd look at both premium finance businesses as having reasonably sized moats. I think we are industry leaders where we are -- our teams are very seasoned. They -- there's a lot of interesting pieces floating around in the insurance world these days, and having a trusted partner is really an important piece. So I think there's a good-sized moat there. I think the work that we've done on the leasing side and growing that business out also has a pretty good opportunity for us to grow. Another interesting area is we talk about mortgage a lot. Two areas that I think have been somewhat muted in their growth but have -- if rates do come down. And our mortgage warehouse, we've demonstrated pretty meaningful growth here over the course of the last year. And our resi portfolio has also grown nicely that if we do get a pickup in mortgage volume, we'll see some growth there. So I think there's real opportunities here. But the other one that's kind of interesting, and we've talked about it a lot, is our core C&I growth that we've seen over the course of, really, the last 10 years, but certainly more pronounced in the last couple of years because of some of the marketplace dynamics in our primary market of Chicago. Those dynamics really haven't changed, and so we think that, that ability to compete in the Chicago market on core C&I still is really a great opportunity for us. So I think there are some decent moats, and that's why we continue to be pretty optimistic about our guidance on loan growth.

All right. Thanks for taking my questions.

You bet. Thanks.

Thank you. Our next question comes from the line of Nathan Race, Piper Sandler. Please go ahead, Nathan.

Hey, guys. Good morning. Thanks for taking the questions.

Good morning.

Going back to the discussion around the margin outlook. If the fed remains on pause this year, maybe we get one cut in early 3Q. Curious, if you think the margin can expand under that outlook, just given what you have in terms of additional deposit cost leverage or is some of the repricing headwinds that kind of lag that cuts on the insurance premium finance side of things somewhat of a headwind? I know there's a number of other yield curve dynamics that play into that, but just curious if you think there's some potential for margin expansion to -- that is on hold for 2025.

Yeah. So Nate, our kind of baseline assumption assumes one cut in the model. I think if it were to move on orderly basis either way from that, our margin kind of continues to hold in the 3.50% range. To the degree that there's kind of upside opportunity, it'll depend on the competitive environment that we find ourselves in and sort of the mix of business. But we've positioned for a pretty stable margin and think that we'll get good NII growth as a result of growth of the balance sheet.

Yeah, Nate. I'd say the thing that maybe impacts that view a little bit more is not so much what the fed does on the short end, because as Tim says, they're pretty neutral to that, for these small moves. But the positive slope to the yield curve is helpful to us versus an inverted curve in the past. So that offset some of the headwinds that Rich said is concerned with competitive pricing. But we don't have that much that we price long, and so there is some upside there, I think. But these headwinds on the mix of business and the like, we put it all into a pot of chili and it comes out being relatively stable, we think.

Got it. That's helpful. And Dave, while I have you, I think last quarter, we're discussing maybe that the gain on sale margin in mortgage can get back to 2%. Obviously, there were a number of factors that may be inhibiting that this quarter, but just curious how you're thinking about the gain on sale margin trajectory in 2025.

Well, I still think -- when we talked about that last quarter, the rates were higher. We saw that little bit of a pop in applications, and we're optimistic and then sort of the whole curve in or the curve shot back up and mortgage prices shot back up. And as Tim said, in the low 6s, it was instructive to hit that because we did see a lot of pickup in volume in that short period of time. But then the market moved sort of dramatically back up, so little pressure. But you got to put in perspective, we have about $20 million roughly of mortgage revenue, and $10 million of that is pretty steady in servicing. So the remaining $10 million is -- as we said, is muted and low. Hopefully, that goes up. But I would expect, unless rates come down, we probably stay in all-in $20 million to $30 million of net revenue in mortgage banking. And if rates come down, then we can -- it's gravy, if rates come down. If we see some pickup in mortgage, that's just positive to us, I think, at this point because we think we have the infrastructure to support it. But if the activity picks up, I would expect that margin to get closer to 2% again. But it's really a fairly small piece of our earnings right now, so.

Right. That's helpful. If I could just sneak one more question. I know we have some time until some of the preferred series reset or they're callable, but would just be curious to get your updated thoughts on managing capital and just in light of potentially refinancing or redeeming some of those preferred series.

Yeah. I mean they've -- they come up for repricing in June. And given the spreads that are on those were very -- if you would look today, we'll either replace them with a new instrument that would have a tighter spread on them or just look to see what the other capital alternatives are in the market. We always do what's most favorable on that to the shareholders. And so we'll look, and like you said, we have some time. Those aren't until June, and five or six months seems like an eternity in the banking world these days. So we'll see what happens with rates and what the markets do. But I think we like leverage in our capital stack. And so if the preferred market is open and favorable, we'd most likely would just replace them.

Okay. That’s very helpful. I appreciate all the color. Thanks, guys.

Thanks, Nate.

Thank you. Our next question comes from the line of Chris McGratty of KBW. Please go ahead, Chris.

Hey. Good morning, everybody.

Hi, Chris.

Dave, maybe for you on the -- just the expense clarity, the mid-single digit that you talked about. Given the partial contribution of Macatawa, is that a comment of growth off of Q4's run rate, and it should be growing 5%? Or should I just simply look at '25 over '24 and say 5% and revenues grow a little bit better?

No. I think I was trying to say in my earlier comments that it's off the current run rate. So the fourth quarter runway because it's got a full quarter of Macatawa in there, and it also accommodates the decent growth we had during the course of the year. So the mid to high-single digit loan growth is also based off of that run rate. So we're looking from this point forward sort of mid-single digit expense growth and high single-digit loan growth. So that would be the view.

Got it. Okay. And then given that, is there anything as you are now only -- you're only $65 billion, is there anything -- is it in terms of like a down payment to eventually considering going to $100 billion in that growth rate or is that too far where you're not yet quite building the expense build?

Well, I don't -- we don't break it out specifically, but we invest very regularly to be a larger institution. So our infrastructure is continually being upgraded to handle a higher level of activity, geographic expansion, if that becomes an opportunity available to us. So we think we've acquired good talent that would put us in good stead to become a larger institution. So there's probably some built in, but we don't break it out kind of discretely.

Okay. Thanks, Tim. And then maybe one for Rich, I don't want to leave Rich out. On Slide 20 -- I got to get everybody involved. The non-accruals in the office book went down. Was that a curing or a charge-off? Just more interested in kind of the cadence.

That particular one was a loan that we were able to exit out of.

Okay. Thank you.

Sure.

Thank you. Our next question comes from the line of Ben Gerlinger of Citi. Your question, please, Ben.

Thanks. Good morning, guys.

Hello, Ben.

I know we talked through quite a bit with NII and spread and then also mortgage, but could you just also just look at fee income ex mortgage? It seems like you guys are looking to hire bankers and relationship in the footprint. But is there anything you can do from a supplemental or additional hiring perspective that would help drive those fee income items? Albeit they're significantly smaller than your core banking, but just any thoughts there, potentially down the road, that'd be an for M&A deployment on kind of supplemental add.

Well, one, we're pleased with the results, both on the wealth side and with respect to kind of our treasury management and interest rate risk management products and other kind of fee income areas. But some of that's sort of part and parcel to our ability to expand our relationships, both with our retail clients and maybe more than that with our commercial clients. We're always looking for opportunities. And if we were to find those, we certainly wouldn't hesitate to move forward. But they tend to be businesses that exhibit more kind of steady growth than trajectory change in growth. So nothing on the horizon right now.

Got you. That's helpful. And then from the expense front, just to follow up on Chris' question in term of like the 4Q annualized time is roughly 5%. Is there anything within that outside of just kind of normal marketing at baseball games and things like that or we should look for in terms of seasonality now that you do have the Western Michigan franchise or is it kind of just back to legacy kind of seasonality trends?

Well, as we've talked about on prior calls, we'll continue to provide resources in West Michigan. And as an example, we would expect to grow that market. And to the extent that included people, that's sort of built into the plan. So there's nothing kind of atypical in the expense run rate, but we're always looking to add talented people and teams. And we expect to expand geographically in the markets where we've started to operate. So I would just view it as supportive of our growth.

Got you. That’s helpful color. Appreciate your time, guys.

Thank you. Our next question comes from the line of Brendan Nosal of Hovde Group. Your question, please, Brendan.

Hey. Good morning, guys. Hope you’re all doing well. Thanks for taking the questions.

You bet.

If I look at Slide 24 of the deck, the hedging strategy, it looks like you added about $1 billion of forward starting swaps during the quarter. Maybe just walk us through the thinking here, what you're trying to accomplish. I mean is it as simple as you're thinking that rate cuts have been pushed out so you want to extend that downside protection?

Well, as we've talked about before, we think plus or minus $6 billion worth of hedges stabilizes our margin in a downrate environment. And so the hedges that were added recently, many of which were forward starting, just sort of fill up the bucket for '26 and '27 and just add to our ability to kind of cushion any margin pressure from a downward rate environment.

Got it. Okay.

Just filling the buckets out after the maturity schedule, so.

Yeah. That makes a good deal of sense. Then maybe turning to the premium finance business, just a few there. Wondering if you can add some color on what drove the increase in P&C loss content this quarter, and then just any color on new money origination yields in that business versus what is rolling off today.

Yes. The two -- there are two loans that occurred in the quarter that ended up being somewhat problematic, but we would anticipate that we'll recover in the first quarter what we have left. So we would anticipate that, ultimately, it's more of a timing issue than anything else. If it had happened during the quarter, you wouldn't have even notice. But it just carried over the quarter. So that's kind of all there is to that. We -- other than what we talked about in prior quarters on the transportation side, the loss history and the delinquency history have largely been unchanged, and this just kind of sticks out a little bit.

Yeah. Both those businesses are predictable, low-loss businesses for us. We really like the growth opportunity attach to them, and kind of yields on the P&C business are creeping up a little bit, continues to be a hard market. We'll see what happens with respect to the impacts of these latest natural disasters but expect the blended loan yield to be in the high 6s for incremental business in the coming periods here.

Yeah. I mean the P&C business tends to be a little bit higher than that, but the life business is less. P&C, if you get the stable environment, it's probably a little more so of the prime rate, and life generally is a couple of hundred basis points over the one year treasury. So depending on the growth in those, it mixes out. But you put them together -- and like Tim says, you put it all together, it's probably high 6, low 7 sort of if you put the commercial and the premium finance together.

Understood. Okay. Thank you for taking the questions.

Yeah. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Jared Shaw of Barclays. Your question, please, Jared.

Hey, good morning.

Good morning.

I guess maybe just looking at the DDA growth this quarter that was good, how should we be thinking about that sort of growing on a relative basis or an absolute basis throughout 2025? Do you think that you see that increasing as a percentage of the funding base from here now?

Well, number one, it's episodic, and year-end is always a little bit of a volatile period as customers kind of get through their year-end process. But we've been pretty steady at 21%-ish, plus or minus. And given that we've grown deposits about a pretty healthy clip, we feel pretty comfortable. We're adding DDA on an absolute basis quarter-over-quarter, and we would expect that trend to continue.

Okay. Great. Thanks. And then any color on commercial line utilization rates during the quarter and where you expect that to, sort of, go within your guidance? Do you expect growth in that?

Yeah. It's interesting. We're somewhat optimistic during the year that we saw utilization rates coming up. They tailed down a little bit during the fourth quarter, not exactly sure why that was. I think some of it was originations of new business where there's a fair amount of unused capacity, but hard to know. We still would imagine that over the course of this year, particularly if there is some pickup in economic activity, then you'd start to see those utilization rates tick up. So right now, I think that's a little bit of a tailwind because they are historically low from what we've seen in the past. So yeah, fourth quarter was not a particularly great utilization quarter, but we're not overly concerned by it.

Okay. Thanks. And then just finally for me, maybe more of a modeling housekeeping question. Dave, do you have the accretion from Macatawa that's within third and fourth quarter NII and then what an estimate would be for '25?

Yeah. No, we didn't do that. I think if you go back and look at last quarter where we put the table in the presentation, I think that's a pretty good indication of how to look at it going forward. We don't expect any large prepayments in that portfolio that impacted. So if you go back to last quarter, I think that'd be a good guide.

Okay. All right. Great. Thank you very much.

Thank you. I would now like to turn the conference back to Tim Crane for closing remarks. Sir?

Latif, thank you. And for those on the call, thank you for joining us this morning. We're always excited to share our results and tell the Wintrust story. As I mentioned earlier, we're off to a good start in 2025. If you have additional comments or feedback for us, please don't hesitate to call any of us. And with that, we'll sign off. Have a good day.