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Wintrust Financial Corporation (WTFC - Snapshot Report) reported earnings per share of 70 cents in fourth-quarter 2013, in line with the Zacks Consensus Estimate. Further, results compared favorably with the prior-year quarter figure of 61 cents.
 
For full-year 2013, Wintrust’s earnings per share of $2.75 came in line with the Zacks Consensus Estimate. Further, it came well ahead of the prior-year figure of $2.31 cents. With this, the company has delivered positive earnings surprises in three of the four quarters of 2013.

Wintrust’s results primarily reflect increased net interest income (NII) and lower non-interest expenses. Profitability ratios were also impressive during the quarter. Further, increase in loan and deposit balances and a better asset quality were among other positives. However, top-line showed deterioration during the quarter.

The company’s net income applicable to shareholders of $33.7 million in the reported quarter reflects an increase of 22.7% from the year-ago quarter. Also, for 2013, it came in at $122.9 million, up 26.6% year over year.

Performance in Details

Wintrust’s net revenue declined 5.0% year over year to $1.9 million. However, for 2013, it stood at $7.7 million, up 4% year over year.

Wintrust’s NII on a fully tax equivalent basis rose 7% from the prior-year quarter to $1.4 million. The rise was primarily driven by increase in average earning assets and lower interest expenses. Net interest margin (NIM) climbed 13 basis points (bps) year over year to 3.53%.

Wintrust’s non-interest income fell 29% year over year to $46.4 million, primarily due to decreased mortgage banking income and losses incurred on available-for-sale securities. Notably, the absence of a credible improvement in the weak mortgage market environment across the industry has affected the company as it witnessed declining mortgage revenue in all four quarters of 2013.

Non-interest expenses at Wintrust stood at $127.0 million, down 2% year over. The decline was primarily driven by decrease in other real estate owned (OREO) expenses and personnel expenses, partially offset by rise in occupancy, data processing and equipment expenses.

On a fully tax equivalent basis, efficiency ratio stood at 65.95% declining 18 basis points  year over year. A fall in the ratio reflects improved profitability.

Credit Quality

Credit quality metrics exhibited a marked improvement in the quarter. Wintrust’s provision for credit losses fell 81% from the prior-year quarter to $3.9 million. Net charge-offs as a percentage of loans, excluding covered loans, stood at 0.44% on an annualized basis, down 39 basis points year over year.

As of Dec 31, 2013, excluding the allowance for covered loan losses, the allowance for credit losses came in at 97.6 million or 0.76% of total loans, compared with $122.0 million or 1.03% of total loans as of Dec 30,2012 and $124.9 million or 1.09% of total loans as of Sep 30, 2012.

Balance Sheet

Net loans increased 7% year over year to $13.1 billion. Further, total deposits rose 2% year over year to $14.7 billion.

Capital and Profitability Ratios

Wintrust remained well capitalized. As of Dec 31, 2013, the tangible common equity ratio was 7.8%, up 40 bps year over year. Tier 1 Capital to risk-weighted assets remained stable year over year at 12.1%. However, total capital to risk-weighted assets declined 30 bps to 12.8%.

Return on average assets stood at 0.78%, up 9 bps year over year, while return on average common equity increased 77 bps to 7.56%.

Acquisition

On Oct 18, Wintrust completed the acquisition of Washington-based Diamond Bancorp, Inc, for around $2.9 million. The company assumed assets and deposits worth $169 million and $140 million, respectively, along with goodwill valued at $8.4 million.

Our Viewpoint

Wintrust began 2013 on a positive note. Results reflected a quality performance throughout the year. The company has a solid franchise in the Midwest and is focused on capitalizing on growth opportunities. The continued strategic acquisitions are a reflection of inorganic growth.

However, we remain cautious as a tepid economic recovery, low interest rate environment and stringent regulations may affect the growth prospects in the near term.

Wintrust currently carries a Zacks Rank #2 (Buy).

Among other banks, State Street Corp. (STT - Analyst Report) is scheduled to report fourth-quarter results on Jan 24, while both KeyCorp. (KEY - Analyst Report) and Fifth Third Bancorp (FITB - Analyst Report) are expected to release results on Jan 23.

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