2007—Weathering the Perfect Banking Storm

What Can Wintrust Do?

Treasury Management

•		Retail & Wholesale Lockbox
•		On-Line Lockbox (iBusinessPay)
•		On-Line Banking & Reporting (iBusinessBanking)
•		Remote Deposit Capture (iBusinessCapture)
•		Merchant Card Program
•		Payroll Services (CheckMate)
•		ACH & Wire Transfer Services
•		International Banking Services

Commercial Lending

•		Lending limit of greater than $180 million
•		Commercial & Industrial (Asset Based) Lending
•		Commercial Real Estate, Mortgages & Construction
•		Lines of Credit
•		Letters of Credit
•		Property & Casualty Insurance Premium Financing
•		Life Insurance Financing

Retail Banking

•		Footprint of 15 chartered banks and 77 facilities
•		Deposit Products
•		Home Equity and Installment Loans
•		Residential Mortgages

Wealth Management

•		Asset Management (Individual & Institutional)
•		Financial Planning
•		Brokerage
•		Retirement Plans (Business)
•		Trust & Estate Services (Corporate & Personal)

Specialized Financial Services for:

•		Aircraft Owners
•		Building Management Companies
•		Condominium & Homeowner Associations
•		Insurance Agents & Brokers
•		Municipalities & School Districts
•		Physicians, Dentists and other medical personnel
•		Temporary Staffing & Security Companies

Contents

2		Selected Financial Trends
3		Selected Financial Highlights
4		To Our Fellow Shareholders
8		Overall Financial Performance
10		Our Banking and Wealth Management Locations
11		Our Other Locations and Our Brands
12		Banking Update
14		Update on Our Other Companies
18		Growth and Earnings Strategies
23		Beginning of Financial Review Section
24		Management’s Discussion and Analysis
58		Consolidated Financial Statements
62		Notes to Consolidated Financial Statements
95		Reports of Internal Control
97		Report of Independent Auditors
98		Annual Report on Form 10-K
124		Exhibits
127		Signatures
128		Corporate Locations
132		Corporate Information
Computation of Ratio of Earnings to Fixed Charges
Subsidiaries
Consent of Independent Auditors
Certification of Chief Executive Officer
Certification of the Chief Financial Officer
Section 906 Certification

 

Selected Financial Trends

Note: M=Million

2		Wintrust Financial Corporation

Selected Financial Highlights

 

		Years Ended December 31,
		2007				2006				2005				2004				2003
						(dollars in thousands, except per share data)
Selected Financial Condition Data (at end of year):
Total assets		$	9,368,859			$	9,571,852			$	8,177,042			$	6,419,048			$	4,747,398
Total loans			6,801,602				6,496,480				5,213,871				4,348,346				3,297,794
Total deposits			7,471,441				7,869,240				6,729,434				5,104,734				3,876,621
Notes payable			60,700				12,750				1,000				1,000				26,000
Federal Home Loan Bank advances			415,183				325,531				349,317				303,501				144,026
Subordinated notes			75,000				75,000				50,000				50,000				50,000
Junior subordinated debentures			249,662				249,828				230,458				204,489				96,811
Total shareholders’ equity			739,555				773,346				627,911				473,912				349,837
Selected Statements of Operations Data:
Net interest income		$	261,550			$	248,886			$	216,759			$	157,824			$	120,492
Net revenue (1)			341,638				340,118				310,316				243,276				193,084
Net income			55,653				66,493				67,016				51,334				38,118
Net income per common share — Basic			2.31				2.66				2.89				2.49				2.11
Net income per common share — Diluted			2.24				2.56				2.75				2.34				1.98
Cash dividends declared per common share			0.32				0.28				0.24				0.20				0.16
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin			3.11	%			3.10	%			3.16	%			3.17	%			3.20	%
Core net interest margin(2)			3.38				3.32				3.37				3.31				3.32
Non-interest income to average assets			0.85				1.02				1.23				1.57				1.76
Non-interest expense to average assets			2.57				2.56				2.62				2.86				2.98
Net overhead ratio (3)			1.72				1.54				1.39				1.30				1.22
Efficiency ratio (4)			71.06				66.96				63.97				64.45				63.52
Return on average assets			0.59				0.74				0.88				0.94				0.93
Return on average equity			7.64				9.47				11.00				13.12				14.36
Average total assets		$	9,442,277			$	8,925,557			$	7,587,602			$	5,451,527			$	4,116,618
Average total shareholders’ equity			727,972				701,794				609,167				391,335				265,495
Ending loan-to-deposit ratio			91.0	%			82.6	%			77.5	%			85.2	%			85.1	%
Average loans to average deposits ratio			90.1				82.2				83.4				87.7				86.4
Average interest earning assets to average interest bearing liabilities			106.93				107.78				108.83				109.89				109.68
Asset Quality Ratios:
Non-performing loans to total loans			1.06	%			0.57	%			0.50	%			0.43	%			0.72	%
Non-performing assets to total assets			0.81				0.39				0.34				0.29				0.51
Allowance for credit losses(5) to:
Total loans			0.75				0.72				0.78				0.79				0.77
Non-performing loans			70.81				126.14				155.69				184.13				107.59
Common Share Data at end of year:
Market price per common share		$	33.13			$	48.02			$	54.90			$	56.96			$	45.10
Book value per common share		$	31.56			$	30.38			$	26.23			$	21.81			$	17.43
Common shares outstanding			23,430,490				25,457,935				23,940,744				21,728,548				20,066,265
Other Data at end of year:
Number of:
Bank subsidiaries			15				15				13				12				9
Non-bank subsidiaries			8				8				10				10				7
Banking offices			77				73				62				50				36

2007 Annual Report		3

To Our Fellow Shareholders

Welcome to Wintrust Financial Corporation’s 2007 annual report. We thank you for being a shareholder.

Market Headwinds

For the first 14 years of Wintrust’s existence, our community bank philosophy and related customer service levels produced a company that enjoyed growth rates substantially above industry standards. We committed the capital and a lot of hard work to take advantage of a banking industry that seemed to be turning its back on providing good old fashioned customer service. However, in 2007, management decided to temporarily suspend historical growth patterns due to a number of environmental factors that limited profitable growth.

As we noted in our 2006 Annual Report, the banking environment was characterized by a disadvantageous inverted yield curve, a loosened lending environment devoid of credit spreads and substantial market liquidity. This resulted in intense price competition. In essence, profitable growth at acceptable risk levels was taken away – a tough occurrence for all banks but especially a growth - oriented bank such as ours. It also seemed apparent that a negative credit cycle was soon to be upon us as we continued to see loan deals get done by many different competitors with what we considered unacceptable underwriting terms.

This seems to be the “perfect storm” that formed throughout the past two years in the banking and financial services industry. The environment has produced strong headwinds for almost everyone in the banking sector.

Our Response and Strategies in Place

Our response to the unfavorable environment was to stay committed to our core loan underwriting standards and not sacrifice our asset quality or pricing standards simply to grow outstanding loan balances and short-term profits. Our sincere belief is that if a bank forsakes credit quality in the short run, it will ultimately give back all of the short-term profits many times over in the form of credit losses down the road. Accordingly, since the marketplace was not allowing for profitable growth within acceptable risk parameters, we made a conscious decision to not commit the Company’s capital to growth that did not produce acceptable returns. Rather, we decided to allocate our capital to growing our younger banks and actually shrinking the larger banks by allowing high cost non-core customer relationships to exit. By slowing the growth, we were able to use excess capital to repurchase common stock – an investment that we think was sound given the alternatives.

Just as it may take sailors slightly longer to get to their destination when facing headwinds, we have not sacrificed our long-term growth for short-term profit strategies. We believe that we are sitting in an advantageous spot due to our strategic measures taken during 2007. We maintained our strict adherence to our high core loan underwriting standards, focused more heavily on deposit pricing discipline, worked to shift our deposit mix to be less dependent on higher cost fixed-rate certificates of deposit (“CDs”), and focused more on expense control.

We say we believe we are in an advantageous spot because we think that those banks that stayed true to their credit underwriting standards over the past few years will not be burdened by troubled loan portfolios going forward. We think we are one of those banks who have kept our “powder dry” to fight the ongoing battle and take advantage of future opportunities.

Wintrust is now positioned to resume its previously successful growth strategies. We believe that 2008 will be a year of opportunities on the lending side of the business as many banks are fighting credit issues. Market liquidity has dried up to a certain extent and there has been much disruption in Chicago banking due to several local bank acquisitions. In fact, at year-end 2007, our loan-to-deposit ratio was north of 90% making us “asset driven” again. Being asset driven allows us to get more aggressive on growing the franchise while also allowing for the sale of excess asset generation to take place thereby augmenting income.

Make no mistake, our overall core strategies have remained the same over the years except for this temporary change in tactics. It is our hope that when this credit cycle is over, our investments in the Company’s core strategies

4		Wintrust Financial Corporation

will payoff over the long term with a greater base to generate earnings and increased franchise value to shareholders. We have a resolute interest in growing earnings and our balance sheet for all of our franchises — but only if we can do so in a safe and sound manner.

Credit — Back to Normal

We believe our consistent underwriting standards are geared towards incurring credit losses in the range of 20-30 basis points of average loans which was generally our history from 1991 to 2003. The last few years have been extraordinarily good from a credit loss perspective and our loss ratios have been below the expected range. However, as we have indicated before, we believe the current credit cycle may result in loss ratios closer to pre-2004 levels. In providing you with our best estimates, we are keenly aware that these are uncertain times and no one is larger than the market. The banking business is one where we take measured risks every day through investments in loans and other earning assets. The key is to control the risk and get paid an appropriate amount for taking such risk. We truly believe that we have always maintained consistent underwriting standards that should control risk and limit losses to acceptable levels.

Mortgage Market Turmoil — How We Weathered the Storm

Surely you have all heard or read about the huge problems experienced by the mortgage industry as a whole in 2007. During 2007, our Company originated in excess of $1.9 billion of mortgage loans. We sell the majority of those long-term fixed rate loans to the secondary market in order to reduce interest rate risk. As a condition to selling those loans, we generally retain certain recourse obligations in the event of early payment defaults, misrepresentation of warranties and other matters. As a result of the rapid change in the dynamics of the marketplace, we recorded losses related to those recourse obligations and valuations of mortgages held for sale of approximately $4 million, after-tax. To put this into perspective, this is only about one quarter of one percent of the amount of loans originated. Although we are obviously not pleased with any loss, we do believe it was relatively insignificant compared to the total amount originated during the year. However, we have revised our underwriting standards to limit the exposure to this type of loss in the future. Separately, we are optimistic about the mortgage market in 2008. The lower rate environment that we are currently experiencing should drive more origination volume from customers refinancing their existing mortgages. We continue to add mortgage personnel throughout our banking locations which should help increase mortgage loan production during 2008.

Net Interest Margin Challenges

The Company’s net interest margin remained stable in 2007, with an actual uptick of one basis point to 3.11%. Our core net interest margin, which excludes interest expense associated with Wintrust’s junior subordinated debentures and the interest expense incurred to fund common stock repurchases, increased six basis points to 3.38%.

The interest margin challenges faced by all banks in 2007 are well known: loan pricing pressures, rate cuts by the Federal Reserve and a yield curve not quite recovered from its recent inversion. However, the Company took necessary steps to lower its cost of funds with better deposit pricing discipline and rebalancing its deposit mix from higher cost fixed-rate savings vehicles such as CDs to lower rate savings vehicles like money market, savings and NOW accounts. At the same time, industry underwriting and lending terms appear to be returning to the “norm.” The return of credit spreads and sound underwriting standards in the industry should allow us to better compete on a variety of lending opportunities, while still allowing us to be

2007 Annual Report		5

compensated for our time and risk. However, despite some of these encouraging signs, progress made could very well be offset by the margin compression caused by continued rate cuts by the Federal Reserve Bank.

Repurchasing Shares of Common Stock

Beginning in the later half of 2006, the Company began to repurchase its common shares under plans approved by the Board of Directors. Given declining stock price multiples in the banking sector and our decision to slow growth due to unacceptable market conditions, we thought the repurchase of our shares was a sound investment. In total, since the July 2006 Board authorization, we have repurchased approximately 2.8 million shares at an average price under $43 per share. Accordingly, approximately 11% of the common shares of the Company have been repurchased.

In January 2008, the Company authorized the repurchase of up to another one million shares of our common stock. Our decision to continue our share repurchase program demonstrates the Company’s confidence in its long-term growth and commitment towards building shareholder value. Going forward, we will be selective in repurchasing shares while monitoring growth during the year and making sure we maintain sufficient capital to support growth opportunities.

Our Newest Addition to the Family

On November 1, 2007, the Company announced the completion of its acquisition of 100% of the ownership interests of Broadway Premium Funding Corporation (“Broadway”). Broadway was founded in 1999 and had approximately $60 million of premium finance receivables outstanding at the date of acquisition. Broadway provides financing for commercial property, casualty and professional insurance premiums, mainly through insurance agents and brokers in the northeastern portion of the United States and California. Broadway, now a subsidiary of the Company’s FIRST Insurance Funding (“FIRST”) premium finance unit, expands the footprint of our commercial premium finance receivables niche and serves a segment of small- to mid-sized businesses not previously covered by FIRST. We welcome the Broadway team to the Wintrust family and are excited about the growth opportunities that exist in their niche of the premium finance market.

The Big Banks and Merger Mania

Over the course of 2007, there were a couple of highly publicized bank mergers that affected the markets where our current banks compete. This creates a beneficial environment for the Company as mergers and acquisitions set money in motion. Suddenly, a client that used to be a big fish in a small pond at one of the acquired institutions sees the pond increase in size comparable to an ocean.

Wintrust is uniquely positioned to capture not only retail customers, but new commercial clients as well. Our philosophy of providing the same or better big bank products, coupled with community bank service we are known for, is ideal for this opportunity. We get back to our bread-and-butter and key differentiator, allowing us to position ourselves as having the best customer service around.

As a result, we have gone on the offensive and begun to use the Wintrust brand for the first time in the commercial banking landscape. This includes advertisements, direct mail and other marketing collateral. We hope you enjoy the many Wintrust

6		Wintrust Financial Corporation

commercial customers featured in the “Client Profiles” or in the “Clients Having It All’ sections appearing throughout this Annual Report.

Our Key Advantage of Service, Service, Service

As we have continually stated, our key advantage is our people. Our dedicated staff constantly carries forward our mantra of “Service, Service, Service”.

Our decentralized management approach allows senior management at each franchise to manage their company and their employees. These employees are the key to our success. Our clients and customers truly appreciate the unparalleled service that our valued employees provide.

Giving Thanks

As is customary in our letter to shareholders we feel a debt of gratitude and feel some “thank yous” are in order. Let’s start by thanking our leadership teams—our management and directors. Your stewardship and efforts are an important reason for our success. Thank you.

And then let’s thank our employees and welcome those who recently joined our Wintrust team, either from our acquisition of Broadway Premium Funding, or the launch of one of our new bank facilities, or by joining an existing member of our family. As previously mentioned, our dedicated employees provide our clients and customers the best service around. Thank you.

Thanks as well to our shareholders for keeping us focused on what we do best — growing our franchises by delivering products uniquely positioned to meet the financial needs of consumers with the key differentiator of service.

And finally, thank you to our clients and customers — banking, lending, mortgage, wealth management, premium finance, employment agencies — for trusting us to deliver our products and services. Without you, we don’t exist. Thank you.

In Summary

Muhammad Ali coined a phrase that we think is applicable to our current state of mind as a Company. He developed a strategy he called, “Rope-a-Dope,” with the idea to lie on the ropes of a boxing ring, conserve energy and allow the opponent to strike him repeatedly in hopes of making him tire and open up weaknesses to exploit for the inevitable counterattack, which would eventually lead to victory.

We see 2007 as a year of “conserving energy” and are poised to “push off the ropes” with “gloves off” as we hopefully are quick to come out of the current credit cycle and yield environment.

Your continued support of our business is greatly appreciated and we are excited about making 2008 a good year for the Company. Please enjoy the rest of our 2007 Annual Report. We hope to see you at our Annual Meeting, to be held on Thursday, May 22, 2008 at 10:00a.m. It will be held at the Deer Path Inn located at 255 East Illinois Road in Lake Forest, Illinois.

Sincerely,

John S. Lillard		Edward J. Wehmer		David A. Dykstra
Chairman		President &		Senior Executive Vice President &
		Chief Executive Officer		Chief Operating Officer

2007 Annual Report		7

Overall Financial Performance

In 2007, total assets remained relatively unchanged from 2006, and earnings suffered due to a challenging interest rate environment and other market conditions previously discussed. However, the Company did achieve a record level of loans as we surpassed the $6.8 billion mark.

Core Growth

Though growth was not at the level our shareholders have come to expect, our core balance sheet remains strong. Total assets of $9.4 billion were near our 2006 record of $9.6 billion. Furthermore, the Company has doubled in size in a five-year period, which is a substantial achievement, especially in the competitive financial services industry.

Earnings per diluted share decreased to $2.24 in 2007 from $2.56 in 2006. Shareholders’ equity also decreased as a consequence of the repurchase of our common shares. The amount of treasury stock increased substantially from 2006 as the Company continued to repurchase shares, a demonstration of our belief that our stock was undervalued and represented a good investment relative to other investment alternatives. Despite the treasury stock purchases, book value per common share increased by $1.18, or 3.9%, to $31.56.

Net Revenue

Overall net revenue, which includes net interest income and non-interest income, increased 0.4% to $341.6 million. Our net interest margin remained relatively stable at 3.11% in 2007, up one basis point from the prior year, as we continued to face extremely competitive loan and deposit pricing pressures.

Most banking institutions, ours included, have been affected by the inverted yield curve. When long-term interest rates are lower than short-term interest rates, it squeezes the spread between interest earned on our assets and interest paid on liabilities. While the curve has been begun to move toward a “normal” positive-sloping shape, the Federal Reserve Bank’s rate cuts make for a complicated operating environment. Lower interest rates are generally not favorable to community bank organizations because interest spreads get compressed. Rates on lower cost deposits generally can not be lowered as much as the Federal Reserve’s rate cuts. Asset yields, however, are not so constrained. To counteract deposit pricing pressures, the Company has begun to make progress in shifting its mix of retail deposits away from high-rate CDs into lower cost, variable-rate NOW, money market and wealth management deposits.

Our other main source of revenue, non-interest income, fell 12.2% in 2007 to $80.1 million. The decrease was primarily attributed to $8.5 million less of trading income recognized on interest rate swaps in 2006 and a decline in mortgage banking revenue of $7.5 million. Offsetting these two large decreases were the BOLI death benefit recorded in the third quarter of 2007, the gain recognized on the Company’s investment in an unaffiliated bank holding company that was acquired by another bank holding company and the gain recognized on the sale of Company owned land.

Asset Quality

At December 31, 2007, non-performing assets were $75.7 million, or 0.81%, of total assets, compared to $37.4 million, or 0.39%, of total assets at December 31, 2006. The increase in non-performing assets is concentrated in three credit relationships. These relationships are being carefully monitored with work-out plans in process.

We believe our consistent underwriting standards are geared towards incurring credit losses in the range of 20-30 basis

Clients Having It All

“You have all the parts for our commercial banking needs. By understanding what we are trying to do as a business, you know what needs to get done, and you take care of it quickly for us.”

          — Brian and Greg Panek, Panek Precision

“I switched from my old bank to a Wintrust Community Bank because they provide personal service, they’re always available and — most importantly — they understand the business.”

     — Marc Kresmery, Marc Kresmery Construction LLC

8		Wintrust Financial Corporation

points, which was generally our history from 1991 to 2003. The last few years have been extraordinarily good from a credit loss perspective. As we have indicated before, we believe the current credit cycle may result in loss ratios closer to pre-2004 levels. Both non-performing assets and net charge-offs increased in 2007, but are at levels that are within acceptable operating ranges and are as expected. Sound asset quality has always been a basic operating tenet for us and we are committed to maintaining a good quality loan portfolio. As mentioned earlier, we believe the current credit cycle may result in higher loss ratios in 2008, but hopefully only back to the historical levels we experienced prior to 2004. We believe that the allowance for loan losses is adequate to provide for inherent losses in the portfolio.

Dividend Payouts

In January and July of 2007, our Board of Directors approved semiannual cash dividends of $0.16 per share of outstanding common stock. These dividends were paid in February and August. This annualized cash dividend of $0.32 per share represented a 14% increase over the per share common stock dividends paid during 2006.

And in January 2008, our Board approved a semi-annual cash dividend of $0.18 per share of outstanding common stock. The dividend was paid on February 21, 2008, to shareholders of record as of February 7, 2008. This cash dividend, on an annualized basis, represents a 13% increase over the per share common stock dividends paid during 2007. Following is a historical summary of our increasing dividend distributions:

		Diluted				Dividend				Dividend
Year		Earnings				Per Share				Payout Ratio
2007		$	2.24			$	0.320				14.3	%
2006			2.56				0.280				10.9
2004			2.75				0.240				8.7
2003			2.34				0.200				8.5
2002			1.98				0.160				8.1
2001			1.60				0.120				7.5

While we have increased our dividend every year since we initiated payment of dividends, we continue to retain the majority of our earnings to fund future growth and to build a strong, long-term franchise. Although the payment of future dividends will be subject to our Board’s periodic review of the financial condition, earnings, and capital requirements of the Company, it is our present intent to continue paying regular semiannual cash dividends.

Clients Having It All

“I switched from my old bank because you make banking the way it used to be — I get personal service, even though I am hundreds of miles away. Wintrust is more flexible than the larger banks, with tailored products and services that fit my needs.”
     — John Petrakis, McDonald’s Owner/Operator, Orlando, FL

2007 Annual Report		9

Our Banking and Wealth Management Locations

10		Wintrust Financial Corporation

Our Other Locations and Our Brands

FIRST Insurance/Broadway Premium Finance, Tricom Funding, and WestAmerica Mortgage Distribution

Our Bank Brands

Our Other Brands

2007 Annual Report		11

Banking Update

Retail Banking

As we have grown over the years, many wonder how we can stay true to our community banking model. With 15 chartered banks and 77 facilities, it may seem like a challenging task to outsiders. However, our decentralized, multi-chartered approach means that our local leadership teams maintain proper focus on the communities we serve and on our customers.

In 2007, we made a renewed commitment to the customer service experience. We sent mystery shoppers to our retail facilities to gauge how well we are satisfying customer needs and implementing cross-sell initiatives. The shopping results showed that the consistency of the retail experience across our 15 chartered banks is solid, but can always be improved. In a tough interest rate environment where it does not make sense to compete on rates, we believe — more than ever before — that top-notch customer service is our strongest point of differentiation.

Below is a chart of FDIC deposit market share as of June 30, 2007, for each Wintrust main bank zip code.

										Deposit
										Market
		De Novo				Acquisition				Share
Bank		Opening				Date				Rank
1. Lake Forest Bank			12/91							1 (out of 10)
2. Hinsdale Bank			10/93							2 (out of 14)
3. North Shore Bank			9/94							1 (out of 7)
4. Libertyville Bank			10/95							1 (out of 9)
5. Barrington Bank			12/96							2 (out of 9)
6. Crystal Lake Bank			12/97							2 (out of 15)
7. Northbrook Bank			11/00							3 (out of 14)
8. Advantage Bank							10/03			2 (out of 15)
9. Village Bank							12/03			1 (out of 10)
10. Beverly Bank			4/04							3 (out of 9)
11. Wheaton Bank							9/04			3 (out of 19)
12. Town Bank							10/04			1 (out of 5)
13. State Bank							1/05			1 (out of 8)
14. Old Plank Bank			3/06							4 (out of 13)
15. St. Charles Bank							5/06			16 (out of 20)

With aggressive marketing, all retail locations are striving increase penetration into their markets and increase market share. The tried-and-true approach is to erode the market share of “big bank” competitors. Bank mergers and acquisitions in the Chicagoland area generally assist us in this task. We are well-positioned as a customer-centric alternative to the big banks in our markets. This positioning is central to our continued retail growth.

Indeed, as the true community banks in our markets, we provide a number of value-added services that the big banks can’t or won’t offer. From community shredding days to credit scoring seminars to events for children via our Junior Savers Club to travel clubs for our senior citizen customers, our banks are clearly more than just a place to make deposits. We are fully invested in the communities we serve, and it doesn’t just stop at the bank level. Our bankers are actively involved in their communities and local organizations, effectively putting community interests first in all they do.

Commercial Banking

In 2006, Wintrust banks enhanced the infrastructure, sales people and products to better enable us to go head–to–head with larger banks. This year proved to be an opportune time for our aggressive rollout and positioning of these services. Big banks were swallowing up the banking leaders in our Chicago bank market. For the first time in our Company’s history we began marketing the Wintrust Financial Corporation name to establish a brand in the commercial banking arena.

Our efforts started with a letter to the top 100 personal banking customers for each individual bank brand that were identified as local businesspersons. The letter introduced Wintrust, but also positioned the bank as locally managed, with local decision making authority. However, we let them in on the fact their local community bank is not just that. Behind their community bank and its superior customer service is a larger financial services company. The response was favorable with many customers surprised and receptive to the news. They know that

Clients Having It All

“My Wintrust Bank is easy to do business with, trusting, accommodating and flexible. They have been great to work with and have made business easier by customizing products to fit my company’s specific needs.”
     — Todd Augustine, President, Augustine Custom Homes, Inc., Fox Valley Homebuilders Association

12		Wintrust Financial Corporation

our community banks develop and foster relationships, both in personal and commercial banking.

Given the favorable response to our initial efforts, the Company followed up with advertising in local and regional business publications. The original advertisements (three of the four can be viewed on page 6) were based upon one of our more historically successful anti-big bank merger advertisements. From July to December, we ran this campaign of four advertisements, followed with direct mail pieces to targeted commercial and small business lists. The response to our commercial banking initiative has been gratifying. We will continue to pursue growth in this area as we truly believe we can competitively offer all the commercial services that our customers need and do so in a more tailored fashion than our large bank competitors.

Wintrust has also developed a few specialty divisions as needs have become apparent within our commercial banking business. Wintrust Commercial Realty Advisors, based out of our Northbrook Bank, provides brokering services to some of our commercial relationships for loans that do no necessarily fit the criteria for our Banks’ loan portfolios. Yet, we maintain the primary relationship and receive fees for this service. Wintrust Government Funds is charged with assisting our Banks in the municipal, school districts and other institutional arenas. Physicians Financial Care, based out of our Barrington and Village Banks, is providing specialized, personal and commercial banking, as well as financial planning needs to doctors in our market areas.

For 2008, Wintrust plans to continue aggressive commercial marketing to further spread our message of community bank service, backed by big bank resources and technology. Our clients “Have It All” and we want prospective clients to know they can too.

Clients Having It All

“At Plastic Bottle Corporation, I’m committed to my customers, employees and vendors. I believe in trust and integrity. I expect that from my bank as well, and that’s what I get from our banking relationship. We mold plastic bottles, you mold relationships. You’ve wanted to understand our business first, and then help with our financial needs. It’s a relationship that works.”
     - Stuart Feen, President, Plastic Bottle Corporation

2007 Annual Report		13

Update on Our Other Companies

Wayne Hummer Wealth Management

As one of the oldest and most successful Chicago-based wealth management organizations, Wayne Hummer Wealth Management (“Wayne Hummer”) has more than 170 professionals, over 15,000 clients and approximately $7 billion in client assets under administration. Wayne Hummer marked its fifth year as a Wintrust company in 2007, and it has grown from just two offices to 23 branch locations, mostly in our community banks, in that time.

A provider of comprehensive wealth management services including financial planning, investments, trust services, asset management and insurance, Wayne Hummer has a strong heritage of ethics, integrity, client service and dependability. We offer all the products, technology and capabilities of a national company with the personal service and attention of a boutique wealth management firm.

The strategy of cross-selling Wintrust bank customers our wealth management products and services is working. For 2007, Wayne Hummer’s referral program generated more than 2,400 referrals from over 350 Wintrust bankers. Both clients and our bankers are realizing the benefits of getting a complete array of financial solutions from their hometown bank.

Significant investments have been made in the core business as well. In October 2007, Wayne Hummer moved its headquarters to a new location right above Union Station in downtown Chicago. The move allowed Wayne Hummer to centralize all downtown employees to a single floor, resulting in better servicing of our clients’ needs. We also added 12 net new wealth managers to our stable of professionals.

Since the acquisition of the Wayne Hummer Companies in 2002, we have focused on providing smooth integration of all the wealth management units together and into our banking network. We have successfully established one brand image and upgraded the capabilities throughout the wealth management system. The trust arm of the wealth management companies continues to have success in servicing existing customers and attracting new ones. In fact, in 2007, the trust assets under administration surpassed the $1 billion level. Likewise, our brokerage business continues to grow its revenue base after significant investments in state-of-the-art systems and upgraded product offerings. Growth associated with Financial Advisors located in our banking locations is especially promising with most reporting double-digit growth in their brokerage revenue.

The third aspect of the wealth management business is asset management, an area we are targeting for significant future growth. In order to provide for the growth of this important aspect of the business model, it was essential that we supplement our existing talent base to provide the appropriate infrastructure for growth. To that end, in the first quarter of 2008, the ongoing search for additional senior management resulted in the hiring of a new Chief Investment Officer and new Product Head for our asset management division. We are excited about the opportunities that exist in the marketplace and the national recognition and skill set that recent executive hires are bringing to the table. We intend to build a comprehensive array of products to fill out a diversified aggregate portfolio. Our steadfast commitment

14		Wintrust Financial Corporation

to invest in and grow the asset management business coupled with the rich heritage of the Wayne Hummer franchise should enable us to develop new winning investment strategies for our private clients and institutional investors.

WestAmerica Mortgage Company

In 2007, WestAmerica focused on improving operating efficiencies, boosting service standards and managing every production branch to contribute to overall profitability. This focus was necessary with the mortgage industry in a state of disarray as a result of the widespread issues surrounding sub-prime mortgages. Additionally, warehouse interest spreads were virtually non-existent with the inverted yield curve and, as noted earlier in this report, we had losses associated with certain recourse obligations due primarily to early payment defaults on loans that had been sold into the secondary market.

However, we remain cautiously optimistic that 2008 will bode well for our mortgage operation. The yield curve has improved somewhat in early 2008, which should provide additional margins on loans that we warehouse, pending sale to the secondary market. Also, the overall rate environment has lowered which, if rates stay low, should provide for increased refinancing volumes. Further, recent increases in conventional and government loan limits should help WestAmerica’s business.

We will also continue our ongoing effort to gain further presence in more of our banking facilities. To that end, WestAmerica will boost its presence with lobby signage, point-of-sale displays, and participation in every possible cross-sell opportunity. This should build awareness to over 125,000 Wintrust bank households at a relatively low cost.

Clients Having It All

“The people at our Wintrust Community Bank raised the comfort level with what we had to do. This was a major project. Everyone made us feel comfortable, from the top down. The bank worked with us and educated us every step of the way. They were knowledgeable, walked us through the process and even did the leg work for us. At the time, no other bank could step up to the plate and deliver. Our bank knew our mission and was very supportive. I would highly recommend it to anyone to pursue a Wintrust Bank for a commercial project like ours. Their communication is excellent, they have superior knowledge of the process, and demonstrate a willingness and passion for getting the job done.”

     — Robert M. Martens, Chief Executive Officer, Family Service & Community Mental Health Center for McHenry County

2007 Annual Report		15

FIRST Insurance Funding Corp.

The premium finance industry in 2007 faced a second tough year as the volatile interest rate environment and soft insurance market saw premiums drop up to 20% in some markets, reducing loan volume and interest margins. However, unlike many of its competitors who saw a decline in origination volumes due to the soft insurance market, FIRST increased its loan production level slightly to $3.1 billion while it increased its number of loans by almost 10%. The increase in the number of accounts is reflective of the solid reputation that FIRST has in the premium finance arena and the hard work put forth by the team at FIRST. It is important to understand that the expanded customer base positions us well for substantial increases in volumes when the insurance market swings back to higher premium levels.

Like the Wintrust banks, FIRST is also positioning itself as the provider of complete financial solutions. One new product line established by FIRST in 2007 was the financing for life insurance polices tied to high-net-worth estate planning needs.

Additionally, working with our subsidiary bank, Lake Forest Bank, FIRST can provide its independent insurance agency customers with loans for agency perpetuation, acquisitions, equipment, real estate and working capital. Coupled with FIRST’s core premium finance business, its leading edge technology and Lake Forest Bank’s deposit products, FIRST’s customers have access to a full suite of financial tools to help make them more successful in a very competitive market.

The November addition of Broadway Premium Funding Corporation, one of the leaders in premium financing for the small-to middle-market that will continue to run as a separate brand, gives Wintrust access to a segment of smaller and midsized insurance agents not previously covered by FIRST.

As one of the largest premium finance organizations in the country, FIRST and Broadway continue to prove their industry leadership with cutting edge technology and unique products and services.

Clients Having It All

“The products and services I’ve received from my Wintrust Community Bank really measure up. It is clear that the bank is committed to working with businesses and serving their needs. I get the products available at a large, downtown bank and the personalized service of a small, hometown bank. I’m not just a number here — I’ve become a bigger fish in a smaller pond.”
     — Mark E. Echales, Executive Vice-President & GM, American Building Services

16		Wintrust Financial Corporation

Tricom Inc. of Milwaukee

The general temporary staffing industry once again saw temperate growth in 2007. This is causing intensified pricing competition among providers of temporary staffing industry financing and back office solutions. Nonetheless, Tricom maintained a net revenue contribution to the Company of approximately $8 million in 2007, and a net income contribution of $1.4 million. Acceptable results considering the significant compression of spreads in the industry.

The strategy of aggressive marketing is working. Juxtaposing Tricom’s strengths against the identified weaknesses of our primary competition is a method being used to generate awareness of the benefits of working with Tricom. In Tricom’s business, the key driver to growth is demonstrating our service levels and capabilities coupled with fair pricing. We think we provide better and more services per dollar of cost than our competitors. As we unbundled the price of combined services and fully disclose our pricing structure, potential customers consistently realize that Tricom really does offer excellent value. We fully intend to build the customer base of this franchise in 2008.

Clients Having It All

“i-Business Banking, superior customer service and the experienced professionals at my community bank define what’s best to me. I expect a high level commitment from my business partners and that’s what I’m now getting from my bank. You can bet the house on it!”
     — Patrick A. Finn, Custom Homes and Remodeling

“When we partnered with a Wintrust Community Bank, we knew that our decision was as important as choosing the quality products that go into every project we build. We switched from our old bank to a Wintrust Community Bank because they made banking the way it used to be — we get personal service.”
     — Mike & Bob Brenner, Micro Builders

2007 Annual Report		17

Growth and Earnings Strategies

It is Time For Everyone to Have It All

Almost since our inception, we’ve had the same mantra — “Same or better products as the big banks. Same or better technology as the big banks. Win customers with exceptional service.” Our product offering and technology have always put us on the same playing field as the big-and mega-national banks. What has always differentiated us is service.

Service First

We make fulfilling clients’ needs our top priority, whether in banking, mortgages, wealth management or any of our other businesses. This results in more satisfied customers and higher customer loyalty.

Over the years, we’ve always measured our customers’ level of satisfaction and have been proud of our results. In 2007, we went one step further and began a Mystery Shopping program with our banks. While we confirmed what we always knew, that our banks performed better than our peers, we also learned that there is always room for improvement. This valuable tool now presents us with new opportunities to train our employees and improve our already high level of customer service.

To ensure customer service improvements at our banking facilities, each charter is appointing an Ambassador of Customer Experience, who will make it his or her job to ensure each banking facility is as warm, inviting, attractive, and functional from a customer’s perspective as it possibly can be. In other words, we continue to look for all possible ways to not become complacent with our level of service but rather find ways to always improve upon the most important differentiating aspect of our business.

Proven Recipe for a Strong Franchise

In 2007, we started reminding everyone, customers and non-customers that with Wintrust banks they could in fact “Have It All — Big Bank Resources and Community Bank Service.” This belief has always been at the core of what we do and allowed us to develop a long-term recipe for success:

	1.		Start with a strong base of community banks;
	2.		Add a growing commercial banking business;
	3.		Fold in expanding wealth management services; and
	4.		Top off with asset niches and other income generators.

1. Start with a Strong Base of Community Banks

Wintrust’s 15 bank charters and 77 locations are the backbone of our organization. It is here that we strengthen our relationships, serve our communities and build our business. Nine banks and 56 facilities were de novo launches. The remaining banks and locations have been added via acquisition since 2003. We will continue to add additional branches via de novo launches and perhaps acquisition if the right opportunity presents itself.

Deposit Market Share-Chicago MSA

		At June 30, 2007								At June 30, 2006
		In-market				Deposit				In-market				Deposit
		Deposit				Market				Deposit				Market
Bank Holding Company		Dollars				Share				Dollars				Share
1) JP Morgan Chase & Co. *		$38.9 BB					14.5	%		$40.1 BB					15.3	%
2) ABN AMRO Holding N.V. *		$34.6 BB					12.9	%		$37.0 BB					14.1	%
3) Bank of Montreal *		$29.7 BB					11.1	%		$25.6 BB					9.8	%
4) Northern Trust Corporation		$8.9 BB					3.3	%		$7.3 BB					2.8	%
5) Fifth Third Bancorp *		$8.4 BB					3.1	%		$8.5 BB					3.2	%
6) Corus Bankshares		$8.4 BB					3.1	%		$8.2 BB					3.2	%
7) Royal Bank of Scotland Group *		$7.8 BB					2.9	%		$7.3 BB					2.8	%
8) Citigroup, Inc. *		$7.6 BB					2.8	%		$7.3 BB					2.6	%
9) Wintrust Financial Corporation		$7.2 BB					2.7	%		$7.2 BB					2.8	%

Source: FDIC website — Summary of Deposits as of June 30, 2007 and June 30, 2006. Market share data is for the Chicago Metropolitan Statistical Area.

* - Corporate Headquarters is out-of-state.

18		Wintrust Financial Corporation

Since our inception in 1991, we’ve used a proven mix of operating and marketing strategies that allow us to position ourselves differently from the centralized big banks and to better deliver our community bank products and services. Our unique growth strategies include:

Decentralized Management. The management teams at each of our 15 banks ultimately control the fate of their banks. Each has profit responsibilities and the authority to make decisions locally. Our local decision making structure results in more flexibility and customized products to better meet local needs. It also allows better pricing, quicker decisions, more community involvement and customer service more in tune with local customers and businesses. This autonomy lets us attract and retain the best and most entrepreneurial bankers in the area who embrace the responsibility, accountability and the glory.

Local Board and Local Bankers. Each bank is governed by a local board of directors made up of business and community leaders who are influential in the bank’s market. These boards not only bring local oversight, they also supply local contacts and their involvement is required to make our banks real community banks.

We staff our banks with local bankers who are deeply involved and well known in their communities. Their local roots are what make each Wintrust bank a good hometown bank. Though the “Shop Locally” fads often come and go, we know that most people prefer to bank with the professionals and institutions they know. Ultimately, everyone wants to work with local bankers that know them and can better meet their needs.

Local Branding. We not only run our banks locally, we also brand many of our banks and branches after the local communities. The Advantage Bank group is a good example, with its branches also positioned locally as Old Town Bank & Trust of Bloomingdale, Elk Grove Village Bank & Trust and Roselle Bank & Trust.

Aggressive and Creative Marketing. When Wintrust enters a new market, we have a variety of very aggressive introductory marketing programs. These are designed to quickly acquire new customers, expand our customer base and allow us to grow into our overhead and reach profitability quickly.

After our introductory period, our banks continue to be aggressive with marketing to grow household penetration and accounts per household. We do this with targeted direct mail and consistent campaigns that build our distinct community bank positioning. Sometimes, this may take the form of ads that poke fun at the big banks, positioning them as profits-over-service institutions. Other times, it’s simply a matter of defining what community banking is and proving that Wintrust banks live up to that definition.

2007 Annual Report		19

2. Add a Growing Commercial Banking Business

Mid-2007 saw a new marketing initiative from Wintrust. For the first time in our history, we started promoting the Wintrust brand to commercial customers. Our “fish” campaign began to promote Wintrust’s complete suite of commercial banking products and superior customer service.

In 2008, we’ll continue this with our “Have It All” campaign. Focusing on customer testimonials, this series of ads and direct mail highlights the complete financial solutions we’ve provided to Wintrust commercial customers, while promoting our key differentiator — service and strong relationships.

As in years past, our key target is middle market commercial and industrial businesses and our primary competition is the larger banks. We have sophisticated treasury management capabilities and technology that are every bit as good as the big banks and the professionals who know how to sell and implement these programs.

The opportunities available to Wintrust in 2008, especially in commercial banking, are almost incalculable. The acquisitions of some competitors and the credit foibles of others have opened up a window that the Wintrust banks can perfectly fit through.

3. Fold in Expanding Wealth Management Services

The wealth management services provided by our three Wayne Hummer companies (Investment, Trust and Asset Management) allow us to be complete financial providers to all Wintrust customers.

We still have an amazing opportunity to grow our investment and trust groups within our community banks. Our Banks are in most of the desirable markets of northeastern Illinois and southern Wisconsin. We will continue to convince our bank customers that we can serve their wealth management needs better than the big-box type, national firms.

Wayne Hummer Asset Management Company is also primed to see real growth in 2008. The appointment of Daniel J. Cardell, CFA, as President and Chief Investment Officer and Todd D. Doersch as Head of Product Management, will enable us to develop new investment strategies for our private clients and institutional investors and be a key step in realizing our vision of becoming the area’s premier money manager.

As in previous years, we will continue increasing the number of Wayne Hummer Wealth Management personnel at our Banks. We are concentrating on opportunities for new wealth management experts that live within our communities, giving them the opportunity, like our bankers, to work in the same communities in which they live.

4. Top Off with Asset Niches and Other Income Generators

One of the things that allows our community banks to be flexible in meeting the needs of customers and not chasing the latest banking fads is Wintrust’s commitment to asset niches and other income generators.

Many community and regional banks have difficulty generating loans from the local consumers and small businesses that exceed 60% of their lending capacity without compromising credit quality. Some overcome this by making questionable loans or following the nationals into questionable sectors.

Clients Having It All

“I switched from my old bank to a Wintrust Community Bank because I get personal service from them. They know who I am, and they help me take care of my business.”
     — Vicki Baker, Gifts of Distinction

20		Wintrust Financial Corporation

Wintrust overcomes this limitation by augmenting our community banks’ loan portfolios with non-traditional earning assets. This improves the profitability of our community banks, gives us additional income to continue to invest in growth, diversifies our loan portfolios and allows the banks to maintain their credit standards. Asset niches allow us to grow the right way, so we never feel compelled to pursue bad credits for the sake of growth.

Wintrust banks and their subsidiaries operate a number of companies that specialize in non-traditional bank lending functions. Non-bank asset niches account for 16.3% of total loans while specialty banking asset niches account for 5.6%.

% of Total Loans

Non-Bank Asset Niches
• Premium finance lending (FIRST and Broadway)			15.9	%
• Temporary staffing industry financing (Tricom)			0.4	%
			16.3	%
Specialty Banking Asset Niches
• Indirect consumer (primarily auto lending at Hinsdale Bank)			3.5	%
• Mortgage warehouse lending (Hinsdale Bank)			0.8	%
• Condominium and association lending (Community Advantage- Barrington Bank)			0.7	%
• Small craft aviation lending (NorthAmerican Aviation Finance-Crystal Lake Bank)			0.6	%
			5.6	%

We also continue to develop fee based services and internal specialties that help Wintrust diversify revenue. This includes not only our wealth management (Wayne Hummer) and residential mortgage (WestAmerica) companies, but also a number of other specialties like commercial mortgage brokerage and municipal services.

Acquisitions

Acquisitions remain an important and viable source of growth for many companies. Since 1999, Wintrust has added a number of banking and other complementary businesses via acquisition. These acquisitions are an important tactic for Wintrust to add key strategic and niche assets, as well as expand into banking locations and markets, creating value for our shareholders.

Banking Acquisitions. Over the past several years, we’ve been contacted by many Midwestern community banks with the goal of merging their community-based bank and branches into the Wintrust family. This year has not been any different. While we entertained several proposals, there were no opportunities that brought the necessary value to Wintrust.

It is our goal to continue to add new banks in attractive markets, either on a de novo basis or by acquisition, always taking into account business sense and shareholder value. Our bank acquisitions have proved successful in the past and have grown deposits, assets, and market share.

Other Acquisitions. We also continue to evaluate non-banking opportunities. These include wealth management and asset or fee income generators. Adding these types of companies will diversify our earning assets and fee-based income businesses to supplement and diversify Wintrust’s revenue stream.

2007 Annual Report		21

22		Wintrust Financial Corporation

Beginning of Financial Review Section

Now that you have read some of the highlights for the Company in the year 2007, take a closer look at the full story of our financial performance in the remaining pages of our Annual Report.

Contents of Financial Review Section

Page 24		Management’s Discussion and Analysis
Page 58		Consolidated Financial Statements
Page 62		Notes to Consolidated Financial Statements
Page 95		Reports of Internal Control
Page 97		Report of Independent Auditors
Page 98		Annual Report on Form 10-K
Page 124		Exhibits
Page 127		Signatures
Page 128		Corporate Locations
Page 132		Corporate Information

2007 Annual Report		23

Management’s Discussion and Analysis

 

FORWARD-LOOKING STATEMENTS

This document and the documents incorporated by reference herein contain forward-looking statements within the meaning of federal securities laws. Forward-looking information in this document can be identified through the use of words such as “may,” “will,” “intend,” “plan,” “project,” “expect,” “anticipate,” “should,” “would,” “believe,” “estimate,” “contemplate,” “possible,” and “point.” Forward-looking statements and information are not historical facts, are premised on many factors, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, which may include, but are not limited to, those listed below and the risk factors discussed in Item 1A on page 115 of this Report. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s projected growth, anticipated improvements in earnings, earnings per share and other financial performance measures, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial results of condition from expected developments or events, the Company’s business and growth strategies, including anticipated internal growth, plans to form additional de novo banks and to open new branch offices, and to pursue additional potential development or acquisitions of banks, wealth management entities or specialty finance businesses. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:

	•		Competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services).
	•		Changes in the interest rate environment, which may influence, among other things, the growth of loans and deposits, the quality of the Company’s loan portfolio, the pricing of loans and deposits and interest income.
	•		The extent of defaults and losses on our loan portfolio.
	•		Unexpected difficulties or unanticipated developments related to the Company’s strategy of de novo bank formations and openings. De novo banks typically require 13 to 24 months of operations before becoming profitable, due to the impact of organizational and overhead expenses, the startup phase of generating deposits and the time lag typically involved in redeploying deposits into attractively priced loans and other higher yielding earning assets.
	•		The ability of the Company to obtain liquidity and income from the sale of premium finance receivables in the future and the unique collection and delinquency risks associated with such loans.
	•		Failure to identify and complete acquisitions in the future or unexpected difficulties or unanticipated developments related to the integration of acquired entities with the Company.
	•		Legislative or regulatory changes or actions, or significant litigation involving the Company.
	•		Changes in general economic conditions in the markets in which the Company operates.
	•		The ability of the Company to receive dividends from its subsidiaries.
	•		The loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank.
	•		The ability of the Company to attract and retain senior management experienced in the banking and financial services industries.

Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward looking statement made by or on behalf of Wintrust. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. Wintrust does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Persons are advised, however, to consult any further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission (“SEC”) and in its press releases.

The Company undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this Annual Report.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the significant factors affecting the operations and financial condition of Wintrust for the three years ended December 31, 2007. This discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto, and Selected Financial Highlights appearing elsewhere within this report.

24				Wintrust Financial Corporation

 

OPERATING SUMMARY

Wintrust’s key measures of profitability and balance sheet changes are shown in the following table (dollars in thousands, except per share data):

														% or				% or
		Years Ended												basis point				basis point
		December 31,												(bp)change				(bp)change
		2007				2006				2005				2006 to 2007				2005 to 2006
Net income		$	55,653			$	66,493			$	67,016				(16)%				(1)%
Net income per common share — Diluted		$	2.24			$	2.56			$	2.75				(13)%				(7)%
Net revenue (1)		$	341,638			$	340,118			$	310,316				– %				10%
Net interest income		$	261,550			$	248,886			$	216,759				5 %				15%
Net interest margin (5)			3.11	%			3.10	%			3.16	%		1 bp				(6)bp
Core net interest margin(2)(5)			3.38	%			3.32	%			3.37	%		6 bp				(5)bp
Net overhead ratio (3)			1.72	%			1.54	%			1.39	%		18 bp				15 bp
Efficiency ratio(4)(5)			71.06	%			66.96	%			63.97	%		410 bp				299 bp
Return on average assets			0.59	%			0.74	%			0.88	%		(15)bp				(14)bp
Return on average equity			7.64	%			9.47	%			11.00	%		(183)bp				(153)bp
At end of period:
Total assets		$	9,368,859			$	9,571,852			$	8,177,042				(2)%				17%
Total loans		$	6,801,602			$	6,496,480			$	5,213,871				5%				25%
Total deposits		$	7,471,441			$	7,869,240			$	6,729,434				(5)%				17%
Total equity		$	739,555			$	773,346			$	627,911				(4)%				23%
Book value per common share		$	31.56			$	30.38			$	26.23				4%				16%
Market price per common share		$	33.13			$	48.02			$	54.90				(31)%				(13)%
Common shares outstanding			23,430,490				25,457,935				23,940,744				(8)%				6%

(1)		Net revenue is net interest income plus non-interest income.
(2)		Core net interest margin excludes the effect of the net interest expense associated with Wintrust’s junior subordinated debentures and the interest expense incurred to fund common stock repurchases.
(3)		The net overhead ratio is calculated by netting total non-interest expense and total non-interest income and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency.
(4)		The efficiency ratio is calculated by dividing total non-interest expense by tax-equivalent net revenue (excluding securities gains or losses). A lower ratio indicates more efficient revenue generation.
(5)		See “Non-GAAP Financial Measures/Ratios” for additional information on this performance measure/ratio.

Please refer to the Consolidated Results of Operations section later in this discussion for an analysis of the Company’s operations for the past three years.

NON-GAAP FINANCIAL MEASURES/RATIOS

The accounting and reporting policies of the Company 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), core net interest margin and the efficiency ratio. Management believes that these measures and ratios provide users of the Company’s financial information with 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 the 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.

2007 Annual Report		25

 

Management also evaluates the net interest margin excluding the interest expense associated with the Company’s junior subordinated debentures and the interest expense incurred to fund common stock repurchases (“Core Net Interest Margin”). Because junior subordinated debentures are utilized by the Company primarily as capital instruments and the cost incurred to fund common stock repurchases is capital utilization related, management finds it useful to view the net interest margin excluding these expenses and deems it to be a more meaningful view of the operational net interest margin of the Company.

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 years ended December 31, 2007, 2006 and 2005 (dollars in thousands):

		Years Ended
		December 31,
		2007				2006				2005
(A) Interest income (GAAP)		$	611,557			$	557,945			$	407,036
Taxable-equivalent adjustment
- Loans			826				409				531
- Liquidity management assets			2,388				1,195				777
- Other earning assets			13				17				19
Interest income — FTE		$	614,784			$	559,566			$	408,363
(B) Interest expense (GAAP)			350,007				309,059				190,277
Net interest income — FTE		$	264,777			$	250,507			$	218,086
(C) Net interest income (GAAP) (A minus B)		$	261,550			$	248,886			$	216,759
Net interest income — FTE		$	264,777			$	250,507			$	218,086
Add: Interest expense on junior subordinated debentures and interest cost incurred for common stock repurchases(1)			23,170				17,838				14,672
Core net interest income — FTE(2)		$	287,947			$	268,345			$	232,758
(D) Net interest margin (GAAP)			3.07%				3.07%				3.14%
Net interest margin — FTE			3.11%				3.10%				3.16%
Core net interest margin — FTE(2)			3.38%				3.32%				3.37%
(E) Efficiency ratio (GAAP)			71.74%				67.28%				64.25%
Efficiency ratio — FTE			71.06%				66.96%				63.97%

(1)		Interest expense from the junior subordinated debentures is net of the interest income on the Common Securities owned by the Trusts and included in interest income. Interest cost incurred for common stock repurchases is estimated using current period average rates on certain debt obligations.
(2)		Core net interest income and core net interest margin are by definition a non-GAAP measure/ratio. The GAAP equivalents are the net interest income and net interest margin determined in accordance with GAAP (lines C and D in the table).

OVERVIEW AND STRATEGY

Wintrust is a financial holding company, providing traditional community banking services as well as a full array of wealth management services. The Company has grown rapidly since its inception and its Banks have been among the fastest growing community-oriented de novo banking operations in Illinois and the country. As of December 31, 2007, the Company operated 15 community-oriented bank subsidiaries (the “Banks”) with 77 banking locations. During 2007, the Company acquired a premium finance company and opened five new bank branches. During 2006, the Company acquired one bank with five locations, opened its ninth de novo bank and opened five new branches. However, the Company temporarily curtailed balance sheet growth trends in 2007 given the interest rate and credit environments. Additionally, the historical financial performance of the Company has been affected by costs associated with growing market share in deposits and loans, establishing new banks and opening new branch facilities, and building an experienced management team. The Company’s experience has been that it generally takes 13-24 months for new banking offices to first achieve operational profitability.

Management’s ongoing focus is to balance further asset growth with earnings growth by seeking to fully leverage the existing capacity within each of the Banks and non-bank subsidiaries. One aspect of this strategy is to continue to pursue specialized lending or earning asset niches in order to maintain the mix of earning assets in higher-yielding loans as well as diversify the loan portfolio. Another aspect of this strategy is a continued focus on less aggressive deposit pricing at the Banks with significant market share and more established customer bases.

Wintrust also provides a full range of wealth management services through its trust, asset management and broker-dealer subsidiaries.

26				Wintrust Financial Corporation

 

De Novo Bank Formations, Branch Openings and Acquisitions

The Company developed its community banking franchise through the formation of nine de novo banks, the opening of branch offices of the Banks and acquisitions. Following is a summary of the expansion of the Company’s banking franchise through newly chartered banks, new branching locations and acquisitions over the last three years.

2007 Banking Expansion Activity
Opened the following branch locations

•		Hoffman Estates, Illinois, a branch of Barrington Bank
•		Hartland, Wisconsin, a branch of Town Bank
•		Bloomingdale, Illinois, a branch of Advantage Bank
•		Island Lake, Illinois, a branch of Libertyville Bank
•		North Chicago, Illinois, a branch of Lake Forest Bank

Closed the following branch location

•

Glen Ellyn Bank, temporary facility opened in 2005, a branch of Wheaton Bank

2006 Banking Expansion Activity

Opened the Company’s ninth de novo bank

•

Old Plank Trail Bank in Frankfort, Illinois

Opened the following branch locations

•		St. Charles, Illinois, a branch of St. Charles Bank
•		Algonquin Bank & Trust, a branch of Crystal Lake Bank
•		Mokena, Illinois, a branch of Old Plank Trail Bank
•		Elm Grove, Wisconsin, a branch of Town Bank
•		New Lenox, Illinois, a branch of Old Plank Trail Bank

Acquired the following banks

•

Hinsbrook Bank with locations in Willowbrook, Downers Grove, Glen Ellyn, Darien and Geneva

2005 Banking Expansion Activity

Opened the following branch locations

•		Wales, Wisconsin, a branch of Town Bank
•		Glen Ellyn Bank, a branch of Wheaton Bank
•		West Northbrook, a branch of Northbrook Bank
•		Lake Bluff — drive through facility added to existing banking office; a branch of Lake Forest Bank
•		Northwest Highway in Barrington, a branch of Barrington Bank
•		Palatine Bank & Trust, a branch of Barrington Bank Acquired the following banks
•		State Bank of The Lakes with locations in Antioch, Lindenhurst, Grayslake, Spring Grove and McHenry
•		First Northwest Bank with two locations in Arlington Heights

Closed the following branch location

•

Wayne Hummer Bank, a branch of North Shore Bank

Earning Asset, Wealth Management
and Other Business Niches

As previously mentioned, the Company continues to pursue specialized earning asset and business niches in order to maximize the Company’s revenue stream as well as diversify its loan portfolio. A summary of the Company’s more significant earning asset niches and non-bank operating subsidiaries follows.

Wayne Hummer Investments LLC (“WHI”), a registered broker-dealer, provides a full-range of investment products and services tailored to meet the specific needs of individual and institutional investors throughout the country, primarily in the Midwest. In addition, WHI provides a full range of investment services to clients through a network of relationships with community-based financial institutions located primarily in Illinois. Although headquartered in Chicago, WHI also operates an office in Appleton, Wisconsin that opened in 1936 and serves the greater Appleton area. As of December 31, 2007, WHI had branch locations in offices in a majority of the Company’s fifteen banks. WHI had approximately $5.6 billion in client assets at December 31, 2007.

Wayne Hummer Asset Management (“WHAMC”), a registered investment advisor, is the investment advisory affiliate of WHI. WHAMC provides money management, financial planning and investment advisory services to individuals and institutional, municipal and tax-exempt organizations. WHAMC also provides portfolio management and financial supervision for a wide-range of pension and profit sharing plans. At December 31, 2007, assets under management totaled approximately $541 million.

Wayne Hummer Trust Company (“WHTC”) was formed to offer trust and investment management services to all communities served by the Banks. In addition to offering trust services to existing bank customers at each of the Banks, the Company believes WHTC can successfully compete for trust business by targeting small to mid-size businesses and affluent individuals whose needs command the personalized attention offered by WHTC’s experienced trust professionals. Services offered by WHTC typically include traditional trust products and services, as well as investment management services. Assets under administration by WHTC as of December 31, 2007 were approximately $1.0 billion.

2007 Annual Report		27

First Insurance Funding Corp. (“FIFC”) is the Company’s most significant specialized earning asset niche, originating approximately $3.1 billion in loan (premium finance receivables) volume during 2007. FIFC makes loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are originated by FIFC working through independent medium and large insurance agents and brokers located throughout the United States. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance. This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. Because of the indirect nature of this lending and because the borrowers are located nationwide, this segment may be more susceptible to third party fraud, however no material third party fraud has occurred since the third quarter of 2000. The majority of these loans are purchased by the Banks in order to more fully utilize their lending capacity, and these loans generally provide the Banks with higher yields than alternative investments. However, excess FIFC originations over the capacity to retain such loans within the Banks’ loan portfolios may be sold to an unrelated third party with servicing retained.

Additionally, in 2007, FIFC began to make loans to irrevocable life insurance trusts to purchase life insurance policies for high net-worth individuals. The loans are originated through independent insurance agents or financial advisors and legal counsel. The life insurance policy is the primary collateral on the loan and, in most cases, the loans are also secured by a letter of credit.

On November 1, 2007, the Company acquired Broadway Premium Funding Corporation (“Broadway”). Broadway is a commercial finance company that specializes in financing insurance premiums for corporate entities. Its products are marketed through insurance agents and brokers to their small to mid-size corporate clients. Broadway is headquartered in New York City and services clients primarily in the northeastern United States and California. Broadway is a subsidiary of FIFC.

SGB Corporation d/b/a WestAmerica Mortgage Company (“WestAmerica”) engages primarily in the origination and purchase of residential mortgages for sale into the secondary market. WestAmerica’s affiliate Guardian Real Estate Services, Inc. (“Guardian”) provides the document preparation and other loan closing services to West America and its network of mortgage brokers. West America sells its loans with servicing released and does not currently engage in servicing loans for others. WestAmerica maintains principal origination offices in nine states, including Illinois, and originates loans in other states through wholesale and correspondent offices. WestAmerica provides the Banks with the ability to use an enhanced loan origination and documentation system which allows WestAmerica and each Bank to better utilize existing operational capacity and expand the mortgage products offered to the Banks’ customers. WestAmerica’s production of adjustable rate mortgage loans may be retained by the Banks in their loan portfolios, resulting in additional earning assets to the combined organization, thus adding further desired diversification to the Company’s earning asset base.

Tricom, Inc (“Tricom”) is a company that has been in business since 1989 and specializes in providing high-yielding, short-term accounts receivable financing and value-added out-sourced administrative services, such as data processing of payrolls, billing and cash management services to clients in the temporary staffing industry. Tricom’s clients, located throughout the United States, provide staffing services to businesses in diversified industries. These receivables may involve greater credit risks than generally associated with the loan portfolios of more traditional community banks depending on the marketability of the collateral. The principal sources of repayments on the receivables are payments received by the borrowers from their customers who are located throughout the United States. Tricom mitigates this risk by employing lockboxes and other cash management techniques to protect its interests. Tricom’s revenue principally consists of interest income from financing activities and fee-based revenues from administrative services. Tricom processed payrolls with associated client billings of approximately $467 million in 2007 and $531 million in 2006.

In addition to the earning asset niches provided by the Company’s non-bank subsidiaries, several earning asset niches operate within the Banks, including indirect auto lending which is conducted through Hinsdale Bank, and Barrington Bank’s Community Advantage program that provides lending, deposit and cash management services to condominium, homeowner and community associations. In addition, Hinsdale Bank operates a mortgage warehouse lending program that provides loan and deposit services to mortgage brokerage companies located predominantly in the Chicago metropolitan area, and Crystal Lake Bank has a specialty in small aircraft lending. The Company continues to pursue the development or acquisition of other specialty lending businesses that generate assets suitable for bank investment and/or secondary market sales.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

The Company’s Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States and prevailing practices of the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies and accounting principles inher-

28				Wintrust Financial Corporation

ently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

A summary of the Company’s significant accounting policies is presented in Note 1 to the Consolidated Financial Statements. These policies, along with the disclosures presented in the other financial statement notes and in this Management’s Discussion and Analysis section, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses and the allowance for losses on lending-related commitments, the valuation of the retained interest in the premium finance receivables sold, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available.

Allowance for Loan Losses and Allowance for Losses on Lending-Related Commitments

The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which are susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated balance sheet. The Company also maintains an allowance for lending-related commitments, specifically unfunded loan commitments and letters of credit, which relates to certain amounts the Company is committed to lend but for which funds have not yet been disbursed. Management has established credit committees at each of the Banks that evaluate the credit quality of the loan portfolio and the level of the adequacy of the allowance for loan losses and the allowance for lending-related commitments. See Note 1 to the Consolidated Financial Statements and the section titled “Credit Risk and Asset Quality” later in this report for a description of the methodology used to determine the allowance for loan losses and the allowance for lending-related commitments.

Sales of Premium Finance Receivables

The gains on the sale of premium finance receivables are determined based on management’s estimates of the underlying future cash flows of the loans sold. Cash flow projections are used to allocate the Company’s initial investment in a loan between the loan, the servicing asset and the Company’s retained interest, including its guarantee obligation, based on their relative fair values. Gains or losses are recognized for the difference between the proceeds received and the cost basis allocated to the loan. The Company’s retained interest includes a servicing asset, an interest only strip and a guarantee obligation pursuant to the terms of the sale agreement. The estimates of future cash flows from the underlying loans incorporate assumptions for prepayments, late payments and other factors. The Company’s guarantee obligation is estimated based on the historical loss experience and credit risk factors of the loans. If actual cash flows from the underlying loans are less than originally anticipated, the Company’s retained interest may be impaired, and such impairment would be recorded as a charge to earnings. Because the terms of the loans sold are less than ten months, the estimation of the cash flows is inherently easier to monitor than if the assets had longer durations, such as mortgage loans. See Note 1 to the Consolidated Financial Statements and the section titled “Non-interest Income” later in this report for further analysis of the gains on sale of premium finance receivables.

Impairment Testing of Goodwill

As required by Statement of Financial Accounting Standards (“SFAS”) 142, “Goodwill and Other Intangible Assets,” the Company performs impairment testing of goodwill on an annual basis or more frequently when events warrant. Valuations are estimated in good faith by management primarily through the use of publicly available valuations of comparable entities for the Company’s bank subsidiaries and internal cash flow models using financial projections in the reporting unit’s business plan, if public valuations are not available for the Company’s non-bank entities.

2007 Annual Report		29

Valuation and Accounting for Derivative Instruments

The Company utilizes derivative instruments to manage risks such as interest rate risk or market risk. The Company’s policy prohibits using derivatives for speculative purposes.

Accounting for derivatives differs significantly depending on whether a derivative is designated as a hedge, which is a transaction intended to reduce a risk associated with a specific asset or liability or future expected cash flow at the time it is purchased. In order to qualify as a hedge, a derivative must be designated as such by management. Management must also continue to evaluate whether the instrument effectively reduces the risk associated with that item. To determine if a derivative instrument continues to be an effective hedge, the Company must make assumptions and judgments about the continued effectiveness of the hedging strategies and the nature and timing of forecasted transactions. If the Company’s hedging strategy were to become ineffective, hedge accounting would no longer apply and the reported results of operations or financial condition could be materially affected.

Income Taxes

The Company is subject to the income tax laws of the U.S., its states and other jurisdictions where it conducts business. These laws are complex and subject to different interpretations by the taxpayer and the various taxing authorities. In determining the provision for income taxes, management must make judgments and estimates about the application of these inherently complex laws, related regulations and case law. In the process of preparing the Company’s tax returns, management attempts to make reasonable interpretations of the tax laws. These interpretations are subject to challenge by the tax authorities upon audit or to reinterpretation based on management’s ongoing assessment of facts and evolving case law.

On a quarterly basis, management assesses the reasonableness of its effective tax rate based upon its current best estimate of net income and the applicable taxes expected for the full year. Deferred tax assets and liabilities are reassessed on a quarterly basis, if business events or circumstances warrant.

On January 1, 2007, the Company adopted FASB Interpretation No. 48 (“FIN 48”) which clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on dere-cognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 did not have a material impact on the Company.

CONSOLIDATED RESULTS OF OPERATIONS

The following discussion of Wintrust’s results of operations requires an understanding that a majority of the Company’s bank subsidiaries have been started as new banks since December 1991. Wintrust is still a relatively young company that has a strategy of continuing to build its customer base and securing broad product penetration in each marketplace that it serves. The Company has expanded its banking franchise from three banks with five offices in 1994 to 15 Banks with 77 offices at the end of 2007. FIFC has matured from its limited operations in 1991 to a company that generated, on a national basis, $3.1 billion in premium finance receivables in 2007. In addition, the wealth management companies have been building a team of experienced professionals who are located within a majority of the Banks. These expansion activities have understandably suppressed faster, opportunistic earnings. However, as the Company matures and our existing Banks become more profitable, the start-up costs associated with future bank and branch openings and other new financial services ventures will not have as significant an impact on earnings. Additionally, the Company’s more mature Banks have several operating ratios that are either comparable to or better than peer group data, suggesting that as the Banks become more established, the overall earnings level will continue to increase.

Earnings Summary

Net income for the year ended December 31, 2007, totaled $55.7 million, or $2.24 per diluted common share, compared to $66.5 million, or $2.56 per diluted common share, in 2006, and $67.0 million, or $2.75 per diluted common share, in 2005. During 2007, net income declined by 16% while earnings per diluted common share declined by 13%, and during 2006, net income remained essentially the same, decreasing 1%, while earnings per diluted common share decreased 7%. Financial results in 2007 were negatively impacted by a continued compression of interest rate spreads, an increase in provision for credit losses, lower levels of mortgage banking revenue and a reduced level of trading income. Financial results in 2006 were negatively impacted by the adoption of SFAS 123R (stock option expense), compressed interest spreads, a decrease in fees from covered call options, lower levels of mortgage banking revenue and lower sales of premium finance receivables, and was positively impacted by the fair value adjustments related to certain derivatives.

Net Interest Income

The primary source of the Company’s revenue is net interest income. Net interest income is the difference between interest income and fees on earning assets, such as loans and securities, and interest expense on the liabilities to fund those assets, including interest bearing deposits and other borrowings. The amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of earn-

30				Wintrust Financial Corporation

ing assets and interest bearing liabilities. In order to compare the tax-exempt asset yields to taxable yields, interest income in the following discussion and tables is adjusted to tax-equivalent yields based on the marginal corporate Federal tax rate of 35%.

Tax-equivalent net interest income in 2007 totaled $264.8 million, up from $250.5 million in 2006 and $218.1 million in 2005, representing increases of $14.3 million, or 6%, in 2007 and $32.4 million, or 15%, in 2006. These improved levels of net interest income were primarily attributable to increases in average earning assets. The table presented later in this section, titled “Changes in Interest Income and Expense,” presents the dollar amount of changes in interest income and expense, by major category, attributable to changes in the volume of the balance sheet category and changes in the rate earned or paid with respect to that category of assets or liabilities for 2007 and 2006. Average earning assets increased $426.5 million, or 5%, in 2007 and $1.2 billion, or 17%, in 2006. Loans are the most significant component of the earning asset base as they earn interest at a higher rate than the other earning assets. Average loans increased $811.5 million, or 14%, in 2007 and $875.4 million, or 17%, in 2006. Total average loans as a percentage of total average earning assets were 80%, 74% and 75% in 2007, 2006, and 2005, respectively. The average yield on loans was 7.71% in 2007, 7.60% in 2006 and 6.54% in 2005, reflecting an increase of 11 basis points in 2007 and an increase of 106 basis points in 2006. The higher loan yield in 2007 compared to 2006 is a result of the higher average rate environment in the first three quarters of 2007. The higher loan yield in 2006 compared to 2005 is reflective of the interest rate increases effected by the Federal Reserve Bank offset by continued competitive loan pricing pressures. Similarly, the average rate paid on interest bearing deposits, the largest component of the Company’s interest bearing liabilities, was 4.26% in 2007, 3.97% in 2006 and 2.80% in 2005, representing an increase of 29 basis points in 2007 and an increase of 117 basis points in 2006. The interest bearing deposits yield increased in 2007 due to higher costs of retail deposits as rates have generally risen in 2007, continued competitive pricing pressures on fixed-maturity time deposits in most markets and promotional pricing activities associated with opening additional de novo branches.

Net interest margin, which reflects net interest income as a per-cent of average earning assets, remained relatively flat at 3.11% in 2007 compared to 3.10% in 2006. During 2007, the Company’s focus on retail deposit pricing and changing the mix of deposits has helped offset the competitive pricing of retail certificates of deposit. The Company has made progress in shifting its mix of retail deposits away from certificates of deposit into lower cost, more variable rate NOW, money market and wealth management deposits. Net interest margin in 2005 was 3.16%.

The core net interest margin was 3.38% in 2007, 3.32% in 2006 and 3.37% in 2005. Management evaluates the core net interest margin excluding the net interest expense associated with the Company’s junior subordinated debentures and the interest expense incurred to fund common stock repurchases. Because junior subordinated debentures are utilized by the Company primarily as capital instruments and the cost incurred to fund common stock repurchases is capital utilization related, management finds it useful to view the net interest margin excluding these expenses and deems them to be a more accurate view of the operational net interest margin of the Company. See Non-GAAP Financial Measures/Ratios section of this report.

Net interest income and net interest margin were also affected by amortization of valuation adjustments to earning assets and interest-bearing liabilities of acquired businesses. Under the purchase method of accounting, assets and liabilities of acquired businesses are required to be recognized at their estimated fair value at the date of acquisition. These valuation adjustments represent the difference between the estimated fair value and the carrying value of assets and liabilities acquired. These adjustments are amortized into interest income and interest expense based upon the estimated remaining lives of the assets and liabilities acquired. See Note 7 of the Consolidated Financial Statements for further discussion of the Company’s business combinations.

2007 Annual Report		31

Average Balance Sheets, Interest Income and Expense, and Interest Rate Yields and Costs

The following table sets forth the average balances, the interest earned or paid thereon, and the effective interest rate, yield or cost for each major category of interest-earning assets and interest-bearing liabilities for the years ended December 31, 2007, 2006 and 2005. The yields and costs include loan origination fees and certain direct origination costs that are considered adjustments to yields. Interest income on non-accruing loans is reflected in the year that it is collected, to the extent it is not applied to principal. Such amounts are not material to net interest income or the net change in net interest income in any year. Non-accrual loans are included in the average balances and do not have a material effect on the average yield. Net interest income and the related net interest margin have been adjusted to reflect tax-exempt income, such as interest on municipal securities and loans, on a tax-equivalent basis. This table should be referred to in conjunction with this analysis and discussion of the financial condition and results of operations (dollars in thousands):

		Years Ended December 31,
		2007												2006												2005
										Average												Average												Average
		Average								Yield/				Average								Yield/				Average								Yield/
		Balance(1)				Interest				Rate				Balance(1)				Interest				Rate				Balance(1)				Interest				Rate
Assets
Interest bearing deposits with banks		$	14,036			$	841				5.99	%		$	13,361			$	651				4.87	%		$	9,003			$	278				3.10	%
Securities			1,588,542				81,790				5.15				1,930,662				94,593				4.90				1,627,523				67,333				4.14
Federal funds sold and securities purchased under resale agreements			72,141				3,774				5.23				110,775				5,393				4.87				102,199				3,485				3.41
Total liquidity management assets(2) (8)			1,674,719				86,405				5.16				2,054,798				100,637				4.90				1,738,725				71,096				4.09
Other earning assets(2) (3)			24,721				1,943				7.86				29,675				2,136				7.20				23,644				1,345				5.69
Loans, net of unearned income(2) (4) (8)			6,824,880				526,436				7.71				6,013,344				456,793				7.60				5,137,912				335,922				6.54
Total earning assets(8)			8,524,320				614,784				7.21				8,097,817				559,566				6.91				6,900,281				408,363				5.92
Allowance for loan losses			(48,605	)											(44,648	)											(40,566	)
Cash and due from banks			131,271												125,253												138,253
Other assets			835,291												747,135												589,634
Total assets		$	9,442,277											$	8,925,557											$	7,587,602
Liabilities and Shareholders’ Equity
Deposits — interest bearing:
NOW accounts		$	938,960			$	25,033				2.67	%		$	774,481			$	19,548				2.52	%		$	699,323			$	11,973				1.71	%
Wealth management deposits			547,408				24,871				4.54				464,438				20,456				4.40				407,816				10,181				2.50
Money market accounts			696,760				22,427				3.22				639,590				17,497				2.74				657,788				11,071				1.68
Savings accounts			302,339				4,504				1.49				307,142				4,275				1.39				298,468				2,629				0.88
Time deposits			4,442,469				218,079				4.91				4,509,488				203,953				4.52				3,507,771				120,398				3.43
Total interest bearing deposits			6,927,936				294,914				4.26				6,695,139				265,729				3.97				5,571,166				156,252				2.80
Federal Home Loan Bank advances			400,552				17,558				4.38				364,149				14,675				4.03				333,108				11,912				3.58
Notes payable and other borrowings			318,540				13,794				4.33				149,764				5,638				3.76				167,930				4,178				2.49
Subordinated notes			75,000				5,181				6.81				66,742				4,695				6.94				50,000				2,829				5.66
Junior subordinated debentures			249,739				18,560				7.33				237,249				18,322				7.62				217,983				15,106				6.93
Total interest bearing liabilities			7,971,767				350,007				4.39				7,513,043				309,059				4.11				6,340,187				190,277				3.00
Non-interest bearing deposits			647,715												623,542												592,879
Other liabilities			94,823												87,178												45,369
Equity			727,972												701,794												609,167
Total liabilities and shareholders’ equity		$	9,442,277											$	8,925,557											$	7,587,602
Interest rate spread(5) (8)											2.82	%											2.80	%											2.92	%
Net free funds/contribution (6)		$	552,553								0.29	%		$	584,774								0.30	%		$	560,094								0.24	%
Net interest income/Net interest margin (8)						$	264,777				3.11	%						$	250,507				3.10	%						$	218,086				3.16	%
Core net interest margin(7) (8)											3.38	%											3.32	%											3.37	%

(1)		Average balances were generally computed using daily balances.
(2)		Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments reflected in the above table are $3.2 million, $1.6 million and $1.3 million in 2007, 2006 and 2005 respectively.
(3)		Other earning assets include brokerage customer receivables and trading account securities.
(4)		Loans, net of unearned income, include mortgages held-for-sale and non-accrual loans.
(5)		Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
(6)		Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
(7)		The core net interest margin excludes the effect of the net interest expense associated with Wintrust’s junior subordinated debentures and the interest expense incurred to fund common stock repurchases.
(8)		See “Non-GAAP Financial Measures/Ratios” for additional information on this performance measure/ratio.

32				Wintrust Financial Corporation

Changes in Interest Income and Expense

The following table shows the dollar amount of changes in interest income (on a tax-equivalent basis) and expense by major categories of interest-earning assets and interest-bearing liabilities attributable to changes in volume or rate for the periods indicated (in thousands):

		Years Ended December 31,
		2007 Compared to 2006												2006 Compared to 2005
		Change				Change								Change				Change
		Due to				Due to				Total				Due to				Due to				Total
		Rate				Volume				Change				Rate				Volume				Change
Interest income:
Interest bearing deposits with banks		$	156				34				190			$	202				171				373
Securities			4,633				(17,436	)			(12,803	)			13,536				13,724				27,260
Federal funds sold and securities purchased under resale agreement			375				(1,994	)			(1,619	)			1,595				313				1,908
Total liquidity management assets			5,164				(19,396	)			(14,232	)			15,333				14,208				29,541
Other earning assets			185				(378	)			(193	)			404				387				791
Loans			6,749				62,894				69,643				58,934				61,937				120,871
Total interest income			12,098				43,120				55,218				74,671				76,532				151,203
Interest expense:
Deposits — interest bearing:
NOW accounts			1,199				4,286				5,485				5,437				2,138				7,575
Wealth management deposits			667				3,748				4,415				8,690				1,585				10,275
Money market accounts			3,266				1,664				4,930				6,742				(316	)			6,426
Savings accounts			296				(67	)			229				1,567				79				1,646
Time deposits			17,220				(3,094	)			14,126				51,354				32,201				83,555
Total interest expense — deposits			22,648				6,537				29,185				73,790				35,687				109,477
Federal Home Loan Bank advances			1,340				1,543				2,883				1,587				1,176				2,763
Notes payable and other borrowings			966				7,190				8,156				2,849				(1,389	)			1,460
Subordinated notes			(86	)			572				486				786				1,080				1,866
Junior subordinated debentures			(699	)			937				238				1,822				1,394				3,216
Total interest expense			24,169				16,779				40,948				80,834				37,948				118,782
Net interest income		$	(12,071	)			26,341				14,270			$	(6,163	)			38,584				32,421

The changes in net interest income are created by changes in both interest rates and volumes. The change in the Company’s net interest income for the periods under review was predominantly impacted by the growth in the volume of the overall interest-earning assets (specifically loans) and interest-bearing deposit liabilities. In the table above, volume variances are computed using the change in volume multiplied by the previous year’s rate. Rate variances are computed using the change in rate multiplied by the previous year’s volume. The change in interest due to both rate and volume has been allocated between factors in proportion to the relationship of the absolute dollar amounts of the change in each.

Provision for Credit Losses

The provision for credit losses totaled $14.9 million in 2007, $7.1 million in 2006, and $6.7 million in 2005. Net charge-offs totaled $10.9 million in 2007, $5.2 million in 2006 and $4.9 million in 2005. The allowance for loan losses as a percentage of loans at December 31, 2007, 2006 and 2005 was 0.74%, 0.71% and 0.77%, respectively. Non-performing loans were $71.9 million and $36.9 million at December 31, 2007 and 2006, respectively. The increase in non-performing loans in 2007 as compared to 2006 was primarily the result of $32.3 million related to three credit relationships. See the “Credit Risk and Asset Quality” section of this report for more detail on non-performing loans. In 2007, the Company reclassified $36,000 from its allowance for loan losses to a separate liability account which represents the portion of the allowance for loan losses that was associated with lending-related commitments, specifically unfunded loan commitments and letters of credit. In 2006, the Company reclassified $92,000 from the allowance for lending-relating commitments to its allowance for loan losses. In future periods, the provision for credit 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). Management believes the allowance for loan losses is adequate to provide for inherent losses in the port-

2007 Annual Report		33

folio. 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 loan losses and the allowance for lending-related commitments will be dependent upon management’s assessment of the adequacy 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. Please refer to the “Credit Risk and Asset Quality” section of this report for further discussion of the Company’s loan loss experience and non-performing assets.

Non-interest Income

Non-interest income totaled $80.1 million in 2007, $91.2 million in 2006 and $93.6 million in 2005, reflecting a decrease of 12% in 2007 compared to 2006, and a decrease of 3% in 2006 compared to 2005. Non-interest income as a percentage of net revenue declined to 23% in 2007 compared to 27% in 2006 and 30% in 2005. The decline in non-interest income in 2007 compared to 2006 is attributable to lower levels of trading income recognized on interest rate swaps and mortgage banking valuation and recourse obligation adjustments in 2007 and the $2.4 million gain on the sale of the Wayne Hummer Growth Fund in 2006 offset by higher levels of gains on available-for-sale securities and higher wealth managment fees. The following table presents non-interest income by category for 2007, 2006 and 2005 (in thousands):

		Years ended December 31,												2007 compared to 2006								2006 compared to 2005
		2007				2006				2005				$ Change				% Change				$ Change				% Change
Brokerage		$	20,346				19,615				20,154			$	731				4	%		$	(539	)			(3	)%
Trust and asset management			10,995				12,105				9,854				(1,110	)			(9	)			2,251				23
Total wealth management fees			31,341				31,720				30,008				(379	)			(1	)			1,712				6
Mortgage banking			14,888				22,341				25,913				(7,453	)			(33	)			(3,572	)			(14	)
Service charges on deposit accounts			8,386				7,146				5,983				1,240				17				1,163				19
Gain on sales of premium finance receivables			2,040				2,883				6,499				(843	)			(29	)			(3,616	)			(56	)
Administrative services			4,006				4,598				4,539				(592	)			(13	)			59				1
Gains on available-for-sale securities, net			2,997				17				1,063				2,980			NM					(1,046	)			(98	)
Other:
Fees from covered call options			2,628				3,157				11,434				(529	)			(17	)			(8,277	)			(72	)
Trading income — net cash settlement of swaps			—				1,237				440				(1,237	)		NM					797				181
Trading income (loss) — change in fair market value			265				7,514				(1,339	)			(7,249	)			(97	)			8,853				661
Bank Owned Life Insurance			4,909				2,948				2,431				1,961				67				517				21
Miscellaneous			8,628				7,671				6,586				957				13				1,085				17
Total other			16,430				22,527				19,552				(6,097	)			(27	)			2,975				15
Total non-interest income		$	80,088				91,232				93,557			$	(11,144	)			(12	)%		$	(2,325	)			(3	)%