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Wintrust Financial Corporation Q1 2010 Earnings Call Transcript

Wintrust Financial Corporation Q1 2010 Earnings Call Transcript

Wintrust Financial Corporation (WTFC)

Q1 2010 Earnings Call

April 28, 2010 2:00 pm ET


Edward Wehmer – President & CEO

David Dykstra – Sr. EVP & COO

Dave Stoehr - CFO


Jon Arfstrom - RBC Capital Markets

Dennis Klaeser - Raymond James

Emlen Harmon – Bank of America

Stephen Guyan – Stifel Nicolaus

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Good day ladies and gentlemen and welcome to the Wintrust Financial Corporation's first quarter 2010 results conference call. (Operator Instructions) I would now like to introduce your host for today’s conference, Edward Wehmer, President and CEO.

Edward Wehmer

Good afternoon, welcome to our first quarter conference call. David Dykstra is with me as well as Dave Stoehr, our Chief Financial Officer. I will be going over some highlights of the quarter, David will take you through the income statement in detail and then I will come back with some talks about strategy and summarize.

First quarter and really part of this year has been a very active and productive one for Wintrust. We’re happy to discuss these highlights with you. Earnings for the quarter were $16 million or $0.41 per share driven my margin improvement. Our margin went 3.38%, from 3.1% in December. Our cost of funds went from 1.98% December, down to 1.82% as we continue to reprice our legacy portfolio.

The chart on page 15 if the press release also shows the potential for additional improvement in the legacy CD portfolio for it to stay constant. Over the next 12 months we have a little over $3.3 billion in CD’s coming due, where 25 to 35 basis points is probably the right number to use there, again if rates stay constant.

So again, there is earnings potential core earnings that will come from that repricing. Asset yields went from 4.87 up to a little over 5%, 5.01%, loan repricing and new business is helped to do that as well as accretion and pay offs on the life insurance portfolio we bought.

On that accretion issue just one thing, we’ve heard from a number of analysts about how this accretion is coming in. One thing we want to point out is we do take a lump accretion if the loan does pay off but for the most part we wrote that portfolio to market and as those loans come due and reprice as they come up for repricing, we do write those at market.

So people who consider that sort of a one-time sort of issue, it really isn’t. We are repricing those loans as they come due to the market and then actually experiencing those rates going forward. On the liquidity side the end of the quarter we sat on $.2 billion of overnight money, where we’re earning about 25 basis points. Again, an opportunity to increase core earnings there if we were to put $500 million to work with this at a four point spread, that’s another $20 million.

So between the two, and I only bring this up because we have shown you these charts in the past, there’s $30 to $35 million of additional earnings as we deploy that liquidity and reprice our portfolio, notwithstanding growth which I will talk about a little bit later.

Credit costs, a little higher than we would like but they still, it appears that the costs are abating a bit, provision of $29 million versus $38 million in December, charge-offs at $27 versus $35 million. Nonperforming loans went up approximately $9 million from $132 million to $141 million. All of that is premium finance loans, so the securitization came back on the book and really $8 million of the $9 million increase relates to premium finance loan increase and then there’s one life insurance loan that’s out there that still is accruing that its just and administrative past due and that the borrower has indicated it wants to pay that loan off and is paying the interest but needed some things to occur before that happened.

So really if you look at it, nonperforming loans were basically flat quarter over quarter. OREO was up $10 million but that’s kind of a good thing as we move that into a sale position to push that out. The first quarter was a little slower than I would have liked on the clearing but I think a lot of that has to do with the fourth quarter, we made a real rush in the fourth quarter, our guys did a wonderful job in pushing nonperforming’s and in doing so they got kind of pushed all the stuff out and had a restart on a couple of issues, so it is a little bit slow but we are still committed to pushing these things off the balance sheet and we expect to be able to show improvement or steadiness for the improvement going forward.

Again we’re still committed to moving that out. Again, on the nonperforming side, no one has yet even, I always say this but regulators, accountants and the like, they still haven’t identifying anything that we hadn’t already identified and we’re working on. So we think we’ve got our arms around the issues, we’re working them very hard and we continue to make good progress there.

Our overall numbers at 1.55% down from 1.57%, we’re operating at a fraction of our peer group and our local peer group and we think we have our credit pretty much under control. However the cycle isn’t over yet and it could be a little lumpy going forward but we have our arms around it and we are pushing these things out and working these as well as we can.

I wanted to put a word in on TDR’s, they seem to be a buzz word this day. There seems to be, this is again if any of you have been around a long time and you look back at when we first entered this cycle and how things had to be marked down and we took a very conservative approach on the market side of things and the accountants were telling us that was the way to do it and TDR’s I think are somewhat of a misnomer and I think again this thing, this accounting principal is not being consistently applied throughout the banking system.

We have $69.4 million worth of TDR’s that were $65 million of which are current. The other $4.4 million is included in our nonperforming numbers. We in consultation with our accountants and also we went through our normal three year cycle review with the SEC prior to our capital offering and they confirmed with us that our approach to how you do TDR’s is appropriate and I just don’t see it as applied. Let me tell you how we do it.

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