Wintrust Financial Corp. (WTFC) News

LAKE FOREST, Ill., Jan. 27, 2010 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation ("Wintrust" or "the Company") (Nasdaq:WTFC) announced net income of $28.2 million or $0.90 per diluted common share for the quarter ended December 31, 2009. This compares with earnings of $32.0 million ($1.07 per diluted common share) for the third quarter of 2009 and $2.0 million ($0.02 per diluted common share) for the fourth quarter of 2008.  Net income for the year ended December 31, 2009 was $73.1 million ($2.18 per diluted common share) compared to $20.5 million ($0.76 per diluted common share) for the year-ended December 31, 2008. 

Edward J. Wehmer, President and Chief Executive Officer, commented, "We are pleased to report net income for the full year of $73.1 million and net income for the fourth quarter of $28.2 million and a significant improvement in the level of non-performing loans. Core pre-tax earnings, or earnings before taxes, provision for credit losses, other real-estate owned expenses and the bargain purchase gains, were $148 million for the full year of 2009 compared to $90 million in 2008. This same measure of earnings increased to $44 million in the fourth quarter of 2009 compared to $18 million in the fourth quarter of 2008."

Commenting on credit, Mr. Wehmer said, "Wintrust reduced its non-performing loans by 43% during the fourth quarter to a level below where it stood a year ago. Total non-performing loans represent only 1.57% of the total loan portfolio at year-end 2009. During the fourth quarter, we recorded a provision for credit losses of $39 million and net charge-offs of $35 million. Additionally, we recognized $5 million of expenses related to write-downs, valuation adjustments and operating costs on other real estate owned during the fourth quarter. Our allowance for loan losses increased to $98 million or 1.17% of total loans. Adding our reserve for unfunded lending-related commitments and credit-related discounts on purchased loans brings the Company's total credit reserves to $139 million or 1.65% of total loans."

Mr. Wehmer continued to note that "near-term delinquencies also improved during the quarter as both 60 to 89 day delinquencies and 30 to 59 day delinquencies declined during the quarter. Only $37 million of the Company's loans, representing 0.4% of total loans, are 60 to 89 days past due and still accruing and only $64 million of the Company's loans, representing 0.8% of total loans, are 30 to 59 days past due and still accruing."

Mr. Wehmer also noted, "While the Company's net interest margin for the quarter decreased to 3.10% from 3.25% in the third quarter, positive results from deposit re-pricing and commensurate pricing on lending continue. The decrease in our net interest margin is a by-product of the large amount of liquidity currently residing on our balance sheet, which generates relatively little income. Additionally, net interest margin was impacted by a reduction in the amount of discount recognized into income on the purchased loan portfolio, which resulted from a lower rate of prepayments in the fourth quarter."

Re-emphasizing his statement from last quarter, Mr. Wehmer summarized, "Our goal was to be in a position to not just make it through this credit cycle but to do so in a manner that would allow us to take advantage of the opportunities that result from these occurrences -- specifically a material dislocation of assets, banks and people in the overall market. To date, we have had good success capitalizing on the dislocation of assets and people. Our focus on increasing core earnings and clearing our balance sheet of problem assets will now allow us to participate in FDIC assisted acquisitions as well as unassisted acquisitions of banks. These opportunities will all be evaluated for their long-term strategic value to the company and if completed, done with a disciplined approach. Internally, we still have core earnings improvement opportunities remaining in the areas of deposit re-pricing, core franchise growth and liquidity redeployment. At quarter end, the Company had approximately $1 billion in overnight liquid funds and short-term interest-bearing deposits with banks and was operating at slightly less than an 85% loan to deposit ratio -- just below the low end of our desired 85% to 90% range. Redeploying a portion of those liquid assets into higher yielding assets is a priority."

Total assets of $12.2 billion at December 31, 2009 increased $80 million from September 30, 2009 and $1.6 billion from December 31, 2008.  Total deposits as of December 31, 2009 were $9.9 billion, an increase of $70 million from September 30, 2009 and $1.5 billion from December 31, 2008.  Total loans, including loans held for sale, grew to $8.7 billion as of December 31, 2009, an increase of $219 million over the $8.5 billion balance as of September 30, 2009 and an increase of $1.0 billion over the December 31, 2008 balance of $7.7 billion.  During the fourth quarter of 2009 the Company completed the acquisition of $83.4 million of life insurance premium finance receivables (see "Acquisitions" for the impact of this transaction).  The Company's loan portfolio is diversified amongst a wide variety of loan types.  Please see the tables included in the remainder of this release for additional disclosures regarding the components of the commercial and commercial real estate portfolio, the allowance for credit losses and loan portfolio aging statistics.

Total shareholders' equity was $1.1 billion, or a book value of $35.27 per common share, at December 31, 2009, compared to $1.1 billion, or a book value of $33.03 per common share, at December 31, 2008. 

Wintrust's key operating measures and growth rates for the fourth quarter of 2009 as compared to the sequential and linked quarters are shown in the table below:

  Certain returns, yields, performance ratios, or quarterly growth rates are "annualized" in this presentation to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance trends when compared to full-year or year-over-year amounts. For example, a 5% growth rate for a quarter would represent an annualized 20% growth rate. Additional supplemental financial information showing quarterly trends can be found on the Company's web site at www.wintrust.com by choosing "Financial Reports" and then choosing "Supplemental Financial Info."



Impacting Comparative Financial Results: Acquisitions, Securitization and Stock Offerings/Regulatory Capital

Acquisitions

On July 28, 2009 the Company announced that its indirect, wholly-owned subsidiary, First Insurance Funding Corp. ("FIFC") completed the purchase of a majority of the U.S. life insurance premium finance assets of A.I. Credit Corp. and A.I. Credit Consumer Discount Company ("the seller"), subsidiaries of American International Group, Inc.  In doing so, FIFC acquired one of the largest life insurance premium finance portfolios in the industry, as well as certain other assets related to the life insurance premium finance business and assumed certain related liabilities. Subsequent to post-closing adjustments, an aggregate unpaid principal balance of $949.3 million was purchased for $685.3 million in cash. At closing, a portion of the portfolio with an aggregate purchase price of approximately $230 million was placed in escrow, pending the receipt of required third party consents. To the extent any of the required consents are not obtained prior to October 28, 2010, the portion of the portfolio for which such required consents are not obtained will be reassumed by the seller, and the corresponding portion of the purchase price will be returned to FIFC. Also, as a part of this purchase, $84.4 million of additional life insurance premium finance assets were available for future purchase by FIFC subject to satisfying certain conditions. As discussed below, on October 2, 2009, upon the satisfaction of these conditions, the Company completed the purchase of the majority of these additional loans.

The July 28, 2009 purchase was accounted for as a business combination as required by FASB Statement of Financial Accounting Standards No. 141 (revised 2007) which is now part of Accounting Standards Codification (ASC) 805 Business Combinations ("ASC 805"), which became effective for the Company beginning on January 1, 2009. ASC 805 establishes principles and requirements for the acquirer in a business combination, including the recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity as of the acquisition date; the recognition and measurement of the goodwill acquired in the business combination or gain from a bargain purchase as of the acquisition date; and the determination of additional disclosures needed to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Under ASC 805, acquired assets and liabilities assumed are required to be recorded at fair value at the acquisition date, including loans. ASC 805 eliminated recognition at the acquisition date of an allowance for loan losses on acquired loans; rather, credit-related factors are now incorporated directly into the fair value of the loans. Other significant changes include recognizing transaction costs and most restructuring costs as expenses when incurred. The accounting requirements of ASC 805 are applied on a prospective basis for all transactions completed after the effective date and early adoption was not permitted. Under ASC 805 a gain is recorded equal to the amount by which the fair value of net assets purchased exceeded the purchase price. The Company recognized a $28.5 million gain in the fourth quarter of 2009, in addition to the $113.1 million recognized in the third quarter of 2009, relating to the loans it acquired for which required third party consents were obtained. This gain is shown as a component of non-interest income on our statement of income.   The difference between the fair value of the loans acquired and the outstanding principal balance of these loans at the date of purchase represented a discount of $113.3 million and is comprised of two components, an accretable component totaling $74.8 million and a non-accretable component totaling $38.5 million. The accretable component will be recognized into interest income using the effective yield method over the estimated remaining life of the loans. The non-accretable portion will be evaluated each quarter and if the loans' credit related conditions improve, a portion will be transferred to the accretable component and accreted over future periods. In the event a specific loan prepays in whole, any remaining accretable and non-accretable discount is recognized in income immediately.  If credit related conditions deteriorate, an allowance related to these loans will be established as part of our provision for loan losses.  The impact related to this transaction is included in Wintrust's consolidated financial results only since the effective date of acquisition.

On October 2, 2009, the conditions were satisfied in relation to the majority of the additional life insurance premium finance assets that were available for purchase and FIFC purchased $83.4 million of the $84.4 million of life insurance premium finance assets available for an aggregate purchase price of $60.5 million. The Company recorded a $14.5 million bargain purchase gain relating to this purchase in the fourth quarter of 2009. The difference between the fair value of these loans acquired on October 2, 2009 and the outstanding principal balance of theses loans represents a discount of $8.4 million and is comprised of two components, an accretable component totaling $5.7 million and a non-accretable component totaling $2.7 million. These discount components were accounted for in a similar fashion as the discounts described above. The impact related to this transaction is included in Wintrust's consolidated financial results only since the effective date of acquisition. The "Purchased Loan Portfolio – Summary of Acquisitions" table in the Non-Interest Income section presented later in this document displays the balance sheet and income statement impact of these transactions.

On April 20, 2009 Wayne Hummer Asset Management Company completed its previously announced agreement to purchase certain assets and assume certain liabilities of Advanced Investment Partners, LLC ("AIP").  AIP is an investment management firm specializing in the active management of domestic equity investment strategies. The impact related to the AIP transaction is included in Wintrust's consolidated financial results only since the effective date of acquisition.

On December 23, 2008, the Company announced the acquisition by Wintrust Mortgage Corporation of certain assets and the assumption of certain liabilities of the mortgage banking business of Professional Mortgage Partners ("PMP") of Downers Grove, Illinois. PMP was founded in 1999 and had approximately $1.6 billion in annual mortgage originations in 2008. The terms of the cash transaction were not disclosed; however, a significant portion of the net purchase price for the PMP assets is conditioned upon certain future profitability measures. During the fourth quarter of 2009, the Company recorded an additional $1.5 million of purchase price that became payable based upon PMP attaining the required profitability measures. The impact related to the PMP transaction is included in Wintrust's consolidated financial results only since the effective date of acquisition.

Securitization – Sale of Loans

On September 11, 2009 Wintrust's indirect, wholly-owned subsidiary, FIFC Premium Funding I, LLC (the "Issuer"), closed on the sale of $600,000,000 aggregate principal amount of its Series 2009-A Premium Finance Asset Backed Notes, Class A (the "Notes"). The Notes were issued in a securitization transaction sponsored by First Insurance Funding Corp. At the time of closing, the securitization was off-balance sheet financing transaction for the Company. However, in accordance with newly applicable accounting guidance, effective January 1, 2010 the transaction will be recorded on the balance sheet of the Company as a secured borrowing.

The Notes bear interest at an annual rate equal to one-month LIBOR plus 1.45% and have an expected average term of 2.93 years; provided, however, that the entire unpaid balance of the Notes shall be due and payable in full on February 17, 2014. At the time of issuance, the Notes were eligible collateral under the Federal Reserve Bank of New York's Term Asset-Backed Securities Loan Facility ("TALF"). The Notes are rated Aaa by Moody's and AAA by Standard & Poor's. The Issuer's obligations under the Notes are secured by revolving loans made to buyers of property and casualty insurance policies to finance the related premiums payable by the buyers to the insurance companies for the policies. The premium finance loans will be transferred from time to time by FIFC to FIFC Funding I, LLC (the "Depositor") and by the Depositor to the Issuer.

The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws and may not be offered or sold in the United States without registration under the Securities Act or any applicable exemption from registration. The Notes were sold in a private placement to qualified institutional buyers only pursuant to an exemption under Rule 144A of the Securities Act. The Notes are restricted securities and may only be resold to qualified institutional buyers in a transaction meeting the requirements of Rule 144A and may not otherwise be reoffered, resold, pledged or otherwise transferred.

As a result of this transaction the Company recognized a gain of $3.6 million in the third quarter of 2009. A total of $695 million in premium finance property and casualty receivables were initially transferred into the securitization. The Company retained interests of approximately $84 million and a sellers' interest in loans of $11 million. Approximately $50 million of the retained interests are classified as debt securities on the Company's balance sheet and the remainder is classified in other assets. As a result of pay-downs of loans in the revolving securitization facility, the Company transferred $357 million of property and casualty premium finance receivables to the securitization facility during the fourth quarter of 2009 and recognized $4.4 million of gains.

Stock Offerings/Regulatory Capital

The Company announced on December 19, 2008 that it had received the proceeds from a $250 million investment in Wintrust by the U.S. Treasury Department. The investment was made as part of the U.S. Treasury Department's Capital Purchase Program, which was designed to infuse capital into the nation's healthy banks in order to expand the flow of credit to U.S. consumers and businesses on competitive terms to promote the sustained growth and vitality of the U.S. economy.

The investment by the U.S. Treasury Department was comprised of $250 million in preferred shares, with a warrant to purchase 1,643,295 shares of Wintrust common stock at a per share exercise price of $22.82 and a term of 10 years. If declared, dividends on the preferred stock are payable quarterly in arrears at a rate of 5% annually for the first five years and 9% thereafter. This investment can, with the approval of the Federal Reserve, be repurchased. The Company subsequently filed a shelf registration statement to fulfill the requirement of the Capital Purchase Program that the U.S. Department of Treasury be able to publicly sell the preferred shares and warrant it purchased from Wintrust.

On August 26, 2008, the Company sold $50 million ($49.4 million net of issuance costs) of non-cumulative perpetual convertible preferred stock in a private transaction. If declared, dividends on the preferred stock are payable quarterly in arrears at a rate of 8.00% per annum. The shares are convertible into common stock at the option of the holder at a price per share of $25.72. On and after August 26, 2010, the preferred stock will be subject to mandatory conversion into common stock under certain circumstances.

Financial Performance Overview – Fourth Quarter of 2009

For the fourth quarter of 2009, net interest income totaled $86.9 million, an increase of $24.2 million as compared to the fourth quarter of 2008 and a decrease of $730,000 as compared to the third quarter of 2009. Average earning assets for the fourth quarter of 2009 increased by $2.1 billion compared to the fourth quarter of 2008. Earning asset growth over the past 12 months was primarily a result of the $1.1 billion increase in average loans and $1.0 billion increase in liquidity management assets. The average earning asset growth of $2.1 billion over the past 12 months was funded by a $1.3 billion increase in the average balances of savings, NOW, MMA and Wealth Management deposits, an increase in the average balance of net free funds of $532 million, an increase in the average balance of retail certificates of deposit of $438 million offset by a decrease in the average balance of wholesale borrowings of $145 million and a decrease in the average balance of brokered certificates of deposit of $2 million.

The net interest margin for the fourth quarter of 2009 was 3.10%, compared to 2.78% in the fourth quarter of 2008 and 3.25% in the third quarter of 2009. The increase in net interest margin in the fourth quarter of 2009 compared to the fourth quarter of 2008 is primarily attributable to the acquisition of the life insurance premium finance portfolio and lower costs of interest-bearing deposits. In the fourth quarter of 2009, the yield on loans decreased 15 basis points and the rate on interest-bearing deposits decreased 21 basis points compared to the third quarter of 2009.  The bulk of the decrease in yield on loans is attributable to life insurance premium finance receivables as there were fewer prepayments in the fourth quarter. Management believes opportunities for increasing credit spreads in commercial loan portfolio and re-pricing of maturities of retail certificates of deposits should contribute to net interest margin expansion. Also contributing to the decrease in the net interest margin in the fourth quarter of 2009 when compared to the third quarter of 2009 is an increase in the average balance of liquidity management assets, primarily liquid over-night funds and short-term interest-bearing deposits with banks, of $491 million as a result of the securitization transaction completed in September of 2009. These excess liquid funds earned less than 50 basis points during the fourth quarter of 2009. 

Non-interest income totaled $85.1 million in the fourth quarter of 2009, increasing $65.7 million, or 339%, compared to the fourth quarter of 2008 and decreasing $65.6 million, or 173% on an annualized basis, compared to the third quarter of 2009. The change, in comparison to both prior periods, was primarily attributable to the bargain purchase gain recorded relating to the acquisition of the premium finance assets as described earlier under "Acquisitions" and the gain on the sale of loans in a securitization as described earlier under "Securitizations – Sale of Loans." In addition, mortgage banking revenue increased $13.4 million when compared to the fourth quarter of 2008 and increased $3.3 million when compared to the third quarter of 2009. These changes were primarily attributable to varying levels of activity in mortgage loans originated for sale to the secondary market during 2009 and higher spreads on loans sold in the fourth quarter as mortgage interest rates decreased during the quarter. Mortgages originated for sale totaled $962 million in the fourth quarter of 2009 compared to $960 million in the third quarter of 2009 and $263 million in the fourth quarter of 2008.

Non-interest expense totaled $90.3 million in the fourth quarter of 2009, increasing $25.4 million, or 39%, compared to the fourth quarter of 2008 and decreasing $2.2 million, or 10% on an annualized basis, compared to the third quarter of 2009. The increase compared to the fourth quarter of 2008 was attributable to a $4.7 million increase in other real estate expenses (including losses recognized on sales), a $12.3 million increase in salaries and employee benefits, a $1.2 million increase in professional fees and a $3.1 million increase in the FDIC deposit insurance expense.

Financial Performance Overview – Full Year 2009

The net interest margin for 2009 was 3.01%, compared to 2.81% in 2008. The increase in the net interest margin in 2009 when compared to 2008 is primarily attributable to the positive impact of controlling interest-bearing deposit costs and the positive impact of the transaction described earlier under "Acquisitions" which partially mitigated the overall decline in loan yields in 2009. The yield on earning assets decreased by 81 basis points in 2009 compared to 2008 while the rate paid on total interest-bearing deposits decreased by 102 basis points in 2009 compared 2008.

Non-interest income totaled $317.6 million in 2009, increasing $218.0 million, or 219%, compared to 2008. The increase was primarily attributable to the $156.0 million bargain purchase gain, an increase of $47.3 million in mortgage banking revenue and an increase in gains on sales of commercial premium finance receivables of $6.1 million. The increase in mortgage banking revenue is primarily attributable to a significant increase in mortgage loans originated and sold to the secondary market. Mortgages originated for sale totaled $4.7 billion in 2009 compared to $1.6 billion in 2008. In 2009 the Company recognized an increase of $27.4 million in trading income. Offsetting the increase in trading income was the decrease of $27.0 million on fees from the sale of covered call options compared to 2008. The majority of the increase in trading income resulted from an increase in the market value of certain collateralized mortgage obligations held as trading assets. The Company purchased these securities at a significant discount during the first quarter of 2009. These securities have increased in value since their purchase due to market spreads tightening, increased mortgage prepayments due to a favorable mortgage rate environment and lower than projected default rates.

Non-interest expense totaled $344.1 million in 2009, increasing $87.9 million, or 34%, compared to 2008. The change compared to 2008 was attributable to a $41.8 million increase in salaries and employee benefits and a $15.6 million increase in FDIC insurance expense related to deposit insurance rate increases, the one-time industry-wide FDIC deposit insurance special assessment in the second quarter of 2009 and growth in the assessable deposit base.  Additionally, $13.4 million of increased expenses related to other real-estate owned (including losses on sales) and $4.6 million from increased professional fees, primarily as a result of the elevated level of non-performing assets contributed to the $87.9 million non-interest expense growth. The $41.8 million increase in salaries and employee benefits is largely attributable to an increase in variable pay (commissions) of $22.0 million primarily as a result of the higher mortgage loan origination volumes.

Financial Performance Overview – Credit Quality

Non-performing loans totaled $131.8 million, or 1.57% of total loans, at December 31, 2009, compared to $231.7 million, or 2.80% of total loans, at September 30, 2009 and $136.1 million, or 1.79% of total loans, at December 31, 2008. Other real-estate owned ("OREO") of $80.2 million at December 31, 2009 was up $39.5 million compared to September 30, 2009 and increased $47.6 million compared to December 31, 2008. See "Other Real Estate Owned" later in this document for more detail.

Management's objective was to begin 2010 with a large portion of the Company's problem assets cleared from its balance sheet. During the latter half of 2009, management focused on significantly lowering the Company's level of non-performing loans. In the fourth quarter, this was accomplished through a focus on gaining control or getting possession of collateral from borrowers whose loans were in non-accrual status. Achievement of this goal enabled a number of these properties to be transferred to other real estate owned. Those properties the Company obtained via foreclosure or via deed in lieu of foreclosure were aggressively marketed for sale. Additionally, management worked with financially distressed borrowers to restructure $32 million of loans. These actions helped distressed borrowers maintain their homes or businesses and kept these loans in an accruing status for the Company.

The provision for credit losses totaled $38.6 million for the fourth quarter of 2009 compared to $91.2 million for the third quarter of 2009 and $14.5 million in the fourth quarter of 2008. Net charge-offs for the fourth quarter totaled 161 basis points on an annualized basis compared to 53 basis points on an annualized basis in the fourth quarter of 2008 and 365 basis points on an annualized basis in the third quarter of 2009. The provision for credit losses totaled $168.0 million for all of 2009 compared to $57.4 million for all of 2008. Net charge-offs for the full year of 2009 totaled 165 basis points compared to 51 basis points for the full year of 2008. 

The allowance for credit losses at December 31, 2009 totaled $101.9 million and increased to 1.21% of total loans compared to $98.2 million or 1.19% of total loans at September 30, 2009 and $71.4 million, or 0.94% of total loans at December 31, 2008. In addition, at December 31, 2009, there are $37.3 million of non-accretable discounts on the purchased life insurance premium finance receivables. Adding the reserve for unfunded lending-related commitments and non-accretable discounts on the purchased premium finance receivables brings the Company's total credit-related reserves to $139 million, or 1.65% of total loans, as of December 31, 2009. 

 ⁽¹⁾ Net revenue is net interest income plus non-interest income.

⁽²⁾ See "Supplemental Financial Measures/Ratios" for additional information on this performance measure/ratio.

⁽³⁾ The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period's average total assets. A lower ratio indicates a higher degree of efficiency.

⁽⁴⁾ The efficiency ratio is calculated by dividing total non-interest expense by tax-equivalent net revenues (less securities gains or losses). A lower ratio indicates more efficient revenue generation.

⁽⁵⁾ Capital ratios for current quarter-end are estimated.

⁽⁶⁾ The allowance for credit losses includes both the allowance for loan losses and the allowance for lending-related commitments.

⁽⁷⁾ Represents the credit discounts on purchased life insurance premium finance loans.

⁽⁸⁾ The sum of allowance for credit losses and credit discounts on purchased life insurance premium finance loans divided by total loans outstanding plus the credit discounts on purchased life insurance premium finance loans. 

SUPPLEMENTAL FINANCIAL MEASURES/RATIOS

The accounting and reporting policies of Wintrust conform to generally accepted accounting principles ("GAAP") in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company's performance. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components) and the efficiency ratio. Management believes that these measures and ratios provide users of the Company's financial information a more meaningful view of the performance of the interest-earning 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. 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.

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 is shown below: 

NET INTEREST INCOME

The following table presents a summary of Wintrust's average balances, net interest income and related net interest margins, calculated on a fully tax-equivalent basis, for the fourth quarter of 2009 compared to the fourth quarter of 2008 (linked quarters): 

The following table presents a summary of Wintrust's average balances, net interest income and related net interest margins, calculated on a fully tax-equivalent basis, for the fourth quarter of 2009 compared to the third quarter of 2009 (sequential quarters): 

The lower level of net interest income recorded in the fourth quarter of 2009 compared to the third quarter of 2009 was attributable to an increase in the average balance of liquidity management assets, primarily liquid over-night funds and short-term interest-bearing deposits with banks, of $491 million as a result of the securitization transaction completed in September of 2009.  Average earning asset growth of $431 million in the fourth quarter of 2009 compared to the third quarter of 2009 was comprised of $491 million of liquid management asset growth offset by a decrease of $61 million in average total loans. The $431 million of average earning asset growth was primarily funded by a $217 million increase in the average balances of interest-bearing deposits and a $228 million increase in the average balance of net free funds.   

In the fourth quarter of 2009, the yield on loans decreased 15 basis points and the rate on interest-bearing deposits decreased 21 basis points compared to the third quarter of 2009.  The bulk of the decrease in yield on loans is attributable to the life insurance premium finance receivables as lower levels of discount accretion were recognized in the fourth quarter as a result of lower prepayments of the purchased life insurance premium finance receivables compared to the third quarter of 2009. Management believes opportunities remain for increasing credit spreads in commercial and commercial real estate loan portfolios and for lower rates from the re-pricing of maturing retail certificates of deposits, both of which should contribute to net interest margin expansion.

 The following table presents a summary of Wintrust's average balances, net interest income and related net interest margins, calculated on a fully tax-equivalent basis, for the year ended December 31, 2009 compared to the year ended December 31, 2008: 

NON-INTEREST INCOME

For the fourth quarter of 2009, non-interest income totaled $85.1 million, an increase of $65.7 million compared to the fourth quarter of 2008. The increase was primarily attributable to the bargain purchase gain related to the life insurance premium finance loan acquisition (see "Acquisitions"), the gains associated with the securitization transaction (see "Securitization - Sale of Loans"), an increase in mortgage banking revenue and trading income offset by lower levels of fees from the sale of covered call options. For the full year of 2009, non-interest income totaled $317.6 million, an increase of $218.0 million compared to the full year of 2008.   

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

Wealth management is comprised of the trust and asset management revenue of Wayne Hummer Trust Company and the asset management fees, brokerage commissions, trading commissions and insurance product commissions at Wayne Hummer Investments and Wayne Hummer Asset Management Company.   Wealth management revenue totaled $8.0 million in the fourth quarter of 2009 and $6.7 million in the fourth quarter of 2008. Increased asset valuations due to the recent equity market improvements have helped revenue growth from trust and asset management activities. On a full-year basis, wealth management revenue totaled $28.4 million in 2009, down $1.0 million, or 3% compared to 2008.

Mortgage banking includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. For the quarter ended December 31, 2009, this revenue source totaled $16.5 million, an increase of $13.4 million when compared to the fourth quarter of 2008. The increase was primarily attributable to gains recognized on loans sold to the secondary market. Future growth of mortgage banking is impacted by the interest rate environment and residential housing conditions and will continue to be dependent upon both. Mortgages originated and sold totaled $962 million in the fourth quarter of 2009 compared to $960 million in the third quarter of 2009 and $263 million in the fourth quarter of 2008. The positive impact of the PMP transaction, completed at the end of 2008, contributed to mortgage banking revenue growth in all quarters of 2009. On a full-year basis, mortgage banking revenue totaled $68.5 million in 2009, increasing $47.3 million compared to 2008. Mortgages originated and sold totaled $4.7 billion in 2009 compared to $1.6 billion in 2008.

Service charges on deposit accounts totaled $3.4 million for the fourth quarter of 2009, an increase of $753,000, or 28%, when compared to the same quarter of 2008. The majority of deposit service charges relates to customary fees on overdrawn accounts and returned items. The level of service charges received is substantially below peer group levels, as management believes in the philosophy of providing high quality service without encumbering that service with numerous activity charges. 

As a result of paydowns of loans in the revolving securitization facility, the Company transferred $357 million of property and casualty premium finance receivables to the securitization facility during the fourth quarter of 2009 and recognized $4.4 million of gains (see "Securitization - Sale of Loans"). No such sales occurred during the fourth quarter of 2008.

Other non-interest income for the fourth quarter of 2009 totaled $9.1 million, a decrease of $1.0 million, compared to $10.1 million in the fourth quarter of 2008. Trading income increased $4.5 million as the Company recognized $6.2 million in trading income resulting primarily from the increase in market value of certain collateralized mortgage obligations. The Company purchased these securities at a significant discount during the first quarter of 2009. These securities have increased in value since their purchase due to market spreads tightening, increased mortgage prepayments due to favorable mortgage rate environment and lower than projected default rates. Offsetting the increase in trading income were fees from certain covered call option transactions decreasing by $7.4 million, as no income was recorded from this activity in the fourth quarter of 2009. Historically, compression in the net interest margin was effectively offset, as has consistently been the case, by the Company's covered call strategy. In the fourth quarter of 2009 management chose to not engage in covered call option activity due to lower than acceptable security yields which resulted in the elimination of revenue from the Company's covered call strategy.   An illustration of the past effectiveness of this strategy is shown in the Supplemental Financial Information section (see page titled "Net Interest Margin (Including Call Option Income)").

The bargain purchase gain resulted from the acquisition of the life insurance premium finance receivable portfolio. See "Acquisitions" for a complete discussion of the transaction. The following table summarizes the components of this transaction:

NON-INTEREST EXPENSE

Non-interest expense for the fourth quarter of 2009 totaled $90.3 million and increased approximately $25.4 million, or 39%, from the fourth quarter 2008 total of $64.9 million. On a full-year basis, non-interest expense for 2009 totaled $344.1 million and increased $87.9 million, or 34% compared to 2008.

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

Salaries and employee benefits comprised 53% of total non-interest expense in the fourth quarter of 2009 and 55% in the fourth quarter of 2008. Salaries and employee benefits expense increased $12.3 million, or 35%, in the fourth quarter of 2009 compared to the fourth quarter of 2008 primarily as a result of higher commission and incentive compensation expenses related to mortgage banking activities and the incremental costs of the PMP staff. The higher commission and incentive compensation expense is primarily attributable to an increase in variable pay (commissions) of $6.3 million as a result of the higher mortgage loan origination volumes. On a full-year basis, salaries and employee benefits in 2009 increased $41.8 million, or 29%, compared to 2008. Of this increase, $22 million was attributable to an increase in variable pay (commissions) primarily as a result of the higher mortgage loan origination volumes (including the impact of PMP), approximately $10 million related to the base salaries of new employees as a result of the PMP transaction and increases in base salaries for existing employees of the Company. 

Professional fees include legal, audit and tax fees, external loan review costs and normal regulatory exam assessments. Professional fees for the fourth quarter of 2009 were $3.6 million, an increase of $1.2 million, or 52%, compared to the same period in 2008. On a full-year basis, professional fees were $13.4 million in 2009, an increase of $4.6 million, or 52%, compared 2008. These increases are primarily a result of increased legal costs related to non-performing assets and acquisition related activities.

FDIC insurance totaled $4.7 million in the fourth quarter of 2009, an increase of $3.1 million compared to $1.7 million in the fourth quarter of 2008. On a full-year basis, FDIC insurance totaled $21.2 million in 2009, an increase of $15.6 million compared to $5.6 million in 2008. The increase in FDIC insurance rates at the beginning of 2009 and growth in the assessable deposit base contributed to the significant increases in FDIC insurance costs for the fourth quarter of 2009 while the full year of 2009 results were also negatively impacted by the industry-wide special assessment on financial institutions in the second quarter of 2009.

OREO expenses include all costs related with obtaining, maintaining and selling of other real estate owned properties. This expense totaled $5.3 million in the fourth quarter of 2009, an increase of $4.7 million compared to $641,000 in the fourth quarter of 2008. On a full-year basis, OREO expenses totaled $19.0 million in 2009, an increase of $13.4 million compared to $5.6 million in 2008.

Miscellaneous expense includes expenses such as ATM expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions and lending origination costs that are not deferred. Miscellaneous expenses in the fourth quarter of 2009 increased $3.5 million, or 54%, compared to the same period in the prior year. On full-year basis, miscellaneous expenses increased $10.5 million in 2009, or 50%, compared to 2008.

ASSET QUALITY

Allowance for Credit Losses

The allowance for credit losses is comprised of the allowance for loan losses and the allowance for lending-related commitments. The allowance for loan losses is a reserve against loan amounts that are actually funded and outstanding while the allowance for lending-related commitments relates to certain amounts that Wintrust is committed to lend but for which funds have not yet been disbursed. The allowance for lending-related commitments (separate liability account) represents the portion of the provision for credit losses that was associated with unfunded lending-related commitments. The provision for credit losses may contain both a component related to funded loans (provision for loan losses) and a component related to lending-related commitments (provision for unfunded loan commitments and letters of credit). Total credit-related reserves include the credit discounts on the purchased life insurance premium finance receivables which are netted with the loan balance. 

The provision for credit losses totaled $38.6 million for the fourth quarter of 2009, $91.2 million in the third quarter of 2009 and $14.5 million for the fourth quarter of 2008. For the quarter ended December 31, 2009, net charge-offs totaled $34.9 million compared to $79.7 million in the third quarter of 2009 and $9.9 million recorded in the fourth quarter of 2008. On a ratio basis, annualized net charge-offs as a percentage of average loans were 1.61% in the fourth quarter of 2009, 3.65% in the third quarter of 2009, and 0.53% in the fourth quarter of 2008. On a full-year basis, the provision for credit losses totaled $167.9 million for 2009 and $57.4 million for 2008. Net charge-offs totaled $137.4 million in 2009 compared to $37.0 million recorded in 2008. On a ratio basis, annualized net charge-offs as a percentage of average loans were 1.65% in 2009 and 0.51% in 2008.

Management believes the allowance for loan losses is adequate to provide for inherent losses in the portfolio. There can be no assurances however, that future losses will not exceed the amounts provided for, thereby affecting future results of operations. The amount of future additions to the allowance for loan losses will be dependent upon management's assessment of the adequacy of the allowance based on its evaluation of economic conditions, changes in real estate values, interest rates, the regulatory environment, the level of past-due and non-performing loans, and other factors. The increase from the end of the prior quarter reflects the continued economic weaknesses in the Company's markets and is the result of an individual review of a significant number of individual credits as well as the overall risk factors impacting certain types of credits, specifically credits with residential development collateral valuation exposure.

The tables below show the aging of the Company's loan portfolio at December 31, 2009 and September 30, 2009:

The amounts shown in the non-accrual and the 90+ days and still accruing columns represent the Company's total reported non-performing loans balance. As of December 31, 2009, only $37 million of all loans, or 0.4%, were 60 to 89 days past due and only $64 million, or 0.8%, were 30 to 59 days (or one payment) past due. 

The majority of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are 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 very good delinquency ratios. Home equity loans at December 31, 2009 that are current with regard to the contractual terms of the loan agreement represent 98.7% of the total home equity portfolio. Residential real estate loans at December 31, 2009 that are current with regards to the contractual terms of the loan agreements comprise 97.5% of total residential real estate loans outstanding. 

The ratio of non-performing commercial premium finance receivables fluctuates throughout the year due to the nature and timing of canceled account collections from insurance carriers. Due to the nature of collateral for commercial premium finance receivables it customarily takes 60-150 days to convert the collateral into cash collections. Accordingly, the level of non-performing commercial premium finance receivables is not necessarily indicative of the loss inherent in the portfolio. In the event of default, Wintrust has the power to cancel the insurance policy and collect the unearned portion of the premium from the insurance carrier. In the event of cancellation, the cash returned in payment of the unearned premium by the insurer should generally be sufficient to cover the receivable balance, the interest and other charges due. Due to notification requirements and processing time by most insurance carriers, many receivables will become delinquent beyond 90 days while the insurer is processing the return of the unearned premium. Management continues to accrue interest until maturity as the unearned premium is ordinarily sufficient to pay-off the outstanding balance and contractual interest due.

Non-performing Loans

 The following table sets forth Wintrust's non-performing loans at the dates indicated. 

Non-performing Residential Real Estate and Home Equity

The non-performing residential real estate and home equity loans totaled $13.1 million as of December 31, 2009. The balance increased $917,000 from September 30, 2009 and increased $5.9 million from December 31, 2008. The December 31, 2009 non-performing balance is comprised of $4.2 million of residential real estate (17 individual credits) and $8.9 million of home equity loans (19 individual credits). On average, this is approximately 2 non-performing residential real estate loans and home equity loans per chartered bank within the Company. The Company believes control and collection of these loans is very manageable. At this time, management believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits.

Non-performing Commercial, Consumer and Other

The commercial, consumer and other non-performing loan category totaled $98.4 million as of December 31, 2009 compared to $190.4 million as of September 30, 2009 and $106.6 million as of December 31, 2008. 

Management is pursuing the resolution of all credits in this category. At this time, management believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits.

Non-performing Commercial Premium Finance Receivables

The table below presents the level of non-performing property and casualty premium finance receivables as of December 31, 2009 and 2008, and the amount of net charge-offs for the quarters then ended. 

The non-performing and annualized charge-off ratios for 2009 represent only those receivables that remained on the Company's books after the securitization in the third quarter of 2009. Including the activity of the securitization, non-performing property and casualty premium finance receivables would have been 1.63% and the annualized net charge offs as a percent of the average balance of property and casualty premium finance receivables would have been 0.73%.

Fluctuations in this category may occur due to timing and nature of account collections from insurance carriers. The Company's underwriting standards, regardless of the condition of the economy, have remained consistent. We anticipate that net charge-offs and non-performing asset levels in the near term will continue to be at levels that are within acceptable operating ranges for this category of loans. Management is comfortable with administering the collections at this level of non-performing property and casualty premium finance receivables.

Non-performing Indirect Consumer Loans

Total non-performing indirect consumer loans were $1.5 million at December 31, 2009, compared to $1.3 million at September 30, 2009 and $1.6 million at December 31, 2008. The ratio of these non-performing loans to total indirect consumer loans was 1.48% at December 31, 2009 compared to 1.11% at September 30, 2009 and 0.90% at December 31, 2008. As noted in the Allowance for Credit Losses table, net charge-offs as a percent of total indirect consumer loans were 1.43% for the quarter ended December 31, 2009 compared to 0.98% in the same period in 2008. Given the 44% decline in outstanding balances in the indirect consumer loan portfolio since December 31, 2008, the 1.43% charge-off ratio represents only $383,000 of total net charge-offs in the fourth quarter of 2009.

At the beginning of the third quarter of 2008, the Company ceased the origination of indirect automobile loans. This niche business served the Company well over the past 12 years in helping de novo banks quickly, and profitably, grow into their physical structures. Competitive pricing pressures significantly reduced the long-term potential profitably of this niche business. Given the current economic environment and the retirement of the founder of this niche business, exiting the origination of this business was deemed to be in the best interest of the Company. The Company will continue to service its existing portfolio during the duration of the credits.

Restructured Loans

Restructured loans represent loans in which economic concessions have been granted to borrowers to better align the terms of the loan with their current ability to pay. During the fourth quarter of 2009, $32 million in loans had the terms modified. $31.7 million of the modified loans were in an accruing status at the time of the restructuring and remain accruing as of December 31, 2009. These actions helped financially distressed borrowers maintain their homes or businesses and kept these loans in an accruing status for the Company.

Other Real Estate Owned

The table below presents a summary of other real estate owned as of December 31, 2009 and shows the changes in the balance from September 30, 2009 for each property type:

WINTRUST SUBSIDIARIES AND LOCATIONS

Wintrust is a financial holding company whose common stock is traded on the Nasdaq Global Select Market (Nasdaq:WTFC). Its 15 community bank subsidiaries are: Lake Forest Bank & Trust Company, Hinsdale Bank & Trust Company, North Shore Community Bank & Trust Company in Wilmette, Libertyville Bank & Trust Company, Barrington Bank & Trust Company, Crystal Lake Bank & Trust Company, Northbrook Bank & Trust Company, Advantage National Bank in Elk Grove Village, Village Bank & Trust in Arlington Heights, Beverly Bank & Trust Company in Chicago, Wheaton Bank & Trust Company, State Bank of The Lakes in Antioch, Old Plank Trail Community Bank, N.A. in New Lenox, St. Charles Bank & Trust Company and Town Bank in Hartland, Wisconsin. The banks also operate facilities in Illinois in Algonquin, Bloomingdale, Buffalo Grove, Cary, Chicago, Clarendon Hills, Deerfield, Downers Grove, Frankfort, Geneva, Glencoe, Glen Ellyn, Gurnee, Grayslake, Highland Park, Highwood, Hoffman Estates, Island Lake, Lake Bluff, Lake Villa, Lindenhurst, McHenry, Mokena, Mundelein, North Chicago, Northfield, Palatine, Prospect Heights, Ravinia, Riverside, Roselle, Sauganash, Skokie, Spring Grove, Vernon Hills, Wauconda, Western Springs, Willowbrook and Winnetka, and in Delafield, Elm Grove, Madison and Wales, Wisconsin.

Additionally, the Company operates various non-bank subsidiaries. First Insurance Funding Corporation, one of the largest insurance premium finance companies operating in the United States, serves commercial and life insurance loan customers throughout the country. Tricom, Inc. of Milwaukee provides high-yielding, short-term accounts receivable financing and value-added out-sourced administrative services, such as data processing of payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States. Wintrust Mortgage Corporation (formerly known as WestAmerica Mortgage Company) engages primarily in the origination and purchase of residential mortgages for sale into the secondary market through origination offices located throughout the United States. Loans are also originated nationwide through relationships with wholesale and correspondent offices. Wayne Hummer Investments, LLC is a broker-dealer providing a full range of private client and brokerage services to clients and correspondent banks located primarily in the Midwest. Wayne Hummer Asset Management Company provides money management services and advisory services to individual accounts. Advanced Investment Partners, LLC is an investment management firm specializing in the active management of domestic equity investment strategies. Wayne Hummer Trust Company, a trust subsidiary, allows Wintrust to service customers' trust and investment needs at each banking location. Wintrust Information Technology Services Company provides information technology support, item capture and statement preparation services to the Wintrust subsidiaries.

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as "intend," "plan," "project," "expect," "anticipate," "believe," "estimate," "contemplate," "possible," "point," "will," "may," "should," "would" and "could." Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management's expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company's 2008 Annual Report on Form 10-K and in any of the Company's subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company's future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management's long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company's business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:

• negative economic conditions that adversely affect the economy, housing prices, the job market and other factors that may affect the Company's liquidity and the performance of its loan portfolios, particularly in the markets in which it operates; 
• the extent of defaults and losses on the Company's loan portfolio, which may require further increases in its allowance for credit losses;                             
• estimates of fair value of certain of the Company's assets and liabilities, which could change in value significantly from period to period;                             
• changes in the level and volatility of interest rates, the capital markets and other market indices that may affect, among other things, the Company's liquidity and the value of its assets and liabilities;                             
• a decrease in the Company's regulatory capital ratios, including as a result of further declines in the value of its loan portfolios, or otherwise;                          
• effects resulting from the Company's participation in the Capital Purchase Program, including restrictions on dividends and executive compensation practices, as well as any future restrictions that may become applicable to the Company;                        
• legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies;                                 
• increases in the Company's FDIC insurance premiums, or the collection of special assessments by the FDIC;            
• competitive pressures in the financial services business which may affect the pricing of the Company's loan and deposit products as well as its services (including wealth management services);                               
• delinquencies or fraud with respect to the Company's premium finance business;                             
•  the Company's ability to comply with covenants under its securitization facility and credit facility;                       
• credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company's premium finance loans;                             
• any negative perception of the Company's reputation or financial strength;                           
• the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;                                   
• the ability of the Company to attract and retain senior management experienced in the banking and financial services industries;                              
• failure to identify and complete favorable acquisitions in the future, or unexpected difficulties or developments related to the integration of recent acquisitions, including with respect to any FDIC-assisted acquisitions;                  
• unexpected difficulties or unanticipated developments related to the Company's strategy of de novo bank formations and openings, which typically require over 13 months of operations before becoming profitable due to the impact of organizational and overhead expenses, the startup phase of generating deposits and the time lag typically involved in redeploying deposits into attractively priced loans and other higher yielding earning assets;        
• changes in accounting standards, rules and interpretations and the impact on the Corporation's financial statements;                              
• significant litigation involving the Company; and                               
• the ability of the Company to receive dividends from its subsidiaries.

Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by or on behalf of Wintrust. 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 release revisions to these forward-looking statements or reflect events or circumstances after the date of this press release.   Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases.

CONFERENCE CALL, WEB CAST AND REPLAY

The Company will hold a conference call at 1:00 p.m. (CST) Wednesday, January 27, 2010 regarding fourth quarter 2009 results. Individuals interested in listening should call (888) 684-1279 and enter Conference ID #3202747. A simultaneous audio-only web cast and replay of the conference call may be accessed via the Company's web site at (http://www.wintrust.com), Investor News and Events, Presentations &  Conference Calls. The text of the fourth quarter 2009 earnings press release will be available on the home page of the Company's web site at (http://www.wintrust.com) and at the Investor News and Events, Press Releases link on its website.

WINTRUST FINANCIAL CORPORATION

Supplemental Financial Information

5 Quarter Trends