Wintrust Financial Corporation Reports First Quarter 2011 Net Income of $16.4 Million

/ Source: GlobeNewswire

LAKE FOREST, Ill., April 20, 2011 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation ("Wintrust" or "the Company") (Nasdaq:WTFC) announced net income of $16.4 million or $0.36 per diluted common share for the quarter ended March 31, 2011 compared to net income of $16.0 million or $0.41 per diluted common share for the quarter ended March 31, 2010 and $14.2 million or $(0.06) per diluted common share for the fourth quarter of 2010.

The Company's total assets of $14.1 billion at March 31, 2011 increased $1.2 billion from March 31, 2010. Total deposits as of March 31, 2011 were $10.9 billion, an increase of $1.2 billion from March 31, 2010. Noninterest bearing deposits increased by $407.4 million or 46.7% since March 31, 2010, while NOW, money market and savings deposits increased $526.6 million or 14.7% during the same time period. Total loans, including loans held for sale and excluding covered loans, were $9.7 billion as of March 31, 2011, an increase of $429.7 million over March 31, 2010.

Edward J. Wehmer, President and Chief Executive Officer, commented, "We are pleased to report net income of $16.4 million for the first quarter of 2011 compared to $16.0 million in the first quarter of 2010 and $14.2 million in the fourth quarter of 2010. The results for the first quarter of 2011 show continued core operating strengths as our net interest margin improved, credit related costs remain at levels similar to recent quarters, core loans outstanding increased, demand deposits related to this core loan growth increased and the beneficial shift in our deposit mix away from single-product CD customers continues. Specifically, our commercial lending initiatives continue to benefit non-interest bearing deposit growth where this component of total deposits has increased over the past 12 months to 11.7%, up from 9.0%.

Our renewed franchise expansion efforts that began in the second quarter of 2010, picked up as we acquired two banks in FDIC-assisted transactions, acquired the assets of another residential mortgage origination company and acquired, or contracted to acquire, three closed branch banking facilities from the FDIC in Crystal Lake, Schaumburg and Des Plaines. These transactions will open up new markets to us."

Mr. Wehmer noted, "Our results for the first quarter of 2011 included $9.8 million of bargain purchase gains on the two FDIC-assisted transactions. These gains were negated somewhat by an industry-wide fall-off in residential real-estate loan originations, as we experienced a 55% decline in origination volumes compared to the first quarter of 2010. Over the past three months, our period end balances of mortgages held-for-sale and our niche mortgage warehouse lending have declined by $375 million. This not only impacted the composition of our balance sheet, but negatively impacted non-interest income as mortgage banking income declined by $11.1 million in the first quarter of 2011 compared to the fourth quarter of 2010."

Commenting further on credit quality, Mr. Wehmer said, "Non-performing loans and other real-estate owned both increased slightly since year-end as severe weather conditions and a shorter first quarter business calendar hampered the outflow of non-performing credits. During the first quarter, the Company recorded a provision for credit losses of $25.3 million, net charge-offs of $25.3 million and other real-estate owned operating expenses and charges of $5.8 million. Our allowance for credit losses, excluding covered loans, increased to $117.1 million or 1.22% of total loans."

In closing, Mr. Wehmer added, "This year will mark the 20th anniversary of the start of the Wintrust organization. What began as a single temporary store-front location in Lake Forest in 1991 now has 88 banking locations, as well as wealth management, mortgage banking and specialty finance operations. We believe we are successfully managing through the current credit cycle of elevated credit costs, higher levels of liquidity with little or no yield and increased capital scrutiny, and we believe our opportunities to expand the franchise have also increased. Our core commercial loan pipeline is strong which should result in shifting our low yielding liquidity assets into higher yield loans and resulting higher margins on those assets.  Marketing efforts are only just beginning in our newer markets and present us with good opportunities to further expand and strengthen our core deposit franchise to support the funding of potential future loan originations. Our capital levels remain well above regulatory requirements, we are free from the restraints of TARP and are excited about the opportunities that lie ahead."

Wintrust's key operating measures and growth rates for the first quarter of 2011, 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 by choosing "Financial Reports" under the "Investor Relations" heading, and then choosing "Supplemental Financial Info."

Items Impacting Comparative Financial Results: Acquisitions and Capital

Acquisitions   

On March 25, 2011, the Company announced that its wholly-owned subsidiary bank, Advantage National Bank Group ("Advantage"), acquired certain assets and liabilities and the banking operations of The Bank of Commerce ("TBOC") in an FDIC-assisted transaction. TBOC operated one location in Wood Dale, Illlinois and had approximately $163 million in total assets and $161 million in total deposits as of December 31, 2010. Advantage acquired substantially all of TBOC's assets at a discount of approximately 14% and assumed all of the non-brokered deposits at a premium of approximately 0.1%. 

On February 4, 2011, the Company announced that its wholly-owned subsidiary bank, Northbrook Bank & Trust Company ("Northbrook"), acquired certain assets and liabilities and the banking operations of Community First Bank-Chicago ("CFBC") in an FDIC-assisted transaction. CFBC operated one location in Chicago and had approximately $51.1 million in total assets and $49.5 million in total deposits as of December 31, 2010. Northbrook Bank acquired substantially all of CFBC's assets at a discount of approximately 8% and assumed all of the non-brokered deposits at a premium of approximately 0.5%. 

On February 3, 2011, the Company announced the acquisition of certain assets and the assumption of certain liabilities of the mortgage banking business of Woodfield Planning Corporation ("Woodfield") of Rolling Meadows, Illinois. With offices in Rolling Meadows, Illinois and Crystal Lake, Illinois, Woodfield originated approximately $180 million in mortgage loans in 2010.

On August 17, 2010, the Company announced that its wholly-owned subsidiary bank, Wheaton Bank & Trust Company ("Wheaton") signed a Branch Purchase and Assumption Agreement whereby it agreed to acquire a branch of First National Bank of Brookfield located in Naperville, Illinois. The transaction closed on October 22, 2010 and the acquired operations are operating as Naperville Bank & Trust. Through this transaction, Wheaton acquired approximately $23 million of deposits, approximately $11 million of performing loans, the property, bank facility and various other assets.  

On August 6, 2010, the Company announced that its wholly-owned subsidiary bank, Northbrook, in an FDIC-assisted transaction, had acquired certain assets and liabilities and the banking operations of Ravenswood Bank ("Ravenswood"). Ravenswood operated one location in Chicago, Illinois and one in Mount Prospect, Illinois. 

On April 23, 2010, the Company announced that Northbrook and Wheaton, in two FDIC-assisted transactions, had acquired certain assets and liabilities and the banking operations of Lincoln Park Savings Bank ("Lincoln Park") and Wheatland Bank ("Wheatland"), respectively. Lincoln Park operated four locations in Chicago, Illinois. Wheatland had one location in Naperville, Illinois. 

In summary, in the FDIC-assisted transactions:

  • Advantage assumed approximately $161 million of the outstanding deposits and approximately $163 million of assets of TBOC, prior to purchase accounting adjustments. A bargain purchase gain of $7.9 million was recognized on this transaction. 
     
  • Northbrook assumed approximately $50 million of the outstanding deposits and approximately $51 million of assets of CFBC, prior to purchase accounting adjustments. A bargain purchase gain of $1.9 million was recognized on this transaction. 
     
  • Northbrook assumed approximately $120 million of the outstanding deposits and approximately $188 million of assets of Ravenswood, prior to purchase accounting adjustments. A bargain purchase gain of $6.8 million was recognized on this transaction. 
     
  • Northbrook assumed approximately $160 million of the outstanding deposits and approximately $170 million of assets of Lincoln Park, prior to purchase accounting adjustments. A bargain purchase gain of $4.2 million was recognized on this transaction. 
     
  • Wheaton assumed approximately $400 million of the outstanding deposits and approximately $370 million of assets of Wheatland, prior to purchase accounting adjustments. A bargain purchase gain of $22.3 million was recognized on this transaction.

Loans comprise the majority of the assets acquired in the five FDIC-assisted transactions and are subject to loss sharing agreements with the FDIC where the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans. We refer to the loans subject to these loss-sharing agreements as "covered loans." Covered assets include covered loans, covered OREO and certain other covered assets. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing FDIC reimbursement of losses related to covered assets. 

Capital

On February 14, 2011, the U.S. Department of Treasury ("the Treasury") sold all 1.6 million warrants to purchase the Company's common stock it received in connection with its purchase of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series B in December 2008. The Treasury sold the warrants to third parties, in a public modified Dutch auction for $15.80 per warrant. The Company received no proceeds in connection with the offering. Holders of the warrants have the right to buy the Company's common stock at a price of $22.82 per share. The warrants are traded on the NASDAQ Global Select Market under the ticker symbol "WTFCW" and expire on December 19, 2018.

On December 22, 2010, the Company repurchased all 250,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the "Preferred Stock"), which it issued to the Treasury under the TARP Capital Purchase Program. The Preferred Stock was repurchased at a price of $251.3 million, which included accrued and unpaid dividends of $1.3 million. The repurchase of the Preferred Stock resulted in a non-cash deemed preferred stock dividend that reduced net income applicable to common shares in the fourth quarter of 2010 by approximately $11.4 million. This amount represented the difference between the repurchase price and the carrying amount of the Preferred Stock, or the accelerated accretion of the applicable discount on the preferred shares.

In December 2010, the Company sold 3.69 million shares of common stock at $30.00 per share in a public offering. The Company received net proceeds of $104.8 million after deducting underwriting discounts and commissions and estimated offering expenses. At the same time the Company sold 4.6 million 7.50% tangible equity units ("TEU") at a public offering price of $50.00 per unit. The Company received net proceeds of $222.7 million after deducting underwriting discounts and commissions and estimated offering expenses. In total, the Company received net proceeds of $327.5 million from the December offerings.

In March 2010, the Company sold 6.67 million shares of common stock at $33.25 per share in a public offering. The Company received net proceeds of $210.3 million after deducting underwriting discounts and commissions and estimated offering expenses.

As of March 31, 2011, the Company's estimated capital ratios were 14.1% for total risk-based capital, 12.8% for tier 1 risk-based capital and 10.3% for leverage, well above the well capitalized guidelines.   Additionally, the Company's tangible common equity ratio was 8.0% at March 31, 2011.

Financial Performance Overview – First quarter of 2011

For the first quarter of 2011, net interest income totaled $109.6 million, an increase of $13.7 million as compared to the first quarter of 2010 and a decrease of $3.1 million as compared to the fourth quarter of 2010. Average earning assets for the first quarter of 2011 increased by $1.3 billion compared to the first quarter of 2010. Average earning asset growth over the past 12 months was primarily a result of the $699.2 million increase in average loans, $326.6 million of average covered loan growth from the five FDIC-assisted bank acquisitions and $247.9 million increase in average liquidity management assets. Growth in the life insurance premium finance portfolio of $327.1 million and growth in the commercial and industrial portfolio of $256.9 million accounted for the bulk of the total average loan growth over the past 12 months. The average earning asset growth of $1.3 billion over the past 12 months was funded by a $440.3 million increase in the average balances of savings, NOW, MMA and Wealth Management deposits, an increase in the average balance of net free funds of $533.2 million and increase in the average balance of retail certificates of deposit of $313.5 million.

The net interest margin for the first quarter of 2011 was 3.48% compared to 3.46% in the fourth quarter of 2010. The two basis point increase in net interest margin in the first quarter of 2011 compared to the fourth quarter of 2010 resulted as reduced costs of interest-bearing deposits continued to improve the net interest margin as the rate on these deposits decreased ten basis points in the first quarter of 2011 compared to the fourth quarter of 2010. Including the costs of wholesale funding, the rate on total interest-bearing liabilities declined four basis points between these comparable periods. Offsetting this positive impact to the net interest margin was the yield on total average earning assets, which declined by four basis points as the yield on loans declined by 37 basis points and the yield on liquidity management assets improved by 43 basis points. The increased effective yield recognized on the FDIC covered loan portfolio helped to counteract some of the impact of the loan portfolio yield decreases. The lower yield on the loan portfolio in the first quarter of 2011 was primarily attributable to a $5.6 million decline in accretion recognized on the purchased life insurance premium finance loan portfolio as prepayments declined and lower yields on the commercial premium finance receivable portfolio. Average net free funds increased by $123 million, improving the contribution to net interest margin by two basis points in the first quarter of 2011 compared to the fourth quarter of 2010. The Company continues to see a beneficial shift in its deposit mix as average non-interest bearing deposits comprised 11.7% of total average deposits in the first quarter of 2011 compared to 10.5% in the fourth quarter of 2010.

The lower level of net interest income recorded in the first quarter of 2011 compared to the fourth quarter of 2010 was primarily attributable to the first quarter of 2011 consisting of two less days than the fourth quarter of 2010, reducing net interest income by approximately $2.5 million. The remainder of the decrease in net interest income was caused by slightly lower levels of total average earning assets as the average balance of mortgages held for sale and mortgage warehouse lines declined by $240 million in the first quarter of 2011 compared to the fourth quarter of 2010.

The net interest margin increased ten basis points in the first quarter of 2011 compared to the first quarter of 2010. The driver for this increase was the reduced costs of interest-bearing deposits as the rate on these deposits decreased 51 basis points in the first quarter of 2011 compared to the first quarter of 2010. Including the costs of wholesale funding, the rate on total interest-bearing liabilities declined 43 basis points between these comparable periods. Partially offsetting this positive impact to the net interest margin was the yield on total average earning assets, which declined by 33 basis points as the yield on loans declined by 41 basis points and the yield on liquidity management assets declined by 49 basis points. The yield recognized on the FDIC covered loan portfolio helped to counteract some of the impact of these yield decreases.

The higher level of net interest income recorded in the first quarter of 2011 compared to the first quarter of 2010 was primarily attributable to a $699 million increase in the average balance of loans and a $327 million increase in FDIC covered loans. The bulk of this growth was funded by an increase of $725 million in interest-bearing deposits and a $533 million increase in net free funds (of which $402 million was non-interest bearing deposits). The Company continues to see a beneficial shift in its deposit mix as non-interest bearing deposits comprised 11.7% of total average deposits in the first quarter of 2011 compared to 8.9% in the first quarter of 2010.

Non-interest income totaled $40.9 million in the first quarter of 2011, decreasing $1.7 million, or 4.0%, compared to the first quarter of 2010 and decreasing $3.6 million, or 8.0%, compared to the fourth quarter of 2010. Mortgage banking revenue increased $1.9 million when compared to the first quarter of 2010 and decreased $11.1 million when compared to the fourth quarter of 2010 as loans originated and sold to the secondary market were $562 million in the first quarter of 2011 compared to $687 million in the first quarter of 2010 and $1.3 billion in the fourth quarter of 2010 (see "Non-Interest Income" section later in this document for further detail). Trading income decreased by $6.4 million in the first quarter of 2011 when compared to the first quarter of 2010 primarily due to the realization in the prior year of market value increases on certain collateralized mortgage obligations held in trading during 2010.  

Non-interest expense totaled $98.1 million in the first quarter of 2011, increasing $14.2 million, or 17%, compared to the first quarter of 2010 and decreasing $8.1 million compared to the fourth quarter of 2010. The increase compared to the first quarter of 2010 was primarily attributable to a $7.0 million increase in salaries and employee benefits. The increase in salaries and employee benefits was attributable to a $1.0 million increase in bonus and commissions as variable pay based revenue increased (primarily in our mortgage banking and wealth management businesses), a $4.0 million increase in salaries caused by the addition of employees from the five FDIC-assisted transactions and larger staffing related to organic Company growth, and a $2.0 million increase from employee benefits (primarily related to health plans and payroll taxes). Additionally, OREO related expenses increased $4.5 million and professional fees increased $439,000, primarily related to increased legal costs related to non-performing assets and recent bank acquisitions. 

The Company's effective tax rate increased to 39.4% in the first quarter of 2011, up from 37.2% in the first quarter of 2010. This increase is primarily attributable to two items. The increased Illinois corporate tax rate on 2011 earnings increased our tax expense by approximately $200,000. Additionally, the Company recorded approximately $300,000 of additional tax expense due to a one-time adjustment to change the recorded value of its deferred tax liabilities as of the beginning of 2011 as a result of the Illinois corporate tax rate change that was effective on January 1, 2011.

Financial Performance Overview – Credit Quality

Non-performing loans, excluding covered loans, totaled $155.4 million, or 1.63% of total loans, at March 31, 2011, compared to $142.1 million, or 1.48% of total loans, at December 31, 2010 and $141.0 million, or 1.55% of total loans, at March 31, 2010. OREO, excluding covered OREO, of $85.3 million at March 31, 2011 increased $14.1 million compared to $71.2 million at December 31, 2010 and decreased $3.7 million compared to $89.0 million at March 31, 2010. Throughout the quarter, management worked with certain borrowers to restructure performing loans. These actions help these borrowers maintain their homes or businesses and keep these loans in an accruing status for the Company. As of March 31, 2011, a total of $96.6 million of outstanding loan balances qualified as restructured loans, with $69.4 million of these modified loans in an accruing status.

The provision for credit losses totaled $25.3 million for the first quarter of 2011 compared to $28.8 million for the fourth quarter of 2010 and $29.0 million in the first quarter of 2010. Net charge-offs as a percentage of loans, excluding covered loans, for the first quarter of 2011 totaled 104 basis points on an annualized basis compared to 119 basis points on an annualized basis in the first quarter of 2010 and 96 basis points on an annualized basis in the fourth quarter of 2010. 

Excluding the allowance for covered loan losses and covered loans, the allowance for credit losses at March 31, 2011 totaled $117.1 million, or 1.22% of total loans, compared to $118.0 million, or 1.23% of total loans, at December 31, 2010 and $106.1 million, or 1.17% of total loans, at March 31, 2010. 

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), the efficiency ratio, tangible common equity ratio, tangible common book value per share and core pre-tax earnings. 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 assets and interest-bearing liabilities and of the Company's operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.

Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent ("FTE") basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company's efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company's equity. Core pre-tax earnings is a significant metric in assessing the Company's core operating performance. Core pre-tax earnings is adjusted to exclude the provision for credit losses and certain significant items.

The following table presents a reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company's performance to the most directly comparable GAAP financial measures for the last 5 quarters:

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 first quarter of 2011 compared to the first quarter of 2010 (linked quarters):

The higher level of net interest income recorded in the first quarter of 2011 compared to the first quarter of 2010 was primarily attributable to a $699 million increase in the average balance of loans and a $327 million increase in FDIC covered loans. The bulk of this growth was funded by an increase of $725 million in interest-bearing deposits and a $533 million increase in net free funds (of which $402 million was non-interest bearing deposits). The Company continues to see a beneficial shift in its deposit mix as non-interest bearing deposits comprised 11.7% of total average deposits in the first quarter of 2011 compared to 8.9% in the first quarter of 2010.

The net interest margin increased ten basis points in the first quarter of 2011 compared to the first quarter of 2010. The driver for this increase was the reduced costs of interest-bearing deposits as the rate on these decreased 51 basis points in the first quarter of 2011 compared to the first quarter of 2010. Including the costs of wholesale funding, the rate on total interest-bearing liabilities declined 43 basis points between these comparable periods. Partially offsetting this positive impact to the net interest margin was the yield on total average earning assets, which declined by 33 basis points as the yield on loans declined by 41 basis points and the yield on liquidity management assets declined by 49 basis points. The yield recognized on the FDIC covered loan portfolio helped to counteract some of the impact of these yield decreases. Although average net free funds increased by $533 million, the contribution to net interest margin remained at 19 basis points for both periods as the replacement value (rate on total interest-bearing liabilities) was 43 basis points lower.

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 first quarter of 2011 compared to the fourth quarter of 2010 (sequential quarters):

The lower level of net interest income recorded in the first quarter of 2011 compared to the fourth quarter of 2010 was primarily attributable to the first quarter of 2011 consisting of two less days than the fourth quarter of 2010, reducing net interest income by approximately $2.5 million. The remainder of the decrease in net interest income was caused by slightly lower levels of total average earning assets as the average balance of mortgages held for sale and mortgage warehouse lines declined by $240 million in the first quarter of 2011 compared to the fourth quarter of 2010.

The net interest margin increased two basis points in the first quarter of 2011 compared to the fourth quarter of 2010. Reduced costs of interest-bearing deposits continued to improve the net interest margin as the rate on these decreased ten basis points in the first quarter of 2011 compared to the fourth quarter of 2010. Including the costs of wholesale funding, the rate on total interest-bearing liabilities declined four basis points between these comparable periods. Offsetting this positive impact to the net interest margin was the yield on total average earning assets, which declined by four basis points as the yield on loans declined by 37 basis points and the yield on liquidity management assets improved by 43 basis points. The increased effective yield recognized on the FDIC covered loan portfolio, as higher levels of forecasted cashflows on the covered loan portfolios drive higher effective yields on these assets, helped to counteract some of the impact of the loan portfolio yield decreases. The lower yield on the loan portfolio in the first quarter of 2011 was primarily attributable to a $5.6 million decline in accretion recognized on the purchased life insurance premium finance loan portfolio as prepayments declined and lower yields on the commercial premium finance receivable portfolio. Average net free funds increased by $123 million improving the contribution to net interest margin by two basis points in the first quarter of 2011 compared to the fourth quarter of 2010. The Company continues to see a beneficial shift in its deposit mix as non-interest bearing deposits comprised 11.7% of total average deposits in the first quarter of 2011 compared to 10.5% in the fourth quarter of 2010.

NON-INTEREST INCOME

For the first quarter of 2011, non-interest income totaled $40.9 million, a decrease of $1.7 million, or 4.0%, compared to the first quarter of 2010. The decrease was primarily attributable to lower trading gains and bargain purchase gains, partially offset by increases in fees from covered call options, mortgage banking revenue and wealth management revenue.

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

Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and the asset management fees, brokerage commissions, trading commissions and insurance product commissions at Wayne Hummer Investments and Wintrust Capital Management. Wealth management revenue totaled $10.2 million in the first quarter of 2011 and $8.7 million in the first quarter of 2010, an increase of 18%. Increased asset valuations due to equity market improvements have helped revenue growth from trust and asset management activities. Additionally, the improvement in the equity markets overall have led to the increase of the brokerage component of wealth management revenue as customer trading activity has increased. 

Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. For the quarter ended March 31, 2011, this revenue source totaled $11.6 million, an increase of $1.9 million when compared to the first quarter of 2010. Mortgages originated and sold totaled $562 million in the first quarter of 2011 compared to $687 million in the first quarter of 2010. The increase in mortgage banking revenue in the first quarter of 2011 as compared to the first quarter of 2010 resulted primarily from estimations of fewer loss indemnification requests from investors. The Company enters into residential mortgage loan sale agreements with investors in the normal course of business.  These agreements provide recourse to investors through certain representations concerning credit information, loan documentation, collateral and insurability.  Investors request the Company to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations.  An increase in requests for loss indemnification can negatively impact mortgage banking revenue as additional recourse expense. The Company recognized $103,000 of expense on loans previously sold in the first quarter of 2011, a decrease of $3.3 million compared to the first quarter of 2010. The loss reserves established for loans expected to be repurchased is based on trends in repurchase and indemnification requests, actual loss experience, known and inherent risks in the loans that have been sold, and current economic conditions.

A summary of the mortgage banking revenue components is shown below:

The gain on bargain purchases of $9.8 million recognized in the first quarter of 2011 relates to the FDIC-assisted acquisitions of TBOC by Advantage and CFBC by Northbrook (see "Items Impacting Comparative Financial Results: Acquisitions"). The gain on bargain purchases of $10.9 million in the first quarter of 2010 related to loans acquired in the Company's acquisition of a life insurance premium finance loan portfolio in 2009.

Trading losses of $440,000 were recognized by the Company in the first quarter of 2011 compared to gains of $6.0 million in the first quarter of 2010. Lower trading gains in the current period compared to the first quarter of 2010 resulted primarily from realizing market value increases in the prior year on certain collateralized mortgage obligations held in trading which were sold in July 2010.

Other non-interest income for the first quarter of 2011 totaled $6.2 million, compared to $3.6 million in the first quarter of 2010. Fees from certain covered call option transactions increased by $2.2 million in the first quarter of 2011 as compared to the same period in the prior year. Historically, compression in the net interest margin was effectively offset, as has consistently been the case, by 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)").

NON-INTEREST EXPENSE

Non-interest expense for the first quarter of 2011 totaled $98.1 million and increased approximately $14.2 million, or 17%, compared to the first quarter of 2010.   

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

Salaries and employee benefits comprised 57% of total non-interest expense in the first quarter of 2011 and 58% in the first quarter of 2010. Salaries and employee benefits expense increased $7.0 million, or 14%, in the first quarter of 2011 compared to the first quarter of 2010 primarily as a result of a $1.0 million increase in bonus and commissions as variable pay based revenue increased (primarily our mortgage banking and wealth management businesses), a $4.0 million increase in salaries caused by the addition of employees from the five FDIC-assisted transactions and larger staffing as the Company grows and a $2.0 million increase from employee benefits (primarily health plan and payroll taxes related).       

Professional fees include legal, audit and tax fees, external loan review costs and normal regulatory exam assessments. Professional fees for the first quarter of 2011 were $3.5 million, an increase of $439,000, or 14%, compared to the same period in 2010. These increases are primarily a result of increased legal costs related to non-performing assets and recent bank acquisitions. 

OREO expenses include all costs related to obtaining, maintaining and selling of other real estate owned properties. This expense totaled $5.8 million in the first quarter of 2011, an increase of $4.5 million compared to $1.3 million in the first quarter of 2010. The increase in OREO expenses primarily related to higher valuation adjustments of properties held in OREO in the first quarter of 2011 as compared to first quarter of 2010.

The allowance for credit losses, excluding the allowance for covered loan losses, is comprised of the allowance for loan losses and the allowance for unfunded lending-related commitments. The allowance for loan losses is a reserve against loan amounts that are actually funded and outstanding while the allowance for unfunded 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 unfunded lending-related commitments (separate liability account) represents the portion of the allowance for credit losses that was associated with unfunded lending-related commitments. The provision for credit losses, excluding the provision for covered loan 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 also include the credit discounts on the purchased life insurance premium finance receivables which are netted with the loan balance. Additionally, on January 1, 2010, in conjunction with recording the securitization facility on its balance sheet, the Company established an allowance for loan losses totaling $1.9 million. This addition to the allowance for loan losses is shown as an "other adjustment to the allowance for loan losses". 

The provision for credit losses, excluding the provision for covered loan losses, totaled $24.4 million for the first quarter of 2011, $28.8 million in the fourth quarter of 2010 and $29.0 million for the first quarter of 2010. For the quarter ended March 31, 2011, net charge-offs, excluding covered loans, totaled $25.3 million compared to $23.5 million in the fourth quarter of 2010 and $26.8 million recorded in the first quarter of 2010. On a ratio basis, annualized net charge-offs as a percentage of average loans, excluding covered loans, were 1.04% in the first quarter of 2011, 0.96% in the fourth quarter of 2010, and 1.19% in the first quarter of 2010.  Beginning in the third quarter of 2009, the Company committed to resolving problem credits as quickly as possible. Actions taken during this time increased OREO, net charge-offs and the provision for loan losses expenses required to maintain an appropriate level of reserves. The first quarter of 2011 amounts recorded for both net charge-offs and provision for credit losses reflect a continuation of the Company's commitment to maintain a low level of non-performing assets.

Management believes the allowance for credit losses is appropriate 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 credit losses will be dependent upon management's assessment of the appropriateness 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 in the allowance for credit losses from the end of the prior quarter reflects the continued changes in real estate values on certain types of credits, specifically credits with residential development collateral valuation exposure.

The Company also provides a provision for covered loan losses on covered loans and an allowance for covered loan losses on covered loans. Please see "Covered Assets" later in this document for more detail.

The table below shows the aging of the Company's loan portfolio, excluding covered loans, at March 31, 2011:

As of March 31, 2011, $41.2 million of all loans, excluding covered loans, or 0.4%, were 60 to 89 days past due and $103.5 million, or 1.1%, were 30 to 59 days (or one payment) past due.  As of December 31, 2010, $46.1 million of all loans, excluding covered loans, or 0.5%, were 60 to 89 days past due and $91.9 million, or 1.0%, 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 included on the Company's internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis. 

The Company's home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at March 31, 2011 that are current with regard to the contractual terms of the loan agreement represent 97.6% of the total home equity portfolio. Residential real estate loans at March 31, 2011 that are current with regards to the contractual terms of the loan agreements comprise 96.8% of total residential real estate loans outstanding.

The table below shows the aging of the Company's loan portfolio, excluding covered loans, at December 31, 2010:

Non-performing Assets, excluding covered assets

The following table sets forth Wintrust's non-performing assets, excluding covered assets, at the dates indicated. 

Non-performing Commercial and Commercial Real Estate

The commercial non-performing loan category totaled $26.3 million as of March 31, 2011 compared to $16.9 million as of December 31, 2010 and $15.3 million as of March 31, 2010. The commercial real estate non-performing loan category totaled $96.0 million as of March 31, 2011 compared to $94.0 million as of December 31, 2010 and $83.6 million as of March 31, 2010. 

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

Non-performing Residential Real Estate and Home Equity

Non-performing home equity and residential real estate loans totaled $16.1 million as of March 31, 2011. The balance increased $2.9 million from March 31, 2010 and $2.6 million from December 31, 2010. The March 31, 2011 non-performing balance is comprised of $4.9 million of residential real estate (22 individual credits) and $11.2 million of home equity loans (35 individual credits). On average, this is approximately four 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 Premium Finance Receivables

The table below presents the level of non-performing property and casualty premium finance receivables as of March 31, 2011 and 2010, and the amount of net charge-offs for the quarters then ended. 

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 and believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits. 

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. 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.

Nonperforming Loans Rollforward

The table below presents a summary of non-performing loans, excluding covered loans, as of March 31, 2011 and 2010 as well as the change in balance during each respective period:

Restructured Loans

The table below presents a summary of restructured loans for the respective period, presented by loan category and accrual status:

At March 31, 2011, the Company had $96.6 million in loans with modified terms. The $96.6 million in modified loans represents 121 credit relationships in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay. These actions were taken on a case-by-case basis working with these borrowers to find a concession that would assist them in retaining their businesses or their homes and attempt to keep these loans in an accruing status for the Company.  

Subsequent to its restructuring, any restructured loan with a below market rate concession will remain classified by the Company as a restructured loan for its duration. All restructured loans were reviewed for collateral impairment at March 31, 2011 and approximately $8.3 million of collateral impairment was present on restructured loans classified as non-accrual and appropriately reserved for through the Company's normal reserving methodology in the Company's allowance for loan losses.

Other Real Estate Owned

The table below presents a summary of other real estate owned, excluding covered other real estate owned, as of March 31, 2011 and shows the activity for the respective period and the balance for each property type:

The following table provides a comparative analysis for the period end balances of the covered asset components, any changes in the allowance for covered loan losses and the contractual aging of the loans in the covered loan portfolio.

The following table presents a summary of the discount components for the life insurance premium finance portfolio purchase as of March 31, 2011 and shows the changes in the balances from March 31, 2010.

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, Lincoln Park, Lindenhurst, McHenry, Mokena, Mount Prospect, Mundelein, Naperville, North Chicago, Northfield, Palatine, Prospect Heights, Ravenswood, Ravinia, Riverside, Rogers Park, Roselle, Sauganash, Skokie, Spring Grove, Vernon Hills, Wauconda, Western Springs, Willowbrook, Winnetka and Wood Dale and in Delafield, Elm Grove, Madison, 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 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. Wintrust Capital Management 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. The Chicago 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 2010 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;
  • legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies, including those resulting from the Dodd-Frank Act; 
  • restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business resulting from the Dodd-Frank Act;
  • increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the current regulatory environment, including the Dodd-Frank Act; 
  • changes in capital requirements resulting from Basel II and III initiatives;
  • increases in the Company's FDIC insurance premiums, or the collection of special assessments by the FDIC; 
  • losses incurred in connection with repurchases and indemnification payments related to mortgages; 
  • 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; 
  • failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of recent or future acquisitions; 
  • unexpected difficulties and losses related to FDIC-assisted acquisitions, including those resulting from our loss-sharing arrangements with the FDIC; 
  • 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; 
  • the Company's ability to comply with covenants under its securitization facility and credit facility; 
  • 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 Company's financial statements; 
  • adverse effects on our operational systems resulting from failures, human error or tampering; 
  • 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. (CT) Wednesday, April 20, 2011 regarding first quarter 2011 results. Individuals interested in listening should call (877) 363-5049 and enter Conference ID #59204020. 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 first quarter 2011 earnings press release will be available on the home page of the Company's website 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

CONTACT: Edward J. Wehmer, President & Chief Executive Officer David A. Dykstra, Senior Executive Vice President & Chief Operating Officer (847) 615-4096 Web site address: www.wintrust.com