News Details

LAKE FOREST, Ill., Jan. 18, 2012 (GLOBE NEWSWIRE) -- Wintrust Financial Corporation ("Wintrust" or "the Company") (Nasdaq:WTFC) announced net income of $19.2 million or $0.41 per diluted common share for the fourth quarter of 2011 compared to net income of $14.2 million or ($0.06) per diluted common share for the fourth quarter of 2010. The Company recorded net income of $77.6 million or $1.67 per diluted common share for the full year of 2011 compared to net income of $63.3 million or $1.02 per diluted common share for the full year of 2010.

The Company's total assets of $15.9 billion at December 31, 2011 increased $1.9 billion from December 31, 2010. Total deposits as of December 31, 2011 were $12.3 billion, an increase of $1.5 billion from December 31, 2010. Noninterest bearing deposits increased by $584 million or 49% since December 31, 2010, while NOW, wealth management, money market and savings deposits increased $914 million or 19% during the same time period. Total time certificates of deposit remained essentially unchanged at December 31, 2011 compared to December 31, 2010. Total loans, including loans held for sale but excluding covered loans, were $10.8 billion as of December 31, 2011, an increase of $871 million over December 31, 2010.

Edward J. Wehmer, President and Chief Executive Officer, commented, "Our reported fourth quarter net income of $19.2 million caps a record year of earnings for the Company. Full year net income for 2011 of $77.6 million represents our highest reported net income in the history of Wintrust. The fourth quarter of 2011 was highlighted by solid loan growth, an increase in net interest margin and net interest income, growth of pre-tax adjusted earnings, continued improvement in credit quality, and continued favorable shifting in the mix of the deposit funding base.

Total loans outstanding at December 31, 2011, excluding covered loans but including loans held for sale, increased $356 million from September 30, 2011. This growth was primarily comprised of $210 million of commercial and commercial real-estate and $107 million of mortgage loans held for sale. Funding of this loan growth was provided by using existing liquidity at each of our banking affiliates as total deposits outstanding remained the same as September 30, 2011. While our overall level of deposits remained the same as the prior quarter, our mix of deposits improved due to both a more desirable mix of deposits from our core customers and the replacement of approximately $70 million of matured certificates of deposits related to FDIC-assisted acquired banks with non-maturity deposit products. In the fourth quarter, the $371 million growth in non-maturity core deposits slightly more than offset the $370 million decline in certificates of deposits during the period. This movement has helped improve the Company's deposit mix as certificates of deposit at December 31, 2011 make up only 40% of total deposits, down from 45% at December 31, 2010. Additionally, non-interest bearing demand deposits now comprise 15% of total deposits, up from 11% at December 31, 2010.

As a result of the solid loan growth and improved net interest margin, net interest income increased in the fourth quarter by $6 million over the third quarter of 2011. The Company's net interest margin improved to 3.45% for the fourth quarter of 2011, compared to 3.37% in the previous quarter. Net interest income and net interest margin for the full year of 2011 were $461 million and 3.42%, respectively, compared to $416 million and 3.37% for the full year of 2010. The growth in net interest income in the fourth quarter of 2011 contributed to continued improvement in pre-tax adjusted earnings, one of our main internal measurements of profitability."

Commenting on credit quality, Mr. Wehmer noted, "The Company's credit quality metrics improved during the quarter as non-performing loans as a percent of total loans decreased to 1.14%, the lowest level reported since the end of the fourth quarter of 2007. Total non-performing loans decreased to $120 million at December 31, 2011, down from $142 million at December 31, 2010 and down from $134 million at September 30, 2011. Non-performing loan inflows during the fourth quarter of 2011 declined to $25 million, the lowest amount in the past eight quarters, down from $48 million in the fourth quarter of 2010 and $40 million in the third quarter of 2011. Total allowance for loan losses as a percentage of non-performing loans rose to 92% at December 31, 2011, the highest level since September 30, 2007.

"Total non-performing assets, which includes other real estate owned, declined to $207 million, down from $213 million at December 31, 2010 and $231 million at September 30, 2011. During the fourth quarter of 2011, excluding the provision for covered loan losses, the Company recorded a provision for loan losses of $17 million, net charge-offs of $25 million and other real-estate owned operating charges of $9 million."

Turning to 2012, Mr. Wehmer noted, "We expect loan growth to continue in 2012 which should allow the Company to expand the franchise organically as our loan pipelines remain strong. This should allow us to return to an asset-driven business model similar to our pre 'Rope-A-Dope' days prior to 2006. We also expect 2012 to be a very active year industry-wide for acquisition opportunities for both FDIC-assisted and unassisted banks as well as individual branches and lines of business."

In closing, Mr. Wehmer added, "We have ended 2011 well positioned to take advantage of these growth opportunities. We will continue to be disciplined in our approach to growth. Given proper execution of our objectives, Wintrust can be the financial institution of choice to allow any customer, as we say, to 'HAVE IT ALL'."

The graphs below depict changes in the level of non-performing loans, excluding covered loans, over the last five quarters. The following metrics, for the last five quarters, are diagrammed below: total non-performing loans, non-performing loans as a percent of total loans, non-performing loan inflows and allowance for loan losses as a percent of total non-performing loans.

Graphs accompanying this release are available at http://media.globenewswire.com/cache/11955/file/12278.pdf

Wintrust's key operating measures and growth rates for the fourth quarter of 2011, as compared to the sequential and linked quarters are shown in the table below:

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

Items Impacting Comparative Financial Results: Acquisitions and Capital

Acquisitions   

On September 30, 2011, the Company completed its acquisition of Elgin State Bancorp, Inc. ("ESBI"). ESBI was the parent company of Elgin State Bank, which operated three banking locations in Elgin, Illinois. As part of the transaction, Elgin State Bank merged into the Company's wholly-owned subsidiary bank, St. Charles Bank & Trust Company ("St. Charles"), and the three acquired banking locations are operating as branches of St. Charles under the brand name Elgin State Bank. Elgin State Bank had approximately $262 million in assets and $240 million in deposits as of the acquisition date, prior to purchase accounting adjustments. The Company recorded goodwill of $5.0 million on the acquisition. 

On July 8, 2011, the Company announced that its wholly-owned subsidiary bank, Northbrook Bank & Trust Company ("Northbrook"), acquired certain assets and liabilities and the banking operations of First Chicago Bank & Trust ("First Chicago") in an FDIC-assisted transaction. First Chicago operated seven locations in Illinois: three in Chicago and one each in Bloomingdale, Itasca, Norridge and Park Ridge.

On July 1, 2011, the Company completed its acquisition of Great Lakes Advisors, Inc. ("Great Lakes Advisors"), a Chicago-based investment manager with approximately $2.4 billion in assets under management. The Company recorded goodwill of $15.7 million on the acquisition. Great Lakes Advisors merged with Wintrust's existing asset management business, Wintrust Capital Management, LLC and operates as "Great Lakes Advisors, LLC, a Wintrust Wealth Management Company". Wintrust Wealth Management, which includes Great Lakes Advisors, Wayne Hummer Investments and the Chicago Trust Company, has $13.8 billion assets under administration at December 31, 2011.

On April 13, 2011, the Company announced the acquisition of certain assets and the assumption of certain liabilities of the mortgage banking business of River City Mortgage, LLC ("River City") of Bloomington, Minnesota. With offices in Minnesota, Nebraska and North Dakota, River City originated nearly $500 million in mortgage loans in 2010.

On March 25, 2011, the Company announced that its wholly-owned subsidiary bank, Advantage National Bank Group ("Advantage") acquired certain assets and liabilities and the banking operations of The Bank of Commerce ("TBOC") in an FDIC-assisted transaction. TBOC operated one location in Wood Dale, Illinois. Advantage subsequently changed its name to Schaumburg Bank and Trust Company, N.A. ("Schaumburg").

On February 4, 2011, the Company announced that its wholly-owned subsidiary bank, Northbrook, acquired certain assets and liabilities and the banking operations of Community First Bank-Chicago ("CFBC") in an FDIC-assisted transaction. CFBC operated one location in Chicago, Illinois.

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

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

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

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

Summary of FDIC-assisted Transactions

• Northbrook assumed approximately $887 million of the outstanding deposits and approximately $959 million of assets of First Chicago on July 8, 2011, prior to purchase accounting adjustments. A bargain purchase gain of $27.4 million was recognized on this transaction.
• Schaumburg assumed approximately $161 million of the outstanding deposits and approximately $163 million of assets of TBOC on March 25, 2011, prior to purchase accounting adjustments. A bargain purchase gain of $8.6 million was recognized on this transaction.
• Northbrook assumed approximately $50 million of the outstanding deposits and approximately $51 million of assets of CFBC on February 4, 2011, prior to purchase accounting adjustments. A bargain purchase gain of $2.0 million was recognized on this transaction.
• Northbrook assumed approximately $120 million of the outstanding deposits and approximately $188 million of assets of Ravenswood on August 6, 2010, prior to purchase accounting adjustments. A bargain purchase gain of $6.8 million was recognized on this transaction.
• Northbrook assumed approximately $160 million of the outstanding deposits and approximately $170 million of assets of Lincoln Park on April 23, 2010, prior to purchase accounting adjustments. A bargain purchase gain of $4.2 million was recognized on this transaction.
• Wheaton assumed approximately $400 million of the outstanding deposits and approximately $370 million of assets of Wheatland on April 23, 2010, prior to purchase accounting adjustments. A bargain purchase gain of $22.3 million was recognized on this transaction.

Loans comprise the majority of the assets acquired in the FDIC-assisted transactions and are subject to loss sharing agreements with the FDIC where the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans. Additionally, the loss share agreements with the FDIC require the Company to reimburse the FDIC in the event that actual losses on covered assets are lower than the original loss estimates agreed upon with the FDIC with respect to such assets in the loss share agreements. We refer to the loans subject to these loss-sharing agreements as "covered loans." We use the term "covered assets" to refer to the total of covered loans, covered OREO and certain other covered assets. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing FDIC reimbursement of losses related to covered assets. 

Capital Ratios

As of December 31, 2011, the Company's estimated capital ratios were 13.2% for total risk-based capital, 12.0% for tier 1 risk-based capital and 9.4% for leverage, well above the well capitalized guidelines. Additionally, the Company's tangible common equity ratio was 7.5% at December 31, 2011.

Financial Performance Overview – Fourth quarter of 2011

For the fourth quarter of 2011, net interest income totaled $124.6 million, an increase of $12.0 million as compared to the fourth quarter of 2010 and $6.2 million as compared to the third quarter of 2011. The increases in net interest income on both a linked and sequential quarter basis are the result of balance sheet growth:

• Average earning assets for the fourth quarter of 2011 increased by $1.4 billion compared to the fourth quarter of 2010. Average earning asset growth over the past 12 months was primarily a result of the $885.1 million increase in average loans, $314.5 million of average covered loan growth from the FDIC-assisted bank acquisitions and a $206.7 million increase in average liquidity management and other earning assets. The $885.1 million increase in average loans was, in turn, comprised of a $408.6 million increase in commercial and industrial loans, a $211.1 million increase in life insurance premium finance loans, a $210.6 million increase in commercial insurance premium finance loans, a $163.5 million increase in commercial real estate loans and an increase in mortgage warehouse lending of $10.6 million, partially offset by a decrease in mortgages held for sale of $95.3 million and a net decrease in all other loans of $24.0 million. The decrease in all other loans was primarily related to home equity loans. The shift in growth over the past 12 months toward commercial and industrial loans is a reflection of the commercial initiatives the Company has implemented. The average earning asset growth of $1.4 billion over the past 12 months was primarily funded by a $723.9 million increase in the average balances of interest-bearing deposits, an increase in the average balance of net free funds of $413.9 million and an increase in wholesale funding of $268.4 million.   
• Average earning assets for the fourth quarter of 2011 increased by $402.3 million compared to the third quarter of 2011. Average earning asset growth over the past three months was primarily the result of a $434.0 million increase in average loans and covered loans partially offset by $31.7 million decrease in average liquidity management and other earning assets.  Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements. Growth in average loans was due to a $163.0 million increase in commercial and industrial loans as a result of the Company's commercial banking initiative and the Elgin State Bank acquisition. Additionally, increases totaling $228.3 million in mortgages held for sale and mortgage warehouse lending as residential originations increased slightly from prior quarters in the fourth quarter of 2011 as a result of lower mortgage interest rates. The average earning asset growth of $402.3 million over the past three months was primarily funded by an increase in the average balance of net free funds of $288.5 million and a $120.2 million increase in deposits. 

The net interest margin for the fourth quarter of 2011 was 3.45% compared to 3.46% in the fourth quarter of 2010 and 3.37% in the third quarter of 2011. The changes in net interest margin on both a linked and sequential quarter basis are the result of:

• The one basis point decrease in the fourth quarter of 2011 compared to the fourth quarter of 2010 was primarily attributable to the negative impact of both competitive and economic pricing pressures on the commercial and industrial and commercial premium finance portfolios during 2011 and a decrease in accretable discount recognized as interest income on the purchased life insurance premium portfolio as prepayments declined. Offsetting the lower yield on loans was a 38 basis point decline in the cost of interest-bearing deposits over the last 12 months and an increase in yield on the covered loan portfolio.
• The eight basis point increase in net interest margin in the fourth quarter of 2011 compared to the third quarter of 2011 resulted from positive repricing of retail interest-bearing deposits, the decline in interest expense due to our new interest rate swap agreements on certain trust preferred debentures and higher yields on our covered loan portfolio that more than offset the very low yield on excess liquidity and the lower yield on the non-covered loan portfolio. Pricing pressures both competitive and economic, have negatively impacted the yield on total loans over the past four quarters.

Non-interest income totaled $44.9 million in the fourth quarter of 2011, increasing $451,000, or 1%, compared to the fourth quarter of 2010 and decreasing $22.3 million, or 33%, compared to the third quarter of 2011. The increase in the fourth quarter of 2011 compared to the fourth quarter of 2010 was primarily attributable to higher wealth management revenues and fees from covered call options, partially offset by decreases in mortgage banking revenue. The decrease in the fourth quarter of 2011 compared to the third quarter of 2011 is primarily attributable to the bargain purchase gains recorded during the third quarter of 2011 as a result of the First Chicago FDIC-assisted transaction. Mortgage banking revenue decreased $4.7 million when compared to the fourth quarter of 2010 and increased $3.6 million when compared to the third quarter of 2011. The decrease in the current quarter as compared to the fourth quarter of 2010 resulted primarily from a decrease in gains on sales of loans, which was driven by lower origination volumes in the current quarter. Mortgage banking revenue in the past two quarters has been restrained by negative mortgage servicing rights valuation adjustments totaling $1.0 million in the fourth quarter of 2011 and $2.6 million in the third quarter of 2011. Loans sold to the secondary market were $883.0 million in the fourth quarter of 2011 compared to $1.3 billion in the fourth quarter of 2010 and $642 million in the third quarter of 2011 (see "Non-Interest Income" section later in this document for further detail).

Non-interest expense totaled $118.8 million in the fourth quarter of 2011, increasing $12.6 million, or 12%, compared to the fourth quarter of 2010 and increasing $12.4 million compared to the third quarter of 2011. The increase compared to the fourth quarter of 2010 was primarily attributable to a $7.7 million increase in salaries and employee benefits. The increase in salaries and employee benefits was attributable to a $4.8 million increase in salaries caused by the addition of employees from the various acquisitions and larger staffing as the Company grows, a $1.2 million increase in bonus and commissions primarily attributable to the Company's long-term incentive program approved by the Compensation Committee of the Board of Directors in August 2011 and a $1.7 million increase from employee benefits (primarily health plan and payroll taxes related).

Financial Performance Overview – Full Year 2011

The net interest margin for 2011 was 3.42%, compared to 3.37% in 2010. Average earning assets for 2011 increased by $1.1 billion compared to 2010. This average earning asset growth was primarily a result of the $671.9 million increase in average loans, $288.3 million of average covered loan growth from the FDIC-assisted bank acquisitions and a $169.7 million increase in liquidity management and other earning assets.Growth in the commercial and industrial portfolio of $330.8 million, in the life insurance premium finance portfolio of $266.8 million and in the commercial insurance premium finance loan portfolio of $145.4 accounted for the majority of the total average loan growth over the past 12 months. The average earning asset growth of $1.1 billion over the past 12 months was primarily funded by a $602.6 million increase in the average balances of interest-bearing deposits and an increase in the average balance of net free funds of $354.7 million.    

Non-interest income totaled $189.7 million in 2011, decreasing $2.5 million, or 1%, compared to 2010. The change was primarily attributable to lower bargain purchase gains recorded during the current period relating to the FDIC-assisted transactions than during the comparable period as well as lower net gains on available-for-sale securities in 2011, partially offset by higher wealth management revenues and fees from covered call options in the current period. The Company recognized $1.8 million of net gains on available-for-sale securities in 2011 compared to a net gain of $9.8 million in 2010. The higher net gains in 2010 were primarily related to the sale of certain collateralized mortgage obligations during that period. Additionally, trading gains of $337,000 were recognized by the Company in 2011 compared to gains of $5.2 million in 2010. Lower trading income in 2011 resulted primarily from realizing larger market value increases in the prior year on certain collateralized mortgage obligations held in trading. Mortgages originated for sale totaled approximately $2.5 billion in 2011 compared to approximately $3.7 billion in 2010. Partially offsetting a $13.2 million decrease in gains on sales of loans and other fees as a result of the lower origination volumes, was a $10.5 million positive impact from lower recourse obligation adjustments as the number of indemnification requests from investors declined, as well as lower loss estimates on future indemnification requests. 

Non-interest expense totaled $420.4 million in 2011, increasing $37.9 million, or 10%, compared to 2010. The increase compared to 2010 was primarily attributable to a $22.0 million increase in salaries and employee benefits. The increase in salaries and employee benefits was, in turn, attributable to a $18.2 million increase in salaries related to the addition of employees from the various acquisitions and larger staffing related to organic Company growth, and a $6.2 million increase from employee benefits (primarily related to health plans and payroll taxes), partially offset by a $2.4 million decrease in bonus and commissions attributable to variable pay based revenue. Additionally, OREO related expenses increased $7.0 million, occupancy expense increased $4.3 million as a result of rent expense on additional leased premises and depreciation on owned locations, advertising and marketing expense increased $2.1 million primarily related to rebranding initiatives and professional fees increased $480,000, primarily related to increased legal costs related to non-performing assets and recent acquisitions.

The Company's effective tax rate increased to 39.4% for 2011, up from 37.2% in 2010.  This increase is primarily attributable to increases in state income taxes, including the impact of a 2.2% increase in the Illinois corporate tax rate on 2011 earnings.

Financial Performance Overview – Credit Quality

Non-performing loans, excluding covered loans, totaled $120.1 million, or 1.14% of total loans, at December 31, 2011, compared to $142.1 million, or 1.48% of total loans, at December 31, 2010 and $134.0 million, or 1.30% of total loans, at September 30, 2011. OREO, excluding covered OREO, of $86.5 million at December 31, 2011, increased $15.3 million compared to $71.2 million at December 31, 2010, and decreased $10.4 million compared to $96.9 million at September 30, 2011.

The provision for credit losses, excluding the provision for covered loan losses, totaled $16.6 million for the fourth quarter of 2011 compared to $28.8 million in the fourth quarter of 2010 and $28.3 million for the third quarter of 2011. Net charge-offs as a percentage of loans, excluding covered loans, for the fourth quarter of 2011 totaled 93 basis points on an annualized basis compared to 96 basis points on an annualized basis in the fourth quarter of 2010 and 105 basis points on an annualized basis in the third quarter of 2011. Net charge-offs, excluding covered loans, for the full year of 2011 totaled $103.3 million or 102 basis points compared to $109.7 million or 116 basis points in 2010. The provision for credit losses, excluding covered loans, totaled $97.9 million for the full year 2011 compared to $124.7 million for the full year 2010.

Excluding the allowance for covered loan losses, the allowance for credit losses at December 31, 2011 totaled $123.6 million, or 1.17% of total loans, compared to $118.0 million, or 1.23% of total loans, at December 31, 2010 and $132.1 million, or 1.29% of total loans, at September 30, 2011. 

The lower level of provision for credit losses and the allowance for credit losses, reflect the improvements in credit quality metrics for the fourth quarter of 2011. The graphs on pages four and five highlight the level of total non-performing loans, the improvement seen in the reduced levels of inflows to non-performing loans and the improvement in the allowance for loan loss coverage of non-performing loans.

SUPPLEMENTAL FINANCIAL MEASURES/RATIOS

The accounting and reporting policies of Wintrust conform to generally accepted accounting principles ("GAAP") in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company's performance. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity ratio, tangible common book value per share and pre-tax adjusted earnings. Management believes that these measures and ratios provide users of the Company's financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company's operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.

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

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

NET INTEREST INCOME

The following table presents a summary of Wintrust's average balances, net interest income and related net interest margins, calculated on a fully tax-equivalent basis, for the fourth quarter of 2011 compared to the fourth quarter of 2010 (linked quarters):

The net interest margin decreased by one basis point in the fourth quarter of 2011 compared to the fourth quarter of 2010. This decrease was primarily attributable to a 93 basis point decline in the yield on loans due to the negative impact of both competitive and economic pricing pressures on the commercial, commercial real estate and commercial insurance premium finance portfolios and a decrease in accretable discount recognized as interest income on the purchased life insurance premium portfolio as prepayments declined. Nearly offsetting the lower yield on loans was a 38 basis point decline in the cost of interest-bearing deposits over the last 12 months and an increase in the yield on covered loan portfolio.

The majority of covered loans are accounted for in accordance with ASC 310-30. As such, the yield on these loans at the acquisition date represents a fair value  loan yield. In periods subsequent to the quarter of acquisition, the Company has experienced cash collections generally better than estimated for the initial valuation. Overall, expected losses and expected estimated lives have decreased, which has led to generally higher effective yields as estimated cash flows on the pools of loans has improved.

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 2011 compared to the third quarter of 2011 (sequential quarters):

The net interest margin increased by eight basis points in the fourth quarter of 2011 compared to the third quarter of 2011. This increase was primarily attributable to positive repricing of retail deposits, the decline in interest expense due to our new interest rate swap agreements, which replaced matured interest rate swap agreements, on certain trust preferred debentures and higher yields on our covered loan portfolio more than offsetting the very low yield on excess liquidity and the lower yield on the loan portfolio. Pricing pressures both competitive and economic, have negatively impacted the yield on total loans over the past four quarters.

The majority of covered loans are accounted for in accordance with ASC 310-30. As such, the yield on these loans at the acquisition date represents a fair value loan yield. In periods subsequent to the quarter of acquisition, the Company has experienced cash collections generally better than estimated for the initial valuation. Overall, expected losses and expected estimated lives have decreased, which has led to generally higher effective yields as estimated cash flows on the pools of loans has improved.

The following table presents a summary of Wintrust's average balances, net interest income and related net interest margins, calculated on a fully tax-equivalent basis, for the year ended December 31, 2011 compared to the year ended December 31, 2010:

The net interest margin for 2011 was 3.42%, compared to 3.37% in 2010. Average earning assets for 2011 increased by $1.1 billion compared to 2010. This average earning asset growth was primarily a result of the $671.9 million increase in average loans, $288.3 million of average covered loan growth from the FDIC-assisted bank acquisitions and a $186.1 million increase in liquidity management and other earning assets. Growth in the commercial and industrial portfolio of $301.8 million, in the life insurance premium finance portfolio of $266.8 million and in the commercial insurance premium finance loan portfolio of $145.4 accounted for the majority of the total average loan growth over the past 12 months. The average earning asset growth of $1.1 billion over the past 12 months was primarily funded by a $602.6 million increase in the average balances of interest-bearing deposits and an increase in the average balance of net free funds of $354.7 million.

NON-INTEREST INCOME

For the fourth quarter of 2011, non-interest income totaled $44.9 million, an increase of $451,000, or 1%, compared to the fourth quarter of 2010. The increase was primarily attributable to higher wealth management revenues and fees from covered call options, partially offset by decreases in mortgage banking revenue.

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

The significant changes in non-interest income for the quarter ended December 31, 2011 compared to the quarter ended December 31, 2010 are discussed below.

Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and the asset management fees, brokerage commissions, trading commissions and insurance product commissions at Wayne Hummer Investments and Great Lakes Advisors. Wealth management revenue totaled $11.7 million in the fourth quarter of 2011 and $10.1 million in the fourth quarter of 2010, an increase of 16%.  The increase is mostly attributable to additional revenues resulting from the acquisition of Great Lakes Advisors. 

Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. For the quarter ended December 31, 2011, this revenue totaled $18.0 million, a decrease of $4.7 million when compared to the fourth quarter of 2010. Mortgages originated and sold totaled $883.0 million in the fourth quarter of 2011 compared to $1.3 billion in the fourth quarter of 2010. The decrease in mortgage banking revenue in the fourth quarter of 2011 as compared to the fourth quarter of 2010 resulted primarily from a decrease in gain on sales of loans, which was driven by lower origination volumes in the current quarter. Partially offsetting the decrease in gains on sales of loans and other fees was a $379,000 positive impact from lower recourse obligation adjustments as the number of indemnification requests from investors declined, as well as lower loss estimates on future indemnification requests. 

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

Other non-interest income for the fourth quarter of 2011 totaled $10.7 million, compared to $7.3 million in the fourth quarter of 2010. Fees from certain covered call option transactions increased by $4.3 million in the fourth quarter of 2011 as compared to the same period in the prior year. Historically, compression in the net interest margin was effectively offset 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)"). Miscellaneous income is primarily comprised of revenue from interest rate hedging transactions related to both customer-based trades and the related matched trades with inter-bank dealer counterparties. The Company recognized $1.6 million of swap fee revenue in the fourth quarter of 2011 compared to $866,000 in the fourth quarter of 2010. The Company recognized $6.8 million of swap fee revenue in 2011 compared to $1.5 million in 2010. The revenue recognized on this customer-based activity is sensitive to the pace of organic loan growth, the shape of the LIBOR curve and the customers' expectations of interest rates.

NON-INTEREST EXPENSE

Non-interest expense for the fourth quarter of 2011 totaled $118.8 million and increased approximately $12.6 million, or 12%, compared to the fourth quarter of 2010.   

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

The significant changes in non-interest expense for the quarter ended December 31, 2011 compared to the quarter ended December 31, 2010 are discussed below.

Salaries and employee benefits comprised 56% of total non-interest expense in the fourth quarters of 2011 and 2010. Salaries and employee benefits expense increased $7.7 million, or 13%, in the fourth quarter of 2011 compared to the fourth quarter of 2010 primarily as a result of a $4.8 million increase in salaries caused by the addition of employees from the various acquisitions and larger staffing as the Company grows, a $1.2 million increase in bonus and commissions primarily attributable to the Company's long-term incentive program approved by the Compensation Committee of the Board of Directors in August 2011 and a $1.7 million increase from employee benefits (primarily health plan and payroll taxes related).

Occupancy expense includes depreciation on premises, real estate taxes, utilities and maintenance of premises, as well as net rent expense for leased premises. Occupancy expense for the fourth quarter of 2011 was $8.0 million, an increase of $2.0 million, or 35%, compared to the same period in 2010. The increase is primarily the result of rent expense on additional leased premises and depreciation on owned locations which were obtained in the FDIC-assisted acquisitions.

Advertising and marketing expense for the fourth of 2011 was $3.2 million, an increase of $1.3 million, or 70%, compared to the same period in 2010. The increase is attributable to rebranding initiatives in 2011.

Professional fees include legal, audit and tax fees, external loan review costs and normal regulatory exam assessments. Professional fees for the fourth quarter of 2011 were $3.7 million, a decrease of $1.1 million, or 22%, compared to the same period in 2010. This decrease is primarily a result of reduced legal costs as the level of non-performing assets has decreased in the fourth quarter of 2011 compared to the fourth quarter of 2010. 

FDIC insurance expense for the fourth quarter of 2011 was $3.2 million, a decrease of $1.3 million, or 29%, compared to the same period in 2010. Effective April 1, 2011, standards applied in FDIC assessments set forth in the Federal Deposit Insurance Act were revised by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  These revisions modified definitions of a company's insurance assessment base and assessment rates which led to the Company's decreased FDIC expense in the fourth quarter of 2011 as compared to the fourth quarter of 2010. 

OREO expenses include all costs related to obtaining, maintaining and selling of other real estate owned properties. This expense totaled $8.8 million in the fourth quarter of 2011, an increase of $1.4 million compared to $7.4 million in the fourth quarter of 2010. The increase in OREO expenses is primarily related to higher valuation adjustments of properties held in OREO in the fourth quarter of 2011 as compared to the fourth quarter of 2010.  

Miscellaneous expense includes ATM expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses and lending origination costs that are not deferred. Miscellaneous expenses in the fourth quarter of 2011 increased $1.6 million, or 16% compared to the same period in the prior year. The increase in the fourth quarter of 2011 compared to the same period in the prior year is attributable to increased expenses related to covered loans as well as general growth in the Company's business.

The allowance for credit losses, excluding the allowance for covered loan losses, is comprised of the allowance for loan losses and the allowance for unfunded lending-related commitments. The allowance for loan losses is a reserve against loan amounts that are actually funded and outstanding while the allowance for unfunded lending-related commitments relates to certain amounts that Wintrust is committed to lend but for which funds have not yet been disbursed. The allowance for unfunded lending-related commitments (separate liability account) represents the portion of the allowance for credit losses that was associated with unfunded lending-related commitments. The provision for credit losses, excluding the provision for covered loan losses, may contain both a component related to funded loans (provision for loan losses) and a component related to lending-related commitments (provision for unfunded loan commitments and letters of credit). Total credit-related reserves also include the credit discounts on the purchased life insurance premium finance receivables which are netted with the loan balance. Additionally, on January 1, 2010, in conjunction with recording the securitization facility on its balance sheet, the Company established an allowance for loan losses totaling $1.9 million. This addition to the allowance for loan losses is shown as an "other adjustment to the allowance for loan losses."

The provision for credit losses, excluding the provision for covered loan losses, totaled $16.6 million for the fourth quarter of 2011, $28.8 million for the fourth quarter of 2010 and $28.3 million in the third quarter of 2011. For the quarter ended December 31, 2011, net charge-offs, excluding covered loans, totaled $25.1 million compared to $23.5 million recorded in the fourth quarter of 2010 and $26.9 million in the third quarter of 2011. On a ratio basis, annualized net charge-offs as a percentage of average loans, excluding covered loans, were 0.93% in the fourth quarter of 2011, 0.96% in the fourth quarter of 2010, and 1.05% in the third quarter of 2011. The lower level of provision for credit losses and the allowance for credit losses, reflect the improvements in credit quality metrics for the fourth quarter of 2011. The graphs on pages four and five highlight the level of total non-performing loans, the improvement seen in the reduced levels of inflows to non-performing loans and the improvement in the allowance for loan loss coverage of non-performing loans.

Management believes the allowance for credit losses is appropriate to provide for inherent losses in the portfolio. There can be no assurances however, that future losses will not exceed the amounts provided for, thereby affecting future results of operations. The amount of future additions to the allowance for credit losses will be dependent upon management's assessment of the appropriateness of the allowance based on its evaluation of economic conditions, changes in real estate values, interest rates, the regulatory environment, the level of past-due and non-performing loans, and other factors. The increase in the allowance for credit losses from the end of the prior quarter reflects the continued changes in real estate values on certain types of credits, specifically credits with residential development collateral valuation exposure.

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

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

As of December 31, 2011, $45.4 million of all loans, excluding covered loans, or 0.4%, were 60 to 89 days past due and $94.1 million, or 0.9%, were 30 to 59 days (or one payment) past due.  As of September 30, 2011, $51.0 million of all loans, excluding covered loans, or 0.5%, were 60 to 89 days past due and $96.3 million, or 0.9%, were 30 to 59 days (or one payment) past due. The majority of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company's internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis. 

The Company's home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at December 31, 2011 that are current with regard to the contractual terms of the loan agreement represent 97.8% of the total home equity portfolio. Residential real estate loans at December 31, 2011 that are current with regards to the contractual terms of the loan agreements comprise 96.5% of total residential real estate loans outstanding.

The table below shows the aging of the Company's loan portfolio, excluding covered loans, at September 30, 2011:

Non-performing Assets, excluding covered assets

The following table sets forth Wintrust's non-performing assets, excluding covered assets and purchased non-covered loans acquired with evidence of credit quality deterioration since origination, at the dates indicated.

Non-performing Commercial and Commercial Real Estate

The commercial non-performing loan category totaled $19.0 million as of December 31, 2011 compared to $24.8 million as of September 30, 2011 and $16.9 million as of December 31, 2010. The commercial real estate non-performing loan category totaled $66.5 million as of December 31, 2011 compared to $70.8 million as of September 30, 2011 and $94.0 million as of December 31, 2010. 

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

Non-performing Residential Real Estate and Home Equity

Non-performing home equity and residential real estate loans totaled $20.8 million as of December 31, 2011.  The balance increased $7.3 million from December 31, 2010 and decreased $2.2 million from September 30, 2011.  The December 31, 2011 non-performing balance is comprised of $6.6 million of residential real estate (34 individual credits) and $14.2 million of home equity loans (42 individual credits).  On average, this is approximately 5 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 Insurance Premium Finance Receivables

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

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

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

Nonperforming Loans Rollforward

The table below presents a summary of the changes in the balance of non-performing loans, excluding covered loans, for the three and nine month periods ending December 31, 2011 and 2010:

Restructured Loans

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

At December 31, 2011, the Company had $130.5 million in loans with modified terms representing 168 credit relationships in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay.

The Company's approach to restructuring loans is built on its credit risk rating system which requires credit management personnel to assign a credit risk rating to each loan. In each case, the loan officer is responsible for recommending a credit risk rating for each loan and ensuring the credit risk ratings are appropriate. These credit risk ratings are then reviewed and approved by the bank's chief credit officer or the director's loan committee. Credit risk ratings are determined by evaluating a number of factors including a borrower's financial strength, cash flow coverage, collateral protection and guarantees. The Company's credit risk rating scale is one through ten with higher scores indicating higher risk. In the case of loans rated six or worse following modification, the Company's Managed Assets Division evaluates the loan and the credit risk rating and determines that the loan has been restructured to be reasonably assured of repayment and of performance according to the modified terms and is supported by a current, well-documented credit assessment of the borrower's financial condition and prospects for repayment under the revised terms.

A modification of a loan with an existing credit risk rating of six or worse or a modification of any other credit, which will result in a restructured credit risk rating of six or worse must be reviewed for troubled debt restructuring ("TDR") classification. In that event, our Managed Assets Division conducts an overall credit and collateral review. A modification of a loan is considered to be a TDR if both (1) the borrower is experiencing financial difficulty and (2) for economic or legal reasons, the bank grants a concession to a borrower that it would not otherwise consider. The modification of a loan where the credit risk rating is five or better both before and after such modification are not reviewed for TDR status. Based on the Company's credit risk rating system, it considers that borrowers whose credit risk rating is five or better are not experiencing financial difficulties and therefore, are not considered TDRs.

TDRs are reviewed at the time of modification and on a quarterly basis to determine if a specific reserve is needed. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan's original rate, or for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a specific reserve.

All credits determined to be a TDR will continue to be classified as a TDR in all subsequent periods, unless the borrower has been in compliance with the loan's modified terms for a period of six months (including over a calendar year-end) and the modified interest rate represented a market rate at the time of a restructuring. Additionally, before removing a loan from TDR classification, a review of the current or previously measured impairment on the loan and any concerns related to future performance by the borrower is conducted.   If concerns exist about the future ability of the borrower to meet its obligations under the loans based on a credit review by the Managed Assets Division, the TDR classification is not removed from the loan.

Each restructured loan was reviewed for impairment at December 31, 2011 and approximately $2.9 million of collateral impairment was present and appropriately reserved for through the Company's normal reserving methodology in the Company's allowance for loan losses.

Other Real Estate Owned

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

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