Area banks suffer along with credit industry
Shares of two suburban community banks rallied Wednesday despite differing financial performance in the fourth quarter.
Wintrust Financial Corp. shares increased 6 percent after the company reported higher than expected earnings, while First Midwest Bancorp Inc. shares climbed 7 percent despite reporting a loss caused by a costly noncash impairment charge related to subprime mortgage securities.
Lake Forest-based Wintrust Financial, parent of 13 banks in northern Illinois and Wisconsin, reported net income was up 14 percent to $15.6 million, or 65 cents per diluted share, for the quarter ended Dec. 31, compared with $15 million, or 57 cents per diluted share, in the year-earlier period. Analysts estimated 59 cents.
Itasca-based First Midwest, operator of 77 locations in the Chicago suburbs, reported a loss of $5.4 million, or 11 cents per diluted share, compared with $27.2 million net income, or 55 cents per diluted share, in the year-earlier period. The loss was caused by a $50 million impairment of collateralized debt obligations related to subprime mortgage loans, according to the bank.
Wintrust Financial stock closed Wednesday at $31.92, up $1.86 per share. First Midwest stock closed Wednesday at $28.01, up $1.99 per share.
In a statement, First Midwest Chairman and CEO John M. O'Meara said the charge reduced fourth-quarter earnings by 67 cents per diluted share. Excluding this charge, earnings per share would have been 56 cents, slightly lower than analyst expectations of 58 cents per diluted share.
Despite the charge, in a conference call Executive Vice President and Chief Financial Officer Paul Clemens said First Midwest did not make significant changes to its reserve level for loan losses because it does not maintain a credit card portfolio and indirect auto and mortgage business constitutes a small portion of the bank's total portfolio.
Wintrust Financial, on the other hand, increased its provision for credit losses to $6.2 million from $1.9 million, reflecting the company's assessment of current net charge-offs and credit quality levels.
In a statement, President and CEO Edward J. Wehmer said the institution's underwriting standards, which are geared toward incurring credit losses in the 20 to 30 basis point range, are in line with its provisions during the 1991-2003 period.
"For over two years we have been predicting the coming of this credit cycle and believe that we have positioned the company appropriately," Wehmer said.
O'Meara said in a statement that reductions in the Federal Reserve's targeted discount rate in December impacted fourth quarter performance, causing the net interest margin to decline by 10 basis points.