WTFC Wintrust Financial Corporation

LAKE FOREST, Ill., Jan. 28 /PRNewswire-FirstCall/ -- Wintrust Financial Corporation ("Wintrust" or "the Company") (NASDAQ:WTFC) announced quarterly net income of $2.0 million, or $0.02 per diluted share, for the period ended December 31, 2008, an increase of $0.15 per diluted share, compared to the $2.5 million loss, or ($0.13) per diluted share, recorded in the third quarter of 2008. Compared to the fourth quarter of 2007, earnings per diluted share decreased $0.63 per diluted share, on a $13.7 million decrease in net income. Edward J. Wehmer, President and Chief Executive Officer, commented, "We have completed a very difficult 2008 by recording a profit of $2.0 million in the fourth quarter and $20.5 million for the full year. While these levels are not acceptable under normal circumstances, given the current global economic conditions recording a profit during these periods is atypical in the banking industry." Mr. Wehmer noted, "We recorded $9.9 million of net loan charge-offs and $14.5 million in provision for credit losses in the fourth quarter. Both of these are down significantly from the amounts recorded in the previous quarter. The Company continues to aggressively manage its impaired loan portfolio. Distressed real estate valuations continue to impact this process as values become more distressed due to lack of sales activity, large property inventories, decreasing numbers of potential buyers and other factors. Nonperforming loans increased moderately in the fourth quarter. However, we are focused on resolving existing problem credits and working to identify potential problem credits." Mr. Wehmer went on to say, "In August 2008, Wintrust successfully completed a convertible preferred stock offering raising $50 million in capital. Additionally, late in December, we further strengthened our balance sheet by issuing $250 million of preferred stock, as a participant in the U.S. Department of Treasury's Capital Purchase Program, strengthening our total risk-based capital ratio to approximately 13%, well above the 10% requirement to be considered well capitalized for regulatory purposes. All 15 of our subsidiary community banks are above well-capitalized levels for regulatory purposes as well. The additional capital enhances our ability to weather the current economic storm as well as our ability to fund future growth in loans and deposits." Mr. Wehmer added, "The fourth quarter showed continued growth in both loan and deposit balances as well as improvements in loan pricing spreads and the ability of the Company to generate lower rate deposits. Our successful community banking model is proving to be a competitive advantage in these tough economic times as our banks are predominantly funded by a stable base of retail deposits rather than by volatile wholesale funding vehicles. During the fourth quarter, outstanding balances in our MaxSafe(R) suite of products, which offer 15 times the level of FDIC insurance a customer can achieve at a single charter bank, almost doubled to $374 million. This product continues to be well received in the market place." Mr. Wehmer summarized, "We are prepared for the challenges and opportunities that 2009 will bring. The Company has the capital available to meet lending demands as well as diversified retail deposit funding sources to support this asset growth. We have been preparing for the next portion of this economic cycle for some time and believe we are in a position to take advantage of our unique community bank model." Net income for the year ended December 31, 2008 was $20.5 million, or $0.76 per diluted common share compared to $55.7 million, or $2.24 per diluted common share, in 2007. Total assets of $10.7 billion at December 31, 2008 increased $1.3 billion from December 31, 2007. Total deposits as of December 31, 2008 were $8.4 billion, an increase of $905 million as compared to $7.5 billion at December 31, 2007. Total loans grew to $7.6 billion as of December 31, 2008, an increase of $819 million, or 12%, over the $6.8 billion balance as of December 31, 2007. The Company's loan portfolio includes a wide variety of loan types, of which approximately 9% are commercial real estate construction and land development related and 5% are residential real estate construction and land development related. These projects are being carefully monitored on an individual credit basis at each bank. Total shareholders' equity increased to $1.1 billion, or a book value of $33.03 per common share, at December 31, 2008, compared to $739.6 million, or a book value of $31.56 per common share, at December 31, 2007. Wintrust's key operating measures and growth rates for the fourth quarter of 2008 as compared to the sequential and linked quarters are shown in the table below: % or % or basis basis point point ($ in (bp) (bp) thousands, Change Change except Three Months Ended From From per December September December 3rd 4th share 31, 30, 31, Quarter Quarter data) 2008 2008 2007 2008(5) 2007 Net income (loss) $1,955 $(2,448) $15,643 180% (88)% Net income (loss) per common share - diluted $0.02 $(0.13) $0.65 115% (97)% Net revenue (1) $81,860 $82,595 $93,406 (1)% (12)% Net interest income $62,745 $60,680 $65,438 3% (4)% Net interest margin (4) 2.78% 2.74% 3.08% 4 bp (30)bp Core net interest margin (2) (4) 3.06% 2.97% 3.37% 4 bp (31)bp Net overhead ratio (3) 1.80% 1.65% 1.49% 15 bp 31 bp Return on average assets 0.08% (0.10)% 0.65% 18 bp (57)bp Return on average common equity 0.22% (1.59)% 8.56% 181 bp (834)bp At end of period Total assets $10,658,326 $9,864,920 $9,368,859 32% 14% Total loans $7,621,069 $7,322,545 $6,801,602 16% 12% Total deposits $8,376,750 $7,829,527 $7,471,441 28% 12% Total equity $1,066,572 $809,331 $739,555 126% 44% (1) Net revenue is net interest income plus non-interest income. (2) Core net interest margin excludes interest expense associated with Wintrust's junior subordinated debentures and the interest expense incurred to fund common stock repurchases. (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 total average assets. A lower ratio indicates a higher degree of efficiency. (4) See "Supplemental Financial Measures/Ratios" for additional information on this performance measure/ratio. (5) Period-end balance sheet percentage changes are annualized. 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, balance sheet growth rates are most often expressed in terms of an annual rate like 20%. As such, 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 website at http://www.wintrust.com/ by choosing "Investor News" and then choosing "Supplemental Financial Info." Acquisitions, Stock Offering/Regulatory Capital and New Locations - Impacting Comparative Financial Results Acquisitions 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. On November 1, 2007, the Company completed its previously announced acquisition by First Insurance Funding Corporation of 100% of the ownership interests of Broadway Premium Funding Corporation ("Broadway"). Broadway was founded in 1999 and had approximately $60 million of premium finance receivables outstanding at the date of acquisition. Broadway provides financing for commercial property and casualty insurance premiums, mainly through insurance agents and brokers in the northeastern portion of the United States and California. The results of operations of Broadway and the impact related to the PMP transaction are included in Wintrust's consolidated financial results only since the effective date of acquisition. Stock Offering/Regulatory Capital The Company did not repurchase any of its outstanding common stock in 2008. The Company announced on December 19, 2008 that it had received the proceeds from the $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 is 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 is 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. The senior preferred stock will pay a cumulative dividend at a coupon rate of 5% for the first five years and 9% thereafter. This investment can, with the approval of the Federal Reserve, be redeemed in the first three years with the proceeds from the issuance of certain qualifying Tier 1 capital or after three years at par value plus accrued and unpaid dividends. The Company's recently filed universal shelf registration statement fulfills the requirement of the Capital Purchase Program that U.S. Department of Treasury be able to publicly sell the preferred shares and warrants it purchased from Wintrust. The Company announced on August 26, 2008 that it 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 $27.38 which is equal to 120% of the average of the midpoint of the intraday high and intraday low trading prices for the Company's common stock for the 15 consecutive trading day period ended August 22, 2008. On and after August 26, 2010, the preferred stock will be subject to mandatory conversion into common stock under certain circumstances. De Novo/Acquired Banking Locations Activity Over the past 12 months, Wintrust opened the following banking locations: -- Vernon Hills, Illinois (Libertyville Bank & Trust Company) - opened second quarter 2008 -- Deerfield, Illinois (Northbrook Bank & Trust Company) - opened first quarter 2008 Financial Performance Overview For the fourth quarter of 2008, net interest income totaled $62.7 million, down $2.7 million compared to the fourth quarter of 2007. Average earning assets for the fourth quarter of 2008 increased by $522 million compared to the fourth quarter of 2007. Earning asset growth over the past 12 months was primarily a result of the $470 million increase in average loans. The average earning asset growth of $522 million over the past 12 months was funded by a $428 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 $124 million, and an increase in the average balance of brokered certificates of deposit of $56 million, a decrease in the average balance of retail certificates of deposit of $80 million and a decrease in the average balance of wholesale borrowings (primarily repurchase agreements) of $28 million. At December 31, 2008, $374 million of retail deposits were held in the Company's MaxSafe(R) suite of products (certificates of deposit, MMA and NOW). MaxSafe is an innovative investment alternative that provides up to 15 times the FDIC insurance security of a traditional banking deposit or a total of $3.75 million for interest-bearing accounts, by capitalizing on the Company's multiple chartered subsidiaries and depositing a customer's funds across all 15 of the Company's community banks. The net interest margin for the fourth quarter of 2008 was 2.78%, compared to 3.08% in the fourth quarter of 2007 and 2.74% in the third quarter of 2008. Core net interest margin, which excludes both the impact of the Company's junior subordinated debentures and any common stock repurchases on the net interest margin, was 3.06% in the fourth quarter of 2008, down compared to 3.37% in the fourth quarter of 2007 and an increase from the 2.97% in the third quarter of 2008. The decrease in the net interest margin in the fourth quarter of 2008 when compared to the fourth quarter of 2007 is directly attributable to two factors: first, interest rate compression as the rates on certain variable rate retail deposit products are unable to decline at the same magnitude as variable rate earning assets and second, the negative impact of an increased balance of nonaccrual loans. For the year, 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).") In the fourth quarter of 2008, the yield on loans decreased 158 basis points and the rate on interest-bearing deposits decreased 113 basis points compared to the fourth quarter of 2007. Management believes opportunities during 2009 for increasing spreads in the loan portfolio should help offset the effects of interest rate spread compression on variable rate retail deposits and the unprecedented competitive retail deposit pricing given the current economic conditions that have hindered net interest margin expansion. Non-interest income totaled $19.1 million in the fourth quarter of 2008, decreasing $8.9 million, or 32%, compared to the fourth quarter of 2007. The decrease was primarily attributable to net losses on available-for-sale securities of $3.6 million in the fourth quarter of 2008 compared to net gains of $2.8 million in the fourth quarter of 2007. In the fourth quarter of 2008, Wintrust recognized $3.9 million of non-cash other-than-temporary impairment charges on certain corporate debt investment securities. Gains on available- for-sale securities in the fourth quarter of 2007 were comprised mainly of a $2.5 million gain recognized on Wintrust's investment in an unaffiliated bank holding company that was acquired by another bank holding company. The mortgage banking revenue decrease of $2.7 million when comparing the fourth quarter of 2008 to the fourth quarter of 2007 was primarily attributable to decreases in the fair market value of mortgage servicing rights, valuation fluctuations of mortgage banking derivatives and fair value accounting for certain residential mortgage loans held for sale. Additionally, in the fourth quarter of 2007, mortgage banking revenue included the reversal of $1.3 million of the $6.7 million of estimated losses recorded in the third quarter of 2007, related to recourse obligations on residential mortgage loans sold to investors and losses on certain residential loans held for sale. Revenue from Bank Owned Life Insurance ("BOLI") decreased $1.2 million primarily as a result of lower yields on policy investments in 2008. Offsetting these decreases were $5.7 million of higher fees from covered call options in the fourth quarter of 2008 as compared to the fourth quarter of 2007. Non-interest expense totaled $64.7 million in the fourth quarter of 2008, increasing $1.1 million, or 2%, compared to the fourth quarter of 2007. As compared to the prior period, advertising and marketing costs increased $430,000, FDIC insurance premiums added $424,000 of additional expense, professional fees increased $289,000, data processing costs increased $286,000, equipment and occupancy costs increased $201,000 and other miscellaneous expenses increased $888,000 (the primary contributor being loan expenses and expenses related to other real estate owned). Offsetting these increases was a reduction of $967,000 in salary and employee benefits expense. This decrease was primarily attributable to lower variable commission expense, lower incentive compensation accruals, lower deferred and stock based compensation plan accruals offset by higher levels of base compensation and employee benefit costs. Non-performing loans totaled $136.0 million, or 1.79% of total loans, at December 31, 2008, compared to $113.0 million, or 1.54% of total loans, at September 30, 2008 and $71.9 million, or 1.06% of total loans, at December 31, 2007. Total non-performing loans increased by $23.1 million since September 30, 2008. Other real estate owned ("OREO") of $32.6 million at December 31, 2008 increased $20.0 million compared to September 30, 2008. During the fourth quarter of 2008, 45 individual properties, representing 16 lending relationships, were acquired by the Company via foreclosure or deed in lieu. These properties totaled $22.6 million. Changes in fair value of properties held and properties sold reduced the OREO balance by $2.6 million during the fourth quarter of 2008. The $113.7 million of non-performing loans classified as residential real estate and home equity, commercial, consumer, and other consumer consists of $52.7 million of residential real estate construction and land development related loans, $26.6 million of commercial real estate construction and land development related loans, $16.8 million of residential real estate and home equity related loans, $11.9 million of commercial real estate related loans, $5.5 million of commercial related loans, and $223,000 of consumer related loans. Thirteen of these relationships exceed $2.5 million in outstanding balances, approximating $82.5 million of the $113.7 million in total outstanding balances. 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. The provision for credit losses totaled $14.5 million for the fourth quarter of 2008 compared to $24.1 million for the third quarter of 2008 and $6.2 million in the fourth quarter of 2007. Net charge-offs for the fourth quarter totaled 53 basis points on an annualized basis compared to 28 basis points on an annualized basis in the fourth quarter of 2007 and 84 basis points on an annualized basis in the third quarter of 2008. The provision for credit losses in the fourth quarter and year-ended December 31, 2008 reflects the Company's current net charge-offs and credit quality levels. On a year- to-date basis, net-charge-offs as a percentage of average loans for the year ended December 31, 2008 were 51 basis points, compared to 16 basis points on an annualized basis in the same period of 2007. The provision for credit losses totaled $57.4 million for the year ended December 31, 2008 compared to $14.9 million in the same period of 2007. WINTRUST FINANCIAL CORPORATION SELECTED FINANCIAL HIGHLIGHTS Three Months Ended Year Ended (Dollars in thousands, December 31, December 31, except per share data) 2008 2007 2008 2007 Selected Financial Condition Data (at end of period): Total assets $10,658,326 $9,368,859 Total loans 7,621,069 6,801,602 Total deposits 8,376,750 7,471,441 Junior subordinated debentures 249,515 249,662 Total shareholders' equity 1,066,572 739,555 Selected Statements of Income Data: Net interest income $62,745 $65,438 $244,567 $261,550 Net revenue (1) 81,860 93,406 343,161 341,638 Income before taxes 2,727 23,623 30,641 83,824 Net income 1,955 15,643 20,488 55,653 Net income per common share - Basic 0.02 0.67 0.78 2.31 Net income per common share - Diluted 0.02 0.65 0.76 2.24 Selected Financial Ratios and Other Data: Performance Ratios: Net interest margin (6) 2.78% 3.08% 2.81% 3.11% Core net interest margin (2) (6) 3.06 3.37 3.10 3.38 Non-interest income to average assets 0.76 1.17 1.01 0.85 Non-interest expense to average assets 2.56 2.66 2.62 2.57 Net overhead ratio (3) 1.80 1.49 1.60 1.72 Efficiency ratio (4) (6) 75.14 69.44 72.92 71.06 Return on average assets 0.08 0.65 0.21 0.59 Return on average common equity 0.22 8.56 2.44 7.64 Average total assets $10,060,206 $9,497,111 $9,753,220 $9,442,277 Average total shareholders' equity 846,982 725,145 779,437 727,972 Average loans to average deposits ratio 93.5% 93.1% 94.3% 90.1% Common Share Data at end of period: Market price per common share $20.57 $33.13 Book value per common share $33.03 $31.56 Common shares outstanding 23,756,674 23,430,490 Other Data at end of period: Allowance for credit losses (5) $71,352 $50,882 Non-performing loans $136,094 $71,854 Allowance for credit losses to total loans (5) 0.94% 0.75% Non-performing loans to total loans 1.79% 1.06% Number of: Bank subsidiaries 15 15 Non-bank subsidiaries 7 8 Banking offices 79 77 (1) Net revenue is net interest income plus non-interest income. (2) The core net interest margin excludes the effect of the net interest expense associated with Wintrust's junior subordinated debentures and the interest expense incurred to fund common stock repurchases. (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 total average 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) The allowance for credit losses includes both the allowance for loan losses and the allowance for lending-related commitments. (6) See "Supplemental Financial Measures/Ratios" for additional information on this performance measure/ratio. WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (Unaudited) (Unaudited) December September December 31, 30, 31, (In thousands) 2008 2008 2007 Assets Cash and due from banks $219,794 $158,201 $170,190 Federal funds sold and securities purchased under resale agreements 226,110 35,181 90,964 Interest bearing deposits with banks 123,009 4,686 10,410 Available-for-sale securities, at fair value 784,673 1,469,500 1,303,837 Trading account securities 4,399 2,243 1,571 Brokerage customer receivables 17,901 19,436 24,206 Mortgage loans held-for-sale 61,116 68,398 109,552 Loans, net of unearned income 7,621,069 7,322,545 6,801,602 Less: Allowance for loan losses 69,767 66,327 50,389 Net loans 7,551,302 7,256,218 6,751,213 Premises and equipment, net 349,875 349,388 339,297 Accrued interest receivable and other assets 240,664 209,970 189,462 Trade date securities receivable 788,565 - 84,216 Goodwill 276,310 276,310 276,204 Other intangible assets 14,608 15,389 17,737 Total assets $10,658,326 $9,864,920 $9,368,859 Liabilities and Shareholders' Equity Deposits: Non-interest bearing $757,844 $717,587 $664,264 Interest bearing 7,618,906 7,111,940 6,807,177 Total deposits 8,376,750 7,829,527 7,471,441 Notes payable 1,000 42,025 60,700 Federal Home Loan Bank advances 435,981 438,983 415,183 Other borrowings 336,764 296,391 254,434 Subordinated notes 70,000 75,000 75,000 Junior subordinated debentures 249,515 249,537 249,662 Trade date securities payable - 2,000 - Accrued interest payable and other liabilities 121,744 122,126 102,884 Total liabilities 9,591,754 9,055,589 8,629,304 Shareholders' equity: Preferred stock 281,873 49,379 - Common stock 26,611 26,548 26,281 Surplus 571,887 551,453 539,586 Treasury stock (122,290) (122,290) (122,196) Retained earnings 318,793 318,066 309,556 Accumulated other comprehensive loss (10,302) (13,825) (13,672) Total shareholders' equity 1,066,572 809,331 739,555 Total liabilities and shareholders' equity $10,658,326 $9,864,920 $9,368,859 WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended Years Ended (In thousands, December 31, December 31, except per share data) 2008 2007 2008 2007 Interest income Interest and fees on loans $107,598 $131,888 $443,849 $525,610 Interest bearing deposits with banks 125 150 340 841 Federal funds sold and securities purchased under resale agreements 30 275 1,333 3,774 Securities 17,868 18,979 68,101 79,402 Trading account securities 33 10 102 55 Brokerage customer receivables 164 415 998 1,875 Total interest income 125,818 151,717 514,723 611,557 Interest expense Interest on deposits 50,740 70,965 219,437 294,414 Interest on Federal Home Loan Bank advances 4,570 4,550 18,266 17,558 Interest on notes payable and other borrowings 2,387 4,783 10,718 13,794 Interest on subordinated notes 770 1,308 3,486 5,181 Interest on junior subordinated debentures 4,606 4,673 18,249 18,560 Total interest expense 63,073 86,279 270,156 350,007 Net interest income 62,745 65,438 244,567 261,550 Provision for credit losses 14,456 6,217 57,441 14,879 Net interest income after provision for credit losses 48,289 59,221 187,126 246,671 Non-interest income Wealth management 6,705 8,320 29,385 31,341 Mortgage banking 3,138 5,793 21,258 14,888 Service charges on deposit accounts 2,684 2,288 10,296 8,386 Gain on sales of premium finance receivables 361 1,596 2,524 2,040 Administrative services 670 965 2,941 4,006 (Losses) gains on available-for-sale securities, net (3,618) 2,834 (4,171) 2,997 Other 9,175 6,172 36,361 16,430 Total non-interest income 19,115 27,968 98,594 80,088 Non-interest expense Salaries and employee benefits 35,616 36,583 145,087 141,816 Equipment 4,190 4,034 16,215 15,363 Occupancy, net 5,947 5,902 22,918 21,987 Data processing 3,007 2,721 11,573 10,420 Advertising and marketing 1,642 1,212 5,351 5,318 Professional fees 2,334 2,045 8,824 7,090 Amortization of other intangible assets 781 964 3,129 3,861 Other 11,160 10,105 41,982 37,080 Total non-interest expense 64,677 63,566 255,079 242,935 Income before taxes 2,727 23,623 30,641 83,824 Income tax expense 772 7,980 10,153 28,171 Net income $1,955 $15,643 $20,488 $55,653 Dividends on preferred shares 1,532 - 2,076 - Net income applicable to common shares $423 $15,643 $18,412 $55,653 Net income per common share - Basic $0.02 $0.67 $0.78 $2.31 Net income per common share - Diluted $0.02 $0.65 $0.76 $2.24 Cash dividends declared per common share $- $- $0.36 $0.32 Weighted average common shares outstanding 23,726 23,471 23,624 24,107 Dilutive potential common shares 447 699 507 781 Average common shares and dilutive common shares 24,173 24,170 24,131 24,888 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), core net interest margin 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. Management also evaluates the net interest margin excluding the net interest expense associated with the Company's junior subordinated debentures and the interest expense incurred to fund common stock repurchases ("Core Net Interest Margin"). Because junior subordinated debentures are utilized by the Company primarily as capital instruments and the cost incurred to fund common stock repurchases is capital utilization related, management finds it useful to view the net interest margin excluding these expenses and deems it to be a more meaningful view of the operational net interest margin of the Company. 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: Three Months Ended Years Ended December 31, December 31, (Dollars in thousands) 2008 2007 2008 2007 (A) Interest income (GAAP) $125,818 $151,717 $514,723 $611,557 Taxable-equivalent adjustment: - Loans 146 208 645 826 - Liquidity management assets 432 754 1,795 2,388 - Other earning assets 17 2 47 13 Interest income - FTE $126,413 $152,681 $517,210 $614,784 (B) Interest expense (GAAP) 63,073 86,279 270,156 350,007 Net interest income - FTE $63,340 $66,402 $247,054 $264,777 (C) Net interest income (GAAP) (A minus B) $62,745 $65,438 $244,567 $261,550 Net interest income - FTE $63,340 $66,402 $247,054 $264,777 Add: Net interest expense on junior subordinated debentures and interest cost incurred for common stock repurchases (1) 6,518 6,257 25,418 23,170 Core net interest income - FTE (2) $69,858 $72,659 $272,472 $287,947 (D) Net interest margin (GAAP) 2.75% 3.03% 2.78% 3.07% Net interest margin - FTE 2.78% 3.08% 2.81% 3.11% Core net interest margin - FTE (2) 3.06% 3.37% 3.10% 3.38% (E) Efficiency ratio (GAAP) 75.67% 70.18% 73.44% 71.74% Efficiency ratio - FTE 75.14% 69.44% 72.92% 71.06% (1) Interest expense from the junior subordinated debentures is net of the interest income on the Common Securities owned by the Trusts and included in interest income. Interest cost incurred for common stock repurchases is estimated using current period average rates on certain debt obligations. (2) Core net interest income and core net interest margin are by definition a non-GAAP measure/ratio. The GAAP equivalents are the net interest income and net interest margin determined in accordance with GAAP (lines C and D in the table). LOANS, NET OF UNEARNED INCOME % Growth From From December September December September December (Dollars 31, 30, 31, 30, 31, in thousands) 2008 2008 2007 2008(1) 2007 Balance: Commercial and commercial real estate $4,778,664 $4,673,682 $4,408,661 9% 8% Home equity 896,438 837,127 678,298 28 32 Residential real estate 262,908 247,203 226,686 25 16 Premium finance receivables 1,346,586 1,205,376 1,078,185 47 25 Indirect consumer loans(2) 175,955 199,845 241,393 (48) Tricom finance receivables 17,320 16,924 27,719 9 (38) Other loans 143,198 142,388 140,660 2 2 Total loans, net of unearned income $7,621,069 $7,322,545 $6,801,602 16% 12% Mix: Commercial and commercial real estate 63% 64% 65% Home equity 12 11 10 Residential real estate 3 4 3 Premium finance receivables 18 17 16 Indirect consumer loans(2) 2 3 4 Tricom finance receivables - - - Other loans 2 1 2 Total loans, net of unearned income 100% 100% 100% (1) Annualized (2) Includes autos, boats, snowmobiles and other indirect consumer loans. DEPOSITS % Growth From From December September December September December 31, 30, 31, 30, 31, (Dollars in thousands) 2008 2008 2007 2008(1) 2007 Balance: Non-interest bearing $757,844 $717,587 $664,264 22% 14% NOW 1,040,105 1,012,393 1,014,780 11 2 Wealth Management deposits(2) 716,178 583,715 599,426 90 19 Money market 1,124,068 997,638 701,972 50 60 Savings 337,808 317,108 297,586 26 14 Time certificates of deposit 4,400,747 4,201,086 4,193,413 19 5 Total deposits $8,376,750 $7,829,527 $7,471,441 28% 12% Mix: Non-interest bearing 9% 9% 9% NOW 12 13 14 Wealth Management deposits (2) 9 7 8 Money market 13 13 9 Savings 4 4 4 Time certificates of deposit 53 54 56 Total deposits 100% 100% 100% (1) Annualized (2) Represents deposit balances at the Company's subsidiary banks from brokerage customers of Wayne Hummer Investments, trust and asset management customers of Wayne Hummer Trust Company and brokerage customers from an unaffiliated company. 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 2008 compared to the fourth quarter of 2007 (linked quarters): For the Three Months Ended For the Three Months Ended (Dollars December 31, 2008 December 31, 2007 in thousands) Average Interest Rate Average Interest Rate Liquidity management assets (1)(2)(8) $1,607,707 $18,455 4.57% $1,552,675 $20,158 5.15% Other earning assets (2)(3)(8) 21,630 214 3.94 23,875 427 7.09 Loans, net of unearned income (2)(4)(8) 7,455,418 107,744 5.75 6,985,850 132,096 7.50 Total earning assets(8) $9,084,755 $126,413 5.54% $8,562,400 $152,681 7.07% Allowance for loan losses (67,342) (50,190) Cash and due from banks 127,700 131,240 Other assets 915,093 853,661 Total assets $10,060,206 $9,497,111 Interest- bearing deposits $7,271,505 $50,740 2.78% $6,845,466 $70,965 4.11% Federal Home Loan Bank advances 439,432 4,570 4.14 411,480 4,550 4.39 Notes payable and other borrowings 379,914 2,387 2.50 433,983 4,783 4.37 Subordinated notes 73,364 770 4.11 75,000 1,308 6.82 Junior subordinated debentures 249,520 4,606 7.22 249,677 4,673 7.32 Total interest- bearing liabilities $8,413,735 $63,073 2.98% $8,015,606 $86,279 4.27% Non-interest bearing deposits 705,616 657,029 Other liabilities 93,873 99,331 Equity 846,982 725,145 Total liabilities and shareholders' equity $10,060,206 $9,497,111 Interest rate spread (5)(8) 2.56% 2.80% Net free funds/ contribution(6) $671,020 0.22 $546,794 0.28 Net interest income/Net interest margin (8) $63,340 2.78% $66,402 3.08% Core net interest margin (7)(8) 3.06% 3.37% (1) Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements. (2) Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended December 31, 2008 and 2007 were $594,000 and $964,000, respectively. (3) Other earning assets include brokerage customer receivables and trading account securities. (4) Loans, net of unearned income, include mortgages held-for-sale and non-accrual loans. (5) Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities. (6) Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities. (7) The core net interest margin excludes the effect of the net interest expense associated with Wintrust's junior subordinated debentures and the interest expense incurred to fund any common stock repurchases. (8) See "Supplemental Financial Measures/Ratios" for additional information on this performance measure/ratio. Net interest income, which is the difference between interest income and fees on earning assets and interest expense on deposits and borrowings, is the major source of earnings for Wintrust. Tax-equivalent net interest income for the quarter ended December 31, 2008 totaled $63.3 million, a decrease of $3.1 million, or 5%, as compared to the $66.4 million recorded in the same quarter of 2007. Net interest margin represents tax-equivalent net interest income as a percentage of the average earning assets during the period. For the fourth quarter of 2008, the net interest margin was 2.78%, down 30 basis points when compared to the fourth quarter of 2007. The core net interest margin, which excludes the net interest expense related to Wintrust's junior subordinated debentures and the interest expense related to any common stock repurchases, was 3.06% for the fourth quarter of 2008 and 3.37% for the fourth quarter of 2007. The yield on total earning assets for the fourth quarter of 2008 was 5.54% as compared to 7.07% in the fourth quarter of 2007. The fourth quarter 2008 yield on loans was 5.75%, a 175 basis point decrease when compared to the prior year fourth quarter yield of 7.50%. The liquidity management assets yield in the fourth quarter of 2008 was 4.57% compared to 5.15% in the fourth quarter of 2007. The rate paid on interest-bearing liabilities decreased to 2.98% in the fourth quarter of 2008 as compared to 4.27% in the fourth quarter of 2007. The cost of interest-bearing deposits decreased in the fourth quarter of 2008 to 2.78% compared to 4.11% in the fourth quarter of 2007. The rate paid on wholesale funding, consisting of Federal Home Loan Bank of Chicago advances, notes payable, subordinated notes, other borrowings and junior subordinated debentures, decreased to 4.26% in the fourth quarter of 2008 compared to 5.16% in the fourth quarter of 2007. The Company utilizes certain borrowing sources to fund the additional capital requirements of the subsidiary banks, manage its capital, manage its interest rate risk position and for general corporate purposes. The lower levels of net interest income and net interest margin in the fourth quarter of 2008 were caused by margin compression throughout 2008. Interest rate compression on large portions of NOW, savings and money market accounts as the Federal Reserve quickly lowered rates prevented these deposits from repricing at the same magnitude as variable rate earning assets. Management believes opportunities during 2009 for increasing spreads in the loan portfolio should help offset the effects of interest rate spread compression on variable rate retail deposits and the unprecedented competitive retail deposit pricing given the current economic conditions that have hindered net interest margin expansion. The average loan-to-average deposit ratio increased to 93.5% in the fourth quarter of 2008 from 93.1% in the fourth quarter of 2007. 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 2008 compared to the third quarter of 2008 (sequential quarters): For the Three Months Ended For the Three Months Ended (Dollars December 31, 2008 September 30, 2008 in thousands) Average Interest Rate Average Interest Rate Liquidity management assets (1)(2)(8) $1,607,707 $18,455 4.57% $1,544,465 $18,247 4.70% Other earning assets (2)(3)(8) 21,630 214 3.94 21,687 262 4.81 Loans, net of unearned income (2)(4)(8) 7,455,418 107,744 5.75 7,343,845 108,637 5.89 Total earning assets (8) $9,084,755 $126,413 5.54% $8,909,997 $127,146 5.68% Allowance for loan losses (67,342) (57,751) Cash and due from banks 127,700 133,527 Other assets 915,093 895,781 Total assets $10,060,206 $9,881,554 Interest- bearing deposits $7,271,505 $50,740 2.78% $7,127,065 $53,405 2.98% Federal Home Loan Bank advances 439,432 4,570 4.14 438,983 4,583 4.15 Notes payable and other borrowings 379,914 2,387 2.50 398,911 2,661 2.65 Subordinated notes 73,364 770 4.11 75,000 786 4.10 Junior subordinated debentures 249,520 4,606 7.22 249,552 4,454 6.98 Total interest- bearing liabilities $8,413,735 $63,073 2.98% $8,289,511 $65,889 3.16% Non-interest bearing deposits 705,616 678,651 Other liabilities 93,873 147,500 Equity 846,982 765,892 Total liabilities and shareholders' equity $10,060,206 $9,881,554 Interest rate spread (5)(8) 2.56% 2.52% Net free funds/ contribution(6) $671,020 0.22 $620,486 0.22 Net interest income/Net interest margin (8) $63,340 2.78% $61,257 2.74% Core net interest margin (7)(8) 3.06% 2.97% (1) Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements. (2) Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended December 31, 2008 was $594,000 and for the three months ended September 30, 2008 was $576,000. (3) Other earning assets include brokerage customer receivables and trading account securities. (4) Loans, net of unearned income, include mortgages held-for-sale and non-accrual loans. (5) Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities. (6) Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities. (7) The core net interest margin excludes the effect of the net interest expense associated with Wintrust's junior subordinated debentures and the interest expense incurred to fund any common stock repurchases. (8) See "Supplemental Financial Measures/Ratios" for additional information on this performance measure/ratio. Net interest income, which is the difference between interest income and fees on earning assets and interest expense on deposits and borrowings, is the major source of earnings for Wintrust. Tax-equivalent net interest income for the quarter ended December 31, 2008 totaled $63.3 million, an increase of $2.1 million, or 3%, as compared to the $61.3 million recorded in the third quarter of 2008. Net interest margin represents tax-equivalent net interest income as a percentage of the average earning assets during the period. For the fourth quarter of 2008, the net interest margin was 2.78%, an increase of four basis points when compared to the third quarter of 2008. The core net interest margin, which excludes the net interest expense related to Wintrust's junior subordinated debentures and the interest expense related to the common stock repurchases, was 3.06% for the fourth quarter of 2008 and 2.97% for the third quarter of 2008. The yield on total earning assets for the fourth quarter of 2008 was 5.54% as compared to 5.68% in the third quarter of 2008. The fourth quarter 2008 yield on loans was 5.75%, a 14 basis point decrease when compared to the third quarter 2008 yield of 5.89%. The liquidity management assets yield in the fourth quarter of 2008 was 4.57% compared to 4.70% in the third quarter of 2008. The rate paid on interest-bearing liabilities decreased to 2.98% in the fourth quarter of 2008 as compared to 3.16% in the third quarter of 2008. The cost of interest-bearing deposits decreased in the fourth quarter of 2008 to 2.78% compared to 2.98% in the third quarter of 2008. The rate paid on wholesale funding, consisting of Federal Home Loan Bank of Chicago advances, notes payable, subordinated notes, other borrowings and junior subordinated debentures, increased to 4.26% in the fourth quarter of 2008 compared to 4.24% in the third quarter of 2008. The Company utilizes certain borrowing sources to fund the additional capital requirements of the subsidiary banks, manage its capital, manage its interest rate risk position and for general corporate purposes. The higher level of net interest income recorded in the fourth quarter of 2008 compared to the third quarter of 2008 was attributable to increased spreads on new loan volumes and the ability to raise interest-bearing deposits at more reasonable rates. Average earning asset growth of $175 million in the fourth quarter of 2008 compared to the third quarter of 2008 was comprised of $112 million of loan growth and $63 million of liquid management asset growth. This growth was primarily funded by a $144 million increase in the average balances of interest-bearing liabilities and an increase in the average balance of net free funds of $51 million. The average loan-to-average deposit ratio was 93.5% in the fourth quarter of 2008 compared to 94.1% in the third quarter of 2008. The following table presents a summary of Wintrust's average balances, net interest income and related net interest margins on a year-to-date basis, calculated on a fully tax-equivalent basis, for the year ended December 31, 2008 compared to the year ended December 31, 2007: Year Ended Year Ended (Dollars December 31, 2008 December 31, 2007 in thousands) Average Interest Rate Average Interest Rate Liquidity management assets (1)(2)(8) $1,532,282 $71,569 4.67% $1,674,719 $86,405 5.16% Other earning assets (2)(3)(8) 23,052 1,147 4.98 24,721 1,943 7.86 Loans, net of unearned income (2)(4)(8) 7,245,609 444,494 6.13 6,824,880 526,436 7.71 Total earning assets (8) $8,800,943 $517,210 5.88% $8,524,320 $614,784 7.21% Allowance for loan losses (57,656) (48,605) Cash and due from banks 117,923 131,271 Other assets 892,010 835,291 Total assets $9,753,220 $9,442,277 Interest- bearing deposits $7,014,217 $219,437 3.13% $6,927,936 $294,914 4.26% Federal Home Loan Bank advances 435,761 18,266 4.19 400,552 17,558 4.38 Notes payable and other borrowings 387,377 10,718 2.77 318,540 13,794 4.33 Subordinated notes 74,589 3,486 4.60 75,000 5,181 6.81 Junior subordinated debentures 249,575 18,249 7.19 249,739 18,560 7.33 Total interest- bearing liabilities $8,161,519 $270,156 3.31% $7,971,767 $350,007 4.39% Non-interest bearing deposits 672,924 647,715 Other liabilities 139,340 94,823 Equity 779,437 727,972 Total liabilities and shareholders' equity $9,753,220 $9,442,277 Interest rate spread (5)(8) 2.57% 2.82% Net free funds/ contribution (6) $639,424 0.24 $552,553 0.29 Net interest income/Net interest margin (8) $247,054 2.81% $264,777 3.11% Core net interest margin (7)(8) 3.10% 3.38% (1) Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements. (2) Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the years ended December 31, 2008 and 2007 were $2.5 million and $3.2 million, respectively. (3) Other earning assets include brokerage customer receivables and trading account securities. (4) Loans, net of unearned income, include mortgages held-for-sale and non-accrual loans. (5) Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities. (6) Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities. (7) The core net interest margin excludes the effect of the net interest expense associated with Wintrust's junior subordinated debentures and the interest expense incurred to fund any common stock repurchases. (8) See "Supplemental Financial Measures/Ratios" for additional information on this performance measure/ratio. Tax-equivalent net interest income for the year ended December 31, 2008 totaled $247.1 million, a decrease of $17.7 million, or 7%, as compared to the $264.8 million recorded in the same period of 2007. Net interest margin represents tax-equivalent net interest income as a percentage of the average earning assets during the period. For the year ended December 31, 2008, the net interest margin was 2.81%, down 30 basis points when compared to the year ended December 31, 2007. The core net interest margin, which excludes the net interest expense related to Wintrust's junior subordinated debentures and the interest expense related to the common stock repurchases, was 3.10% for the year ended December 31, 2008 and 3.38% for the year ended December 31, 2007. The yield on total earning assets for the year ended December 31, 2008 was 5.88% as compared to 7.21% in the year ended December 31, 2007. The year ended December 31, 2008 yield on loans was 6.13%, a 158 basis point decrease when compared to 7.71% for the same period in 2007. The liquidity management assets yield in the year ended December 31, 2008 was 4.67% compared to 5.16% in the year ended December 31, 2007. The rate paid on interest-bearing liabilities decreased to 3.31% in the year ended December 31, 2008 as compared to 4.39% in the year ended December 31, 2007. The cost of interest-bearing deposits decreased in the year ended December 31, 2008 to 3.13% compared to 4.26% in the year ended December 31, 2007. The rate paid on wholesale funding, consisting of Federal Home Loan Bank of Chicago advances, notes payable, subordinated notes, other borrowings and junior subordinated debentures, decreased to 4.39% in the year ended December 31, 2008 compared to 5.25% in the year ended December 31, 2007. The Company utilizes certain borrowing sources to fund the additional capital requirements of the subsidiary banks, manage its capital, manage its interest rate risk position and for general corporate purposes. The lower levels of net interest income and net interest margin in the year ended December 31, 2008 were caused by margin compression. During the year ended December 31, 2008, the cost of interest-bearing deposits declined 113 basis points while the yield on total loans decreased 158 basis points. This interest-rate spread compression combined with a five basis point reduction in the contribution from net free funds contributed to the 30 basis point decline in net interest margin. Year-to-date average loan growth of $421 million in 2008 compared to 2007 was funded by a $355 million increase in the year-to-date average balances of Savings, NOW, MMA and Wealth Management deposits, an increase in the year-to-date average balance of wholesale borrowings (primarily repurchase agreements) of $103 million, an increase in the year-to-date average balance of net free funds of $87 million, reduced year-to-date average balances of liquidity management assets and other earning assets of $144 million, offset by decreases in the year-to-date average balance of retail certificates of deposit of $275 million and brokered certificates of deposit of $11 million. NON-INTEREST INCOME For the fourth quarter of 2008, non-interest income totaled $19.1 million, a decrease of $8.9 million compared to the fourth quarter of 2007. The decrease was primarily attributable to losses on available-for-sale securities, mortgage banking revenue, wealth management revenue, lower gains on sales of premium finance receivables and lower revenue from BOLI. Offsetting these decreases were higher levels of fees from covered call options. On a year-to-date basis, non-interest income in 2008 totaled $98.6 million and increased $18.5 million compared to the same period in 2007. The increase was primarily attributable to higher levels of fees from covered call options, mortgage banking revenue and service charges on deposit accounts. Offsetting these increases were losses on available-for-sale securities, lower levels of wealth management revenue, lower gains on sales of premium finance receivables and lower revenue from BOLI. The following table presents non-interest income by category for the periods presented: Three Months Ended December 31, $ % (Dollars in thousands) 2008 2007 Change Change Brokerage $4,310 $5,464 (1,154) (21) Trust and asset management 2,395 2,856 (461) (16) Total wealth management 6,705 8,320 (1,615) (19) Mortgage banking 3,138 5,793 (2,655) (46) Service charges on deposit accounts 2,684 2,288 396 17 Gain on sales of premium finance receivables 361 1,596 (1,235) (77) Administrative services 670 965 (295) (31) (Losses) gains on available-for-sale securities, net (3,618) 2,834 (6,452) (228) Other: Fees from covered call options 7,438 1,693 5,745 339 Bank Owned Life Insurance (319) 903 (1,222) (135) Miscellaneous 2,056 3,576 (1,520) (43) Total other 9,175 6,172 3,003 49 Total non-interest income $19,115 $27,968 (8,853) (32) Years Ended December 31, $ % (Dollars in thousands) 2008 2007 Change Change Brokerage $18,649 $20,346 (1,697) (8) Trust and asset management 10,736 10,995 (259) (2) Total wealth management 29,385 31,341 (1,956) (6) Mortgage banking 21,258 14,888 6,370 43 Service charges on deposit accounts 10,296 8,386 1,910 23 Gain on sales of premium finance receivables 2,524 2,040 484 24 Administrative services 2,941 4,006 (1,065) (27) (Losses) gains on available-for-sale securities, net (4,171) 2,997 (7,168) (239) Other: Fees from covered call options 29,024 2,628 26,396 1,004 Bank Owned Life Insurance 1,622 4,909 (3,287) (67) Miscellaneous 5,715 8,893 (3,178) (36) Total other 36,361 16,430 19,931 121 Total non-interest income $98,594 $80,088 18,506 23 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 totaled $6.7 million in the fourth quarter of 2008 and $8.3 million in the fourth quarter of 2007. Decreased asset valuations due to the recent equity market declines have hindered the revenue growth from trust and asset management activities. Continued uncertainties surrounding the equity markets overall have slowed the growth of the brokerage component of wealth management revenue. 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, 2008, this revenue source totaled $3.1 million, a decrease of $2.7 million when compared to the fourth quarter of 2007. The decrease was primarily attributable to $1.4 million from changes in the fair market value of mortgage servicing rights, valuation fluctuations of mortgage banking derivatives and fair value accounting for certain residential mortgage loans held for sale. Additionally, the fourth quarter of 2007 included the reversal of $1.3 million in estimated losses related to recourse obligations on residential mortgage loans sold to investors previously recorded. On a year-to-date basis, mortgage banking increased $6.4 million over 2007 levels, which were hampered by mortgage banking valuation and recourse obligation adjustments for estimated losses related to recourse obligations on residential mortgage loans sold to investors totaling $6.0 million for the year. Future growth of mortgage banking is impacted by the interest rate environment and current residential housing conditions and will continue to be dependent upon both. A continuation of the existing depressed residential real estate environment may hamper mortgage banking production growth. Service charges on deposit accounts totaled $2.7 million for the fourth quarter of 2008, an increase of $396,000, or 17%, when compared to the same quarter of 2007. 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. Wintrust did not sell any premium finance receivables in the fourth quarter of 2008 but recognized $361,000 of gains in the fourth quarter of 2008 on clean-up calls of previous sales. Wintrust sold $230 million of premium finance receivables in the fourth quarter of 2007, recognizing $1.6 million of net gains. Sales of these receivables in future quarters are dependent upon an improvement in the market conditions impacting both sales of these loans and the opportunity for securitizing these loans as well as liquidity and capital management considerations. On a year-to-date basis, Wintrust sold $218 million of premium finance receivables in 2008 compared to $230 million in 2007. The administrative services revenue contributed by Tricom added $670,000 to total non-interest income in the fourth quarter of 2008 and $1.0 million in the fourth quarter of 2007. This revenue comprises income from administrative services, such as data processing of payrolls, billing and cash management services, to temporary staffing service clients located throughout the United States. Tricom also earns interest and fee income from providing high- yielding, short-term accounts receivable financing to this same client base, which is included in the net interest income category. Growth of this revenue source continues to be hampered by competitive pricing and the current economic conditions. Wintrust recognized $3.6 million of net losses on available-for-sale securities in the fourth quarter of 2008 compared to net gains of $2.8 million in the fourth quarter of 2007. In the fourth quarter of 2008, Wintrust recognized $3.9 million of non-cash other-than-temporary impairment charges on certain corporate debt investment securities. Gains on available-for-sale securities in the fourth quarter of 2007 were comprised mainly of a $2.5 million gain recognized on Wintrust's investment in an unaffiliated bank holding company that was acquired by another bank holding company. On a year- to-date basis, Wintrust recognized $4.2 million of net losses on available- for-sale securities in 2008 compared to net gains of $3.0 million in 2007. In 2008, Wintrust recognized $8.2 million of non-cash other-than-temporary impairment charges on certain corporate debt investment securities. Other non-interest income for the fourth quarter of 2008 totaled $9.2 million compared to $6.2 million in the fourth quarter of 2007. The largest components of the increase in other income were fees from certain covered call option transactions increasing $5.7 million in the fourth quarter of 2008 compared the same period of 2007. The decrease in BOLI income in the fourth quarter of 2008 compared to the fourth quarter of 2007 is related to lower yields on policy investments. On a year-to-date basis, other non-interest income in 2008 totaled $36.4 million, compared to $16.4 million in the same period of 2007. The largest component of the year-to-date increase, fees from covered call options, increased $26.4 million compared to 2007. During 2008, compression in the net interest margin was effectively offset, as has consistently been the case, by the Company's covered call strategy. Management has been able to effectively use the proceeds from selling covered call options to offset net interest margin compression and administers such sales in a coordinated process with the Company's overall asset/liability management. The covered call option contracts are written against certain U.S. Treasury and agency securities held in the Company's portfolio for liquidity and other purposes. 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).") BOLI income decreased $3.3 million in 2008 compared to 2007 as a result of lower yields on policy investments in 2008. Additionally, in the third quarter of 2007, Wintrust received a non-taxable $1.4 million death benefit payment. The Company originally purchased BOLI to consolidate existing term life insurance contracts of executive officers and to mitigate the mortality risk associated with death benefits provided for in executive employment contracts and later in connection with certain deferred compensation arrangements. Miscellaneous revenue has decreased in 2008 primarily as a result of $1.2 million of net losses recorded on certain equity based limited partnership investments. NON-INTEREST EXPENSE Non-interest expense for the fourth quarter of 2008 totaled $64.7 million and increased approximately $1.1 million, or 2%, from the fourth quarter 2007 total of $63.6 million. On a year-to-date basis, non-interest expense totaled $255.1 million and increased $12.1 million, or 5%, compared to the same period in 2007. The following table presents non-interest expense by category for the periods presented: Three Months Ended December 31, $ % (Dollars in thousands) 2008 2007 Change Change Salaries and employee benefits $35,616 $36,583 (967) (3) Equipment 4,190 4,034 156 4 Occupancy, net 5,947 5,902 45 1 Data processing 3,007 2,721 286 11 Advertising and marketing 1,642 1,212 430 35 Professional fees 2,334 2,045 289 14 Amortization of other intangible assets 781 964 (183) (19) Other: Commissions - 3rd party brokers 802 905 (103) (11) Postage 1,012 1,074 (62) (6) Stationery and supplies 757 849 (92) (11) FDIC insurance 1,681 1,257 424 34 Miscellaneous 6,908 6,020 888 15 Total other 11,160 10,105 1,055 10 Total non-interest expense $64,677 $63,566 1,111 2 Years Ended December 31, $ % (Dollars in thousands) 2008 2007 Change Change Salaries and employee benefits $145,087 $141,816 3,271 2 Equipment 16,215 15,363 852 6 Occupancy, net 22,918 21,987 931 4 Data processing 11,573 10,420 1,153 11 Advertising and marketing 5,351 5,318 33 1 Professional fees 8,824 7,090 1,734 24 Amortization of other intangible assets 3,129 3,861 (732) (19) Other: Commissions - 3rd party brokers 3,769 3,854 (85) (2) Postage 4,120 3,841 279 7 Stationery and supplies 3,005 3,159 (154) (5) FDIC Insurance 5,600 3,713 1,887 51 Miscellaneous 25,488 22,513 2,975 13 Total other 41,982 37,080 4,902 13 Total non-interest expense $255,079 $242,935 12,144 5 Salaries and employee benefits comprised 55% and 58% of total non-interest expense in the fourth quarter of 2008 and 2007, respectively, while they were 57% and 58% of total non-interest expense for 2008 and 2007, respectively. Salaries and employee benefits expense decreased $967,000, or 3%, in the fourth quarter of 2008 compared to the fourth quarter of 2007 primarily as a result of lower commission and incentive compensation expenses. On a year-to- date basis, salaries and employee benefits expense increased $3.3 million, or 2%, in 2008 compared to 2007 primarily from increases in base compensation. Equipment, occupancy and data processing have all been directly impacted by the additional and expanded banking locations in the past 12 months. The combined equipment, occupancy and data processing expense for the fourth quarter of 2008 was $13.1 million, an increase of $487,000, or 4%, compared to the same period of 2007. On a year-to-date basis, the combined equipment, occupancy and data processing expense was $50.7 million in 2008, an increase of $2.9 million, or 6%, compared to the same period of 2007. Professional fees include legal, audit and tax fees, external loan review costs and normal regulatory exam assessments. Professional fees for the fourth quarter of 2008 were $2.3 million, an increase of $289,000, or 14%, compared to the same period of 2007. On a year-to-date basis, professional fees were $8.8 million, an increase of $1.7 million, or 24%, compared to the same period of 2007. These increases are primarily a result of increased legal costs related to non-performing loans. FDIC insurance totaled $1.7 million in the fourth quarter of 2008, an increase of $424,000, or 34%, compared to $1.3 million in the fourth quarter of 2007. On a year-to-date basis, FDIC insurance totaled $5.6 million, an increase of $1.9 million, or 51%, compared to the same period of 2007. The significant increase in 2008 is a result of a higher rate structure imposed on all financial institutions beginning in 2007. The subsidiary banks, like most banks, received credits for overcharges by the FDIC in past years, effectively reducing their premiums in 2007. Miscellaneous expense includes expenses such as ATM expenses, other real estate owned ("OREO") expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance and dues and subscriptions. Miscellaneous expenses in the fourth quarter of 2008 increased $888,000, or 15%, compared to the same period in the prior year primarily due to a $324,000 increase in net loan expenses and a $314,000 increase in OREO expenses. On a year-to-date basis, miscellaneous expenses increased $3.0 million, or 13%, primarily due to an $829,000 increase in OREO expenses and a $1.7 million increase in net loan expenses due to the adoption of FAS 159 on January 1, 2008 for Mortgages Held for Sale originated by the Company's mortgage subsidiary. Origination costs are no longer deferred on mortgage loans originated for sale at this subsidiary with the impact being higher current operating expenses (as reflected in the miscellaneous expense component) offset by higher levels of gains recognized on the sale of the loans to the end investors (due to the lower cost basis of the loan). ASSET QUALITY Allowance for Credit Losses Three Months Ended Years Ended December 31, December 31, (Dollars in thousands) 2008 2007 2008 2007 Allowance for loan losses at beginning of period $66,327 $48,757 $50,389 $46,055 Provision for credit losses 14,456 6,217 57,441 14,879 Allowance acquired in business combinations - 362 - 362 Reclassification to allowance for lending-related commitments (1,093) (36) (1,093) (36) Charge-offs: Commercial and commercial real estate loans 7,539 4,029 30,469 8,958 Home equity loans 231 156 284 289 Residential real estate loans 627 - 1,631 147 Consumer and other loans 130 130 474 593 Premium finance receivables 1,275 665 4,073 2,425 Indirect consumer loans 501 346 1,322 873 Tricom finance receivables 27 100 144 252 Total charge-offs 10,330 5,426 38,397 13,537 Recoveries: Commercial and commercial real estate loans 211 234 496 1,732 Home equity loans 1 1 1 61 Residential real estate loans - 6 - 6 Consumer and other loans 13 78 95 178 Premium finance receivables 144 148 662 514 Indirect consumer loans 38 48 173 172 Tricom finance receivables - - - 3 Total recoveries 407 515 1,427 2,666 Net charge-offs (9,923) (4,911) (36,970) (10,871) Allowance for loan losses at period end $69,767 $50,389 $69,767 $50,389 Allowance for lending-related commitments at period end $1,586 $493 $1,586 $493 Allowance for credit losses at period end $71,353 $50,882 $71,353 $50,882 Annualized net charge-offs by category as a percentage of its own respective category's average: Commercial and commercial real estate loans 0.62% 0.35% 0.65% 0.17% Home equity loans 0.11 0.09 0.04 0.04 Residential real estate loans 0.79 (0.01) 0.49 0.04 Consumer and other loans 0.32 0.14 0.27 0.38 Premium finance receivables 0.37 0.16 0.29 0.15 Indirect consumer loans 0.98 0.48 0.53 0.28 Tricom finance receivables 0.57 1.23 0.64 0.74 Total loans, net of unearned income 0.53% 0.28% 0.51% 0.16% Net charge-offs as a percentage of the provision for loan losses 68.64% 78.99% 64.36% 73.07% Loans at period-end $7,621,068 $6,801,602 Allowance for loan losses as a percentage of loans at period-end 0.92% 0.74% Allowance for credit losses as a percentage of loans at period-end 0.94% 0.75% 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). Non-performing Loans The following table sets forth Wintrust's non-performing loans at the dates indicated. December September December 31, 30, 31, (Dollars in thousands) 2008 2008 2007 Loans past due greater than 90 days and still accruing: Residential real estate and home equity (1) $617 $1,084 $51 Commercial, consumer and other 14,750 6,100 14,742 Premium finance receivables 9,339 5,903 8,703 Indirect consumer loans 679 877 517 Tricom finance receivables - - - Total past due greater than 90 days and still accruing 25,385 13,964 24,013 Non-accrual loans: Residential real estate and home equity (1) 6,528 6,214 3,215 Commercial, consumer and other 91,814 81,997 33,267 Premium finance receivables 11,454 10,239 10,725 Indirect consumer loans 913 627 560 Tricom finance receivables - - 74 Total non-accrual 110,709 99,077 47,841 Total non-performing loans: Residential real estate and home equity (1) 7,145 7,298 3,266 Commercial, consumer and other 106,564 88,097 48,009 Premium finance receivables 20,793 16,142 19,428 Indirect consumer loans 1,592 1,504 1,077 Tricom finance receivables - - 74 Total non-performing loans $136,094 $113,041 $71,854 Total non-performing loans by category as a percent of its own respective category's period-end balance: Residential real estate and home equity (1) 0.62% 0.67% 0.36% Commercial, consumer and other 2.17 1.83 1.06 Premium finance receivables 1.54 1.34 1.80 Indirect consumer loans 0.90 0.75 0.45 Tricom finance receivables - - 0.27 Total non-performing loans 1.79% 1.54% 1.06% Allowance for loan losses as a percentage of non-performing loans 51.26% 58.67% 70.13% (1) Non-accrual and past due greater than 90 days and still accruing residential mortgage loans held for sale are excluded from the non-performing balances presented above. These balances totaled $1.4 million as of December 31, 2008, $0 as of September 30, 2008, and $2.0 million as of December 31, 2007. Residential mortgage loans held for sale are accounted for at lower of aggregate cost or fair value, with valuation changes included as adjustments to non-interest income. The provision for credit losses totaled $14.5 million for the fourth quarter of 2008, $24.1 million in the third quarter of 2008 and $6.2 million for the fourth quarter of 2007. For the quarter ended December 31, 2008, net charge-offs totaled $9.9 million compared to $15.4 million in the third quarter of 2008 and $4.9 million recorded in the fourth quarter of 2007. On a ratio basis, annualized net charge-offs as a percentage of average loans were 0.53% in the fourth quarter of 2008, 0.84% in the third quarter of 2008, and 0.28% in the fourth quarter of 2007. On a year-to-date basis, provision for credit losses totaled $57.4 million for 2008 compared to $14.9 million in 2007. Net charge-offs totaled $37.0 million, or 0.51% of average loans in 2008, compared to $10.9 million, or 0.16% of average loans in 2007. 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. Non-performing Residential Real Estate and Home Equity The non-performing residential real estate and home equity loans totaled $7.1 million as of December 31, 2008. The balance increased $3.9 million from December 31, 2007 and decreased $153,000 from September 30, 2008. The December 31, 2008 non-performing balance is comprised of $5.7 million of residential real estate (18 individual credits) and $1.4 million of home equity loans (12 individual credits). On average, this is approximately two 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 $106.6 million as of December 31, 2008 compared to $88.1 million as of September 30, 2008 and $48.0 million as of December 31, 2007. Management is pursuing the resolution of all credits in this category. However, given the current state of the residential real estate market, resolution of certain credits could span a lengthy period of time until market conditions stabilize. At this time, management believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits. Non-performing Loan Composition The $113.7 million of non-performing loans classified as residential real estate and home equity, commercial, consumer, and other consumer consists of $52.7 million of residential real estate construction and land development related loans, $26.6 million of commercial real estate construction and land development related loans, $16.8 million of residential real estate and home equity related loans, $11.9 million of commercial real estate related loans, $5.5 million of commercial related loans and $223,000 of consumer related loans. Thirteen of these relationships exceed $2.5 million in outstanding balances, approximating $82.5 million in total outstanding balances. At this time, management believes reserves are adequate to absorb inherent losses that may occur upon the ultimate resolution of these credits. Non-performing Premium Finance Receivables The table below presents the level of non-performing premium finance receivables as of December 31, 2008 and 2007, and the amount of net charge- offs for the quarters then ended. December 31, December 31, (Dollars in thousands) 2008 2007 Non-performing premium finance receivables $20,793 $19,428 - as a percent of premium finance receivables outstanding 1.54% 1.80% Net charge-offs of premium finance receivables $1,131 $517 - annualized as a percent of average premium finance receivables 0.37% 0.16% As noted below, fluctuations in this category may occur due to timing and nature of account collections from insurance carriers. Although non- performing balances and net charge-offs in this category have increased over the past 12 months, 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 premium finance receivables. The ratio of non-performing 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 premium finance receivables it customarily takes 60-150 days to convert the collateral into cash collections. Accordingly, the level of non-performing 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. DATASOURCE: Wintrust Financial Corporation CONTACT: Edward J. Wehmer, President & Chief Executive Officer, or David A. Dykstra, Senior Executive Vice President & Chief Operating Officer, both of Wintrust Financial Corporation, +1-847-615-4096 Web site: http://www.wintrust.com/

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