(Source: PrimeNewswire)
LAKE FOREST, Ill., Oct. 27, 2009 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation ("Wintrust" or "the Company") (Nasdaq:WTFC) announced net income of $32.0 million or $1.07 per diluted common share for the quarter ended September 30, 2009. This compares with earnings of $6.5 million ($0.06 per diluted common share) for the second quarter of 2009 and a $2.4 million loss (($0.13) per diluted common share) for the third quarter of 2008.
Edward J. Wehmer, President and Chief Executive Officer, commented, "We are pleased to report both solid corporate earnings and strong progress on all strategic fronts during a very active quarter. The acquisition of the life insurance premium finance portfolio during the quarter resulted in both immediate and prospective financial gains. The securitization of a portion of our commercial premium finance loan portfolio, also completed this quarter, enhanced our regulatory capital position, our balance sheet liquidity and our earnings."
Mr. Wehmer noted, "The Company's net interest margin for the quarter increased to 3.25% from 2.91% in the second quarter and 2.74% in the third quarter of 2008 reflecting both positive results from deposit and asset re-pricing and solid balance sheet growth at reasonable and commensurate pricing levels. Fee and other income remained relatively strong while expenses, other than credit related expenses, were in line with expectations."
Commenting on credit, Mr. Wehmer said, "Wintrust recorded a provision for loan losses of $91 million to accommodate net charge-offs approximating $80 million during the quarter. In addition to these charge-offs, we also recorded approximately $10 million of expense related to write downs of other real estate owned. Approximately $29 million of the quarter's charge-offs relate to loans where specific reserves had been previously established. Approximately $12 million of the charge-offs related to either dispositions or new problem assets. The remaining $39 million related to continued downward revaluation of collateral values primarily related to real estate development. This revaluation, along with the $10 million other real-estate owned charge can be attributed to the Company's commitment to liquidate problem assets in a very aggressive manner and, more importantly, to recent changes in overall market conditions. As an increasing amount of troubled assets are being liquidated in the market as a whole, appraised values are dropping accordingly, reflecting the adverse impact of the additional supply. These reduced valuations are further supported by liquidation bids we are receiving on our problem asset portfolio. The charges taken reflect this along with our intention to dispose of problem assets on an expedited basis.
Quarter-end non-performing loans include approximately $17 million of administrative past due loans which have been made current by the borrower. Further, non-performing assets have been reduced by an additional $8 million after September 30, 2009 as of the date of this earnings release. We anticipate continued aggressive disposition of existing problem assets in the fourth quarter. Our allowance for loan losses increased to $95 million or 1.15% of total loans. Adding our reserve for unfunded lending-related commitments and credit discounts on purchased assets brings the Company's total credit reserves to $134 million or 1.62% of total loans."
Mr. Wehmer summarized, "We continue to focus on increasing core earnings and clearing our balance sheet of problem assets. Significant core earnings opportunities remain in the areas of deposit re-pricing, core franchise growth and liquidity redeployment. At quarter end, the Company had approximately $1 billion in overnight liquid assets and was operating at an 84% loan to deposit ratio -- just below the low end of the desired 85% to 90% range. Redeploying a portion of those liquid assets into safe, higher yielding loans is a priority."
He added, "We adopted a long-term strategy in 2006 which anticipated a negative credit cycle. Our goal was to be in a position to not just make it through the cycle but to do so in a manner which would allow us to take advantage of the opportunities which result from these occurrences -- specifically a material dislocation of assets, banks and people in the overall market. To date, we have had good success and we will continue to seek out additional opportunities on all three fronts while continuing to build a strong core franchise."
Net income for the nine months ended September 30, 2009 was $44.9 million, or $1.25 per diluted common share compared to $18.5 million or $0.75 per diluted common share for the same period in 2008. Earnings per diluted common share in the first nine months of 2009 compared to the first nine months of 2008 were reduced by preferred share dividends including discount accretion, related to our issuances of preferred stock in the second half of 2008, reducing comparative net income available to common shareholders by $14.1 million, or $0.58 per diluted common share.
Total assets of $12.1 billion at September 30, 2009 increased $776 million from June 30, 2009 and $2.3 billion from September 30, 2008. The $776 million of asset growth in the third quarter of 2009 was concentrated in liquidity management assets. Total deposits as of September 30, 2009 were $9.8 billion, an increase of $656 million from June 30, 2009 and $2.0 billion from September 30, 2008. The $656 million of deposit growth in the third quarter of 2009 was well distributed amongst all deposit types with $277 million from certificates of deposit, $314 million from NOW, savings and money markets, $16 million from wealth management and $49 million from non-interest bearing deposits. Only $17 million of the $277 million of certificate of deposit growth was due to an increase in brokered certificates of deposits. At the end of the second quarter of 2009, in anticipation of completing the securitization in the third quarter of 2009, the Company reclassified $520 million of premium finance receivables to a held-for-sale classification to comply with accounting requirements related to assets that are held with the intent to sell. At the end of the second quarter, the Company's loans held-for-sale included $301 million of residential mortgages and $520 million of premium finance receivables compared to only $193 million of residential mortgages at September 30, 2009. Total loans, including loans held for sale, grew to $8.5 billion as of September 30, 2009, an increase of $52 million, over the $8.4 billion balance as of June 30, 2009 and an increase of $1.1 billion over the September 30, 2008 balance of $7.4 billion. During the third quarter of 2009 the Company completed the acquisition of the life insurance premium finance receivables portfolio and the securitization of commercial premium finance receivables (see "Acquisitions" and "Securitization" for the impact of these transactions).The Company's loan portfolio includes a wide variety of loan types. Please see the tables included in the remainder of this release for additional disclosures regarding the components of the commercial and commercial real estate portfolio, the allowance for credit losses and loan portfolio aging statistics.
Total shareholders' equity was $1.1 billion, or a book value of $34.10 per common share, at September 30, 2009, compared to $809 million, or a book value of $32.07 per common share, at September 30, 2008.
Wintrust's key operating measures and growth rates for the third quarter of 2009 as compared to the sequential and linked quarters are shown in the table below:
% or % or
basis basis
point point
(bp) (bp)
change change
($ in Three Months Ended from from
thousands, ----------------------------------- 2nd 3rd
except per Sept. 30, June 30, Sept. 30, Quarter Quarter
share data) 2009 2009 2008 2009(4) 2008
------------- ----------- ----------- ---------- -------- --------
Net income $ 31,995 $ 6,549 $ (2,448) 389% 1,407%
Net income per
common share -
diluted $ 1.07 $ 0.06 $ (0.13) 1,683% 923%
Net revenue(1) $ 238,343 $ 117,949 $ 82,810 102% 188%
Net interest
income $ 87,663 $ 72,497 $ 60,680 21% 44%
Net interest
margin(2) 3.25% 2.91% 2.74% 34 bp 51 bp
Net overhead
ratio(3) (1.95)% 1.41% 1.65% (336)bp (360)bp
Return on
average assets 1.08% 0.24% (0.10)% 84 bp 118 bp
Return on
average common
equity 13.79% 0.79% (1.59)% 1,300 bp 1,538 bp
At end of
period
---------
Total assets $12,136,021 $11,359,536 $9,864,920 27% 23%
Total loans $ 8,275,257 $ 7,595,476 $7,322,545 36% 13%
Total loans,
including
loans
held-for-sale $ 8,468,512 $ 8,416,576 $7,390,943 15% 2%
Total deposits $ 9,847,163 $ 9,191,332 $7,829,527 28% 26%
Total equity $ 1,106,082 $ 1,065,076 $ 809,331 15% 37%
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(1) Net revenue is net interest income plus non-interest income.
(2) See "Supplemental Financial Measures/Ratios" for additional
information on this performance measure/ratio.
(3) The net overhead ratio is calculated by netting total non-interest
expense and total non-interest income, annualizing this amount,
and dividing by that period's total average assets. A lower ratio
indicates a higher degree of efficiency.
(4) Period-end balance sheet percentage changes are annualized.
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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 web site at www.wintrust.com by choosing "Financial Reports" and then choosing "Supplemental Financial Info."
Impacting Comparative Financial Results: Acquisitions, Securitization and Stock Offerings/Regulatory Capital
Acquisitions
On July 28, 2009 the Company announced that its indirect, wholly-owned subsidiary, First Insurance Funding Corp. ("FIFC") completed the purchase of a majority of the U.S. life insurance premium finance assets of A.I. Credit Corp. and A.I. Credit Consumer Discount Company ("the seller"), subsidiaries of American International Group, Inc. In doing so, FIFC acquired one of the largest life insurance premium finance portfolios in the industry, as well as certain other assets related to the life insurance premium finance business and the assumption of certain related liabilities. Subsequent to post-closing adjustments, an aggregate unpaid principal balance of $949.3 million was purchased for $685.3 million in cash. At closing, a portion of the portfolio, with an aggregate unpaid principal balance of approximately $317 million, and a corresponding portion of the purchase price of approximately $230 million were placed in escrow, pending the receipt of required third party consents. To the extent any of the required consents are not obtained prior to October 28, 2010, the portion of the portfolio for which such required consents are not obtained will be reassumed by the seller, and the corresponding portion of the purchase price will be returned to FIFC. Also, as a part of this purchase, an aggregate of $84.4 million of additional life insurance premium finance assets were available for future purchase by FIFC subject to satisfying certain conditions. As discussed below, on October 2, 2009, upon the satisfaction of these conditions, the Company completed the purchase of the majority of these additional loans.
The purchase was accounted for as a business combination as required by FASB Statement of Financial Accounting Standards No. 141 (revised 2007) which is now part of Accounting Standards Codification (ASC)805 Business Combinations ("ASC 805"), which became effective for the Company beginning on January 1, 2009. ASC 805 establishes principles and requirements for the acquirer in a business combination, including the recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquired entity as of the acquisition date; the recognition and measurement of the goodwill acquired in the business combination or gain from a bargain purchase as of the acquisition date; and the determination of additional disclosures needed to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Under ASC 805, nearly all acquired assets and liabilities assumed are required to be recorded at fair value at the acquisition date, including loans. ASC 805 eliminated recognition at the acquisition date of an allowance for loan losses on acquired loans; rather, credit-related factors are now incorporated directly into the fair value of the loans. Other significant changes include recognizing transaction costs and most restructuring costs as expenses when incurred. The accounting requirements of ASC 805 are applied on a prospective basis for all transactions completed after the effective date and early adoption was not permitted. Under ASC 805 a bargain purchase gain is recorded equal to the amount by which the fair value of net assets acquired exceeds the consideration paid. The Company recognized a $113.1 million gain in the third quarter of 2009 relating to all of the loans it acquired which have all contingencies removed as of September 30, 2009. This gain is shown as a component of non-interest income on our statement of income. The difference between the fair value of the loans acquired and the outstanding principal balance of these loans represents a discount of $113.3 million and is comprised of two components, an accretable component totaling $74.8 million and a non-accretable component totaling $38.5 million. The accretable component will be recognized into interest income using the effective yield method over its estimated remaining life. The non-accretable portion will be evaluated each quarter and if the loans' credit related conditions improve, a relative portion will be transferred to the accretable component and accreted over future periods. In the event of a prepayment, accretion of both the accretable and non-accretable component is accelerated into the quarter in which a specific loan prepays in whole. Currently, we have not established an allowance for loan losses relating to the portfolio purchased in this transaction. If credit related conditions deteriorate, an allowance related to these loans will be established as part of our provision for loan losses. The impact related to this transaction is included in Wintrust's consolidated financial results only since the effective date of acquisition.
On October 2, 2009, the conditions were satisfied in relation to the majority of the additional life insurance premium finance assets which were available for purchase and FIFC purchased $83.4 million of the$84.4 million of life insurance premium finance assets available for an aggregate purchase price of $60.5 million. The Company anticipates recording an additional $14.5 million bargain purchase gain relating to this additional purchase, all of which will be immediately recognizable in the fourth quarter. The difference between the fair value of these loans acquired on October 2, 2009 and the outstanding principal balance of theses loans represents a discount of $8.4 million and is comprised of two components, an accretable component totaling $5.7 million and a non-accretable component totaling $2.7 million. These discount components will be accounted in a similar fashion as the discounts described above. The impact related to this transaction will be included in Wintrust's consolidated financial results only since the effective date of acquisition.
On April 20, 2009 Wayne Hummer Asset Management Company completed its previously announced agreement to purchase certain assets and assume certain liabilities of Advanced Investment Partners, LLC ("AIP"). AIP is an investment management firm specializing in the active management of domestic equity investment strategies. The impact related to the AIP transaction is included in Wintrust's consolidated financial results only since the effective date of acquisition.
On December 23, 2008, the Company announced the acquisition by Wintrust Mortgage Corporation of certain assets and the assumption of certain liabilities of the mortgage banking business of Professional Mortgage Partners ("PMP") of Downers Grove, Illinois. PMP was founded in 1999 and had approximately $1.6 billion in annual mortgage originations in 2008. The terms of the cash transaction were not disclosed; however, a significant portion of the net purchase price for the PMP assets is conditioned upon certain future profitability measures. The impact related to the PMP transaction is included in Wintrust's consolidated financial results only since the effective date of acquisition.
Securitization
On September 11, 2009 Wintrust's indirect, wholly-owned subsidiary, FIFC Premium Funding I, LLC (the "Issuer"), closed on the sale of $600,000,000 aggregate principal amount of its Series 2009-A Premium Finance Asset Backed Notes, Class A (the "Notes"). The Notes were issued in a securitization transaction sponsored by First Insurance Funding Corp. This is an off-balance sheet financing transaction for the Company.
The Notes bear interest at an annual rate equal to one-month LIBOR plus 1.45% and have an expected average term of 2.93 years; provided, however, that the entire unpaid balance of the Notes shall be due and payable in full on February 17, 2014. At the time of issuance, the Notes were eligible collateral under the Federal Reserve Bank of New York's Term Asset-Backed Securities Loan Facility ("TALF"). The Notes are rated Aaa by Moody's and AAA by Standard & Poor's. The Issuer's obligations under the Notes are secured by revolving loans made to buyers of property and casualty insurance policies to finance the related premiums payable by the buyers to the insurance companies for the policies. The premium finance loans will be transferred from time to time by FIFC to FIFC Funding, I LLC (the "Depositor") and by the Depositor to the Issuer.
The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws and may not be offered or sold in the United States without registration under the Securities Act or any applicable exemption from registration. The Notes were sold in a private placement to qualified institutional buyers only pursuant to an exemption under Rule 144A of the Securities Act. The Notes are restricted securities and may only be resold to qualified institutional buyers in a transaction meeting the requirements of Rule 144A and may not otherwise be reoffered, resold, pledged or otherwise transferred.
As a result of this transaction the Company recognized a gain of $3.6 million in the third quarter of 2009. A total of $695 million in premium finance property and casualty receivables were initially transferred into the securitization. The Company retained interests of approximately $84 million and a sellers interest in loans of $11 million. Approximately $50 million of the retained interests are classified as debt securities on the Company's balance sheet and the remainder is classified in other assets. In the event FIFC transfers loans to the Depositor in the fourth quarter, additional gains should be recognized.
Stock Offerings/Regulatory Capital
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 was comprised of $250 million in preferred shares, with a warrant to purchase 1,643,295 shares of Wintrust common stock at a per share exercise price of $22.82 and a term of 10 years. If declared, dividends on the senior preferred stock are payable quarterly in arrears at a rate of 5% annually for the first five years and 9% thereafter. This investment can, with the approval of the Federal Reserve, be repurchased.
