UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002MARCH 31, 2003
Commission File Number 0-21923
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Illinois 36-3873352
- ---------------------------------------- ------------------------------------
(State of incorporation or organization) (I.R.S. Employer Identification No.)
727 North Bank Lane
Lake Forest, Illinois 60045
-------------------------------------------------------
(Address of principal executive offices)
(847) 615-4096
------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
___--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classclasses of
common stock, as of the lastlatest practicable date.
Common Stock - no par value, 17,135,10017,398,580 shares, as of AugustMay 5, 2002.2003
TABLE OF CONTENTS
PART I. -- FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements._________________________________________ 1-15Statements.__________________________________________ 1-13
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. __________________________________ 16-39______________________________________ 14-35
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks. _ 40-42__ 36-39
ITEM 4. Controls and Procedures. ______________________________________ 39
PART II. -- OTHER INFORMATION
ITEM 1. Legal Proceedings. ___________________________________________ 43____________________________________________ 39
ITEM 2. Changes in Securities. _______________________________________ 43Securities and Use of Proceeds._____________________ 39
ITEM 3. Defaults Upon Senior Securities. _____________________________ 43______________________________ 39
ITEM 4. Submission of Matters to a Vote of Security Holders. _________ 43-44__________ 39
ITEM 5. Other Information. ___________________________________________ 44____________________________________________ 40
ITEM 6. Exhibits and Reports on Form 8-K. ____________________________ 45_____________________________ 40
Signatures ___________________________________________________ 46____________________________________________________ 41
Certifications_________________________________________________ 42-43
Exhibit Index ________________________________________________ 47_________________________________________________ 44
PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED) (Unaudited)
JUNE 30,MARCH 31, December 31, June 30,March 31,
(In thousands) 2003 2002 2001 2001
- ------------------------------------------------------------------------------------------------------------------------------------2002
----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 60,05578,858 $ 71,575105,671 $ 46,28255,793
Federal funds sold and securities purchased under resale agreements 198,089 51,955 162,845331,640 151,251 97,287
Interest-bearing deposits with banks 543 692 604,870 4,418 1,028
Available-for-sale securities, at fair value 380,833 385,350 179,858504,190 547,679 365,540
Trading account securities 4,618 -- --5,777 5,558 5,298
Brokerage customer receivables 68,844 -- --35,405 37,592 64,765
Mortgage loans held-for-sale 27,735 42,904 19,04996,350 90,446 31,723
Loans, net of unearned income 2,308,945 2,018,479 1,787,2572,628,480 2,556,086 2,167,550
Less: Allowance for loan losses 16,009 13,686 12,111
- ------------------------------------------------------------------------------------------------------------------------------------19,773 18,390 14,697
----------------------------------------------------------------------------------------------------------------------------------
Net loans 2,292,936 2,004,793 1,775,1462,608,707 2,537,696 2,152,853
Premises and equipment, net 109,509 99,132 91,202121,068 118,961 104,780
Accrued interest receivable and other assets 49,775 38,936 37,21895,939 95,852 50,059
Goodwill 25,091 9,976 10,28029,515 25,266 25,935
Other intangible assets 1,372 109 143
- ------------------------------------------------------------------------------------------------------------------------------------2,676 1,165 92
----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 3,219,4003,914,995 $ 2,705,4223,721,555 $ 2,322,083
====================================================================================================================================2,955,153
==================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 257,298313,207 $ 254,269305,540 $ 205,414242,966
Interest bearing 2,351,209 2,060,367 1,849,931
- ------------------------------------------------------------------------------------------------------------------------------------2,957,088 2,783,584 2,174,349
----------------------------------------------------------------------------------------------------------------------------------
Total deposits 2,608,507 2,314,636 2,055,3453,270,295 3,089,124 2,417,315
Notes payable 58,650 46,575 25,00046,975 44,025 66,125
Federal Home Loan Bank advances 140,000 140,000 90,000
Subordinated note 25,000 25,000 --
Other borrowings 71,712 28,074 15,21741,668 46,708 113,624
Long-term debt - trust preferred securities 51,050 51,05051,004 50,894 51,050
Accrued interest payable and other liabilities 83,482 33,809 42,502
- ------------------------------------------------------------------------------------------------------------------------------------101,148 98,802 53,518
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,013,401 2,564,144 2,189,114
- ------------------------------------------------------------------------------------------------------------------------------------3,676,090 3,494,553 2,791,632
----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock -- -- --
Common stock 16,955 14,532 14,45617,371 17,216 15,712
Surplus 147,616 97,956 96,986157,499 153,614 116,201
Common stock warrants 96 99 99
Treasury stock, at cost -- -- --1,031 81 98
Retained earnings 42,789 30,995 21,50063,842 56,967 36,482
Accumulated other comprehensive loss (1,457) (2,304) (72)
- ------------------------------------------------------------------------------------------------------------------------------------(838) (876) (4,972)
----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 205,999 141,278 132,969
- ------------------------------------------------------------------------------------------------------------------------------------238,905 227,002 163,521
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 3,219,4003,914,995 $ 2,705,4223,721,555 $ 2,322,083
====================================================================================================================================
2,955,153
==================================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 1 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------------THREE MONTHS ENDED
MARCH 31
--------------------------------------------
(In thousands, except per share data) 2003 2002
2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 38,36640,591 $ 37,542 $ 75,027 $ 74,40536,661
Interest bearing deposits with banks 5 1 829 3
Federal funds sold and securities purchased under resale agreements 205 1,196 498 2,318389 293
Securities 5,211 2,651 9,711 6,4465,835 4,500
Trading account securities 56 -- 80 --38 24
Brokerage customer receivables 695 -- 1,185 --
- ------------------------------------------------------------------------------------------------------------------------------------357 490
----------------------------------------------------------------------------------------------------------------------------------
Total interest income 44,538 41,390 86,509 83,172
- ------------------------------------------------------------------------------------------------------------------------------------47,239 41,971
----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 16,585 21,423 33,260 43,59517,102 16,675
Interest on Federal Home Loan Bank advances 1,078 -- 1,9751,457 897
Interest on subordinated note 444 --
Interest on notes payable and other borrowings 1,170 664 2,113 1,710704 943
Interest on long-term debt - trust preferred securities 928 1,288
1,288 2,576 2,576
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 20,121 23,375 39,924 47,881
- ------------------------------------------------------------------------------------------------------------------------------------20,635 19,803
----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 24,417 18,015 46,585 35,29126,604 22,168
Provision for loan losses 2,483 2,264 4,831 3,902
- ------------------------------------------------------------------------------------------------------------------------------------2,641 2,348
----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 21,934 15,751 41,754 31,389
- ------------------------------------------------------------------------------------------------------------------------------------23,963 19,820
----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Trust, assetWealth management and brokerage fees 7,431 523 12,001 9735,951 4,570
Fees on mortgage loans sold 1,934 1,948 3,951 3,4724,598 2,017
Service charges on deposit accounts 753 606 1,491 1,153855 738
Gain on sale of premium finance receivables 828 1,449 1,594 2,3911,162 766
Administrative services revenue 931 1,121 1,753 2,1421,091 822
Net available-for-sale securities gains (losses) gains 62 86 (153) 372386 (215)
Other 1,832 1,658 5,886 3,738
- ------------------------------------------------------------------------------------------------------------------------------------3,700 4,054
----------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 13,771 7,391 26,523 14,241
- ------------------------------------------------------------------------------------------------------------------------------------17,743 12,752
----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 15,400 8,735 28,762 17,21317,450 13,362
Equipment expense 1,842 1,730
Occupancy, net 1,609 1,178 3,153 2,422
Equipment expense 1,796 1,582 3,526 3,0661,898 1,544
Data processing 1,042 822 2,056 1,6521,053 1,014
Advertising and marketing 533 426 1,057 733539 524
Professional fees 685 534 1,296 1,065
Amortization of goodwill -- 152 -- 313782 611
Amortization of other intangibles 100139 17
117 34
Other 4,741 2,836 8,618 5,755
- ------------------------------------------------------------------------------------------------------------------------------------5,208 3,877
----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 25,906 16,282 48,585 32,253
- ------------------------------------------------------------------------------------------------------------------------------------28,911 22,679
----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of accounting change 9,799 6,860 19,692 13,37712,795 9,893
Income tax expense 3,492 2,497 7,023 4,856
- ------------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 6,307 4,363 12,669 8,521
Cumulative effect of change in accounting for derivatives, net of tax -- -- -- (254)
- ------------------------------------------------------------------------------------------------------------------------------------4,532 3,531
----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 6,3078,263 $ 4,363 $ 12,669 $ 8,267
====================================================================================================================================
BASIC EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.40 $ 0.34 $ 0.82 $ 0.66
Cumulative effect of accounting change, net of tax -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------6,362
==================================================================================================================================
NET INCOME PER COMMON SHARE - BASIC $ 0.400.48 $ 0.34 $ 0.82 $ 0.64
====================================================================================================================================
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.37 $ 0.32 $ 0.77 $ 0.63
Cumulative effect of accounting change, net of tax -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------0.42
==================================================================================================================================
NET INCOME PER COMMON SHARE - DILUTED $ 0.370.45 $ 0.32 $ 0.77 $ 0.61
====================================================================================================================================0.40
==================================================================================================================================
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.0000.08 $ 0.000 $ 0.060 $ 0.047
- ------------------------------------------------------------------------------------------------------------------------------------0.06
==================================================================================================================================
Weighted average common shares outstanding 15,948 12,992 15,513 12,95717,308 15,078
Dilutive potential common shares 1,080 693 1,013 587
- ------------------------------------------------------------------------------------------------------------------------------------1,124 913
----------------------------------------------------------------------------------------------------------------------------------
Average common shares and dilutive common shares 17,028 13,685 16,526 13,544
====================================================================================================================================
18,432 15,991
==================================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 2 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
ACCUMULATED
OTHER
COMPRE- COMPRE- COMMON HENSIVECOMPRE- TOTAL
HENSIVE COMMON STOCK TREASURY RETAINED INCOMEHENSIVE SHAREHOLDERS'
(In thousands) INCOME STOCK SURPLUS WARRANTS STOCK EARNINGS INCOME (LOSS) EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 20002001 $ 13,285 $79,28214,532 $ 10097,956 $ (3,863)99 $ 13,835-- $ (363)30,995 $ 102,276(2,304) $ 141,278
Comprehensive income:
Net income $ 8,267$6,362 -- -- -- -- 8,2676,362 -- 8,2676,362
Other comprehensive income, net of tax:
Unrealized gainslosses on securities,
net of reclassification
adjustment 275(2,795) -- -- -- -- -- 275 275(2,795) (2,795)
Unrealized gains on derivative
instruments 16127 -- -- -- -- -- 16 16127 127
----------
Comprehensive income $ 8,558
----------$3,694
Cash dividends declared on
common stock -- -- -- -- (602)(875) -- (602)(875)
Purchase of fractional shares
resulting from stock split -- (10) -- -- -- -- (10)
Common stock issued for:
New issuance, netAcquisition of costs 1,125 17,228 -- 3,863the Wayne Hummer
Companies 763 14,237 -- -- 22,216-- -- 15,000
Director compensation plan 3 64 -- -- -- 67
Employee stock purchase plan 6 72-- 26 -- -- -- -- 7826
Exercise of common stock warrants 2 61 8 (1) -- -- -- 78
Exercise of stock options 38 398413 3,920 -- -- -- -- 4364,333
- --------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001March 31, 2002 $ 14,45615,712 $ 96,986116,201 $ 9998 $ -- $ 21,50036,482 $ (72)(4,972) $ 132,969163,521
======================================= =========================================================================================================================================================================
BALANCE AT DECEMBER 31, 20012002 $ 14,532 $97,95617,216 $ 99153,614 $ 81 $ -- $ 30,99556,967 $ (2,304)(876) $ 141,278227,002
COMPREHENSIVE INCOME:
NET INCOME $ 12,669$8,263 -- -- -- -- 12,6698,263 -- 12,6698,263
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
UNREALIZED GAINSLOSSES ON SECURITIES,
NET OF RECLASSIFICATION
ADJUSTMENT 1,037(41) -- -- -- -- -- 1,037 1,037(41) (41)
UNREALIZED LOSSESGAINS ON DERIVATIVE
INSTRUMENTS (190)79 -- -- -- -- -- (190) (190)79 79
----------
COMPREHENSIVE INCOME $ 13,516
----------$8,301
CASH DIVIDENDS DECLARED ON
COMMON STOCK -- -- -- -- (875)(1,388) -- (875)(1,388)
PURCHASE OF FRACTIONAL SHARES
RESULTING FROMTREASURY STOCK SPLIT -- (10)-- -- (17) -- -- (17)
COMMON STOCK ISSUED FOR:
ACQUISITION OF LAKE FOREST
CAPITAL MANAGEMENT 82 2,418 950 -- -- -- 3,450
DIRECTOR COMPENSATION PLAN 5 121 -- -- -- -- (10)
COMMON126
EMPLOYEE STOCK ISSUED FOR:
NEW ISSUANCE, NET OF COSTS 1,185 30,549PURCHASE PLAN -- 5 -- -- -- -- 31,734
ACQUISITION5
EXERCISE OF THE WAYNE HUMMER
COMPANIES 763 14,237STOCK OPTIONS 31 509 -- 17 -- -- 557
RESTRICTED STOCK AWARDS 37 832 -- -- -- -- 15,000
DIRECTOR COMPENSATION PLAN 3 64 -- -- -- -- 67
EMPLOYEE STOCK PURCHASE PLAN 7 213 -- -- -- -- 220
EXERCISE OF COMMON STOCK WARRANTS 3 27 (3) -- -- -- 27
EXERCISE OF STOCK OPTIONS 462 4,580 -- -- -- -- 5,042869
- --------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2002MARCH 31, 2003 $ 16,95517,371 $ 147,616157,499 $ 961,031 $ -- $ 42,78963,842 $ (1,457)(838) $ 205,999238,905
======================================= ====================================================================================
Six Months Ended June 30,
---------------------------------------------=====================================================================================
THREE MONTHS ENDED MARCH 31,
----------------------------------
2003 2002
2001
--------------------- ------------------------------------------ -----------
Disclosure of reclassification amount and income tax impact:
Unrealized holding gains (losses) on available for sale securities during the period, net $ 1,437319 $ 817(4,711)
Unrealized holding (losses) gains on derivative instruments arising during the period (293) 26195
121
Less: Reclassification adjustment for gains (losses) gains included in net income, net (153) 372386 (215)
Less: Income tax expense 450 180
--------------------- ----------------------(benefit) 16 (1,633)
-------------------- -------------
Net unrealized gains on available for saleavailable-for-sale securities and derivative instruments $ 84738 $ 291
===================== ======================(2,668)
==================== =============
See accompanying notes to unaudited consolidated financial statements.
- 3 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
- ------------------------------------------------------------------------------------------------------------------------------------THREE MONTHS ENDED
MARCH 31,
------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2003 2002
2001
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 12,6698,263 $ 8,2676,362
Adjustments to reconcile net income to net cash provided by, or used for,
operating activities:
Cumulative effect of accounting change -- 254
Provision for loan losses 4,831 3,9022,641 2,348
Depreciation and amortization 4,422 3,9132,294 2,258
Net decrease (increase) in deferred income taxes 4,403 (198)319 1,211
Tax benefit from exercises of stock options 2,581 85390 2,239
Net amortization (accretion) of securities 1,569 (683)501 1,010
Originations of mortgage loans held for sale (362,305) (240,795)(350,234) (154,820)
Proceeds from sales of mortgage loans held for sale 377,474 232,171
Purchase of344,330 166,001
Net increase in trading securities net 193 13(219) (487)
Net increasedecrease (increase) in brokerage customer receivables (5,862) --2,187 (1,783)
Gain on sale of premium finance receivables (1,594) (2,391)(1,162) (766)
(Gain) loss on sale of available-for-sale securities, net 153 (372)
(Gain) loss(386) 215
Gain on sale of premises and equipment, net (11) 2
Increase(3) (12)
Decrease (increase) in accrued interest receivable and other assets, net (8,719) (2,758)1,125 (4,126)
Increase (decrease)in accrued interest payable and other liabilities, net 28,375 (9,027)
- ------------------------------------------------------------------------------------------------------------------------------------2,280 (1,589)
------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES $ 58,179 $ (7,617)
- ------------------------------------------------------------------------------------------------------------------------------------12,326 18,061
------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale securities $ 221,520 $ 105,825222,106 177,241
Proceeds from sales of available-for-sale securities 1,281,654 635,3221,765,693 1,137,775
Purchases of available-for-sale securities (1,498,614) (726,464)(1,944,493) (1,300,622)
Proceeds from sales of premium finance receivables 135,975 122,859
Net72,680 64,188
Cash paid for Lake Forest Capital Management Company, net of cash received (1,476) --
Cash paid for the Wayne Hummer Companies, (8,096)net of cash received -- Net (increase) decrease(7,560)
Increase in interest-bearing deposits with banks 441 122(452) (44)
Net increase in loans (428,111) (362,353)(146,078) (213,830)
Purchase of premises and equipment, net (13,826) (8,443)
- ------------------------------------------------------------------------------------------------------------------------------------(4,225) (7,032)
------------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES $ (309,057) $ (233,132)
- ------------------------------------------------------------------------------------------------------------------------------------(36,245) (149,884)
------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts $ 293,871 $ 228,769181,171 102,679
(Decrease) Increase (decrease) in other borrowings, net (4,011) (28,422)(5,560) 37,901
Increase (decrease) in notes payable, net 12,075 (2,575)
Proceeds from Federal Home Loan Bank advances 50,0002,950 19,550
Purchase of treasury stock (17) --
Issuance of common shares, net of issuance costs 31,734 22,216
Issuance of common shares from stock options, restricted stock, employee stock
purchase plan, common stock warrants and cash for stock split fractional shares net 2,698 436339 2,118
Dividends paid (1,388) (875)
(602)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 385,492 $ 219,822
- ------------------------------------------------------------------------------------------------------------------------------------177,495 161,373
------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 134,614 $ (20,927)153,576 29,550
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $256,922 123,530
$ 230,054
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 258,144410,498 $ 209,127
====================================================================================================================================
Supplemental disclosure of cash flow information:
Acquisition of the Wayne Hummer Companies:
Fair value of assets acquired, including cash and cash equivalents $ 76,055 $ --
Value ascribed to intangibles 16,495 --
Liabilities assumed 63,577 --153,080
==============================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 4 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
---------------------
The consolidated financial statements of Wintrust Financial Corporation and
Subsidiaries ("Wintrust" or "Company") presented herein are unaudited, but in
the opinion of management reflect all necessary adjustments of a normal or
recurring nature for a fair presentation of results as of the dates and for the
periods covered by the consolidated financial statements. All share data and per
share amounts reflect the 3-for-2 stock split, effected in the form of a 50%
stock dividend, paid in March 2002.
Wintrust is a financial holding company currently engaged in the business of
providing traditional community banking services to customers in the Chicago
metropolitan area. Additionally, the Company operates various non-bank
subsidiaries.
As of June 30, 2002,March 31, 2003, Wintrust had seven wholly-owned bank subsidiaries
(collectively, "Banks"), all of which started as de novo institutions, including
Lake Forest Bank & Trust Company ("Lake Forest Bank"), Hinsdale Bank & Trust
Company ("Hinsdale Bank"), North Shore Community Bank & Trust Company ("North
Shore Bank"), Libertyville Bank & Trust Company ("Libertyville Bank"),
Barrington Bank & Trust Company, N.A. ("Barrington Bank"), Crystal Lake Bank &
Trust Company, N.A. ("Crystal Lake Bank") and Northbrook Bank & Trust Company
("Northbrook Bank").
The Company provides trust and investment services at each of its Banks through
its wholly-owned subsidiary, Wayne Hummer Trust Company, N.A. ("WHTC"), formerly
known as Wintrust Asset Management Company. The Company provides loans to businesses to finance the insurance premiums they
pay on their commercial insurance policies ("premium finance receivables") on a
national basis, through First Insurance Funding Corporation ("FIFC"). FIFC is a
wholly-owned subsidiary of Crabtree Capital Corporation ("Crabtree") which is a
wholly-owned subsidiary of Lake Forest Bank. Wintrust, through Tricom, Inc. of
Milwaukee ("Tricom"), also provides high-yielding short-term accounts receivable
financing ("Tricom finance receivables") and value-added out-sourced
administrative services, such as data processing of payrolls, billing and cash
management services, to the temporary staffing industry, with clients located
throughout the United States. Tricom is a wholly-owned subsidiary of Hinsdale
Bank. The Company provides trust and investment services at each of its Banks
through its wholly-owned subsidiary, Wayne Hummer Trust Company, N.A. ("WHTC"),
formerly known as Wintrust Asset Management Company. Wayne Hummer Investments,
LLC ("WHI") is a broker-dealer providing a full range of private client and
securities brokerage services to clients located primarily in the Midwest and is
a wholly-owned subsidiary of Wintrust.North Shore Bank. Focused Investments LLC
("Focused") is a broker-dealer that provides a full range of investment services
to clientsindividuals through a network of relationships with community-based financial
institutions primarily in Illinois. Focused is a wholly-owned subsidiary of WHI.
Wayne Hummer Asset Management Company ("WHAMC") provides money management
services and advisory services to individuals, institutions and institutions, municipal and
tax-exempt organizations, as well as the Wayne Hummer Companies' (collectively WHI, WHAMC
and Focused referred to as the "Wayne Hummer Companies" or "WHC") four proprietary mutual funds in addition
to portfolio management and financial supervision for a wide range of pension
and profit-sharing plans. WHAMC is a wholly-owned subsidiary of Wintrust.
Collectively WHI, WHAMC and Focused are referred to as the "Wayne Hummer
Companies" or "WHC". Wintrust Information Technology Services Company provides
information technology support, item capture, imaging and statement preparation
services to the Wintrust subsidiaries and is a wholly-owned subsidiary of
Wintrust.
The accompanying consolidated financial statements are unaudited and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations or cash flows in accordance with
generally accepted accounting principles. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes included in the Company's Annual Report and Form 10-K for the year ended
December 31, 2001.2002. Operating results for the three-month and year-to-date periods presented are
not necessarily indicative of the results which may be expected for the entire
year. Reclassifications of certain prior period amounts have been made to
conform to the current period presentation.
The preparation of the financial statements requires management to make
estimates, assumptions and judgments that affect the reported amounts of assets
and liabilities. These estimates, assumptions and judgments are based on
information available as of the date of the financial statements; accordingly,
as information changes, the financial statements could reflect different
estimates and assumptions. Certain policies and accounting principles inherently
have a greater reliance on the use of estimates, assumptions and judgments and
as such have a
- 5 -
greater possibility of producing results that could be materially different than
originally reported. The determination of the allowance for loan losses and the
valuation of the retained interest in the premium finance receivables sold are
the areas that require the most subjective and complex judgments.
(2) SUPPLEMENTAL FINANCIAL MEASURES/RATIOS
--------------------------------------
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 a more accurate view of the
performance of the interest-earning assets and interest-bearing liabilities and
of the Company's operating efficiency for comparative purposes. Other financial
holding companies may define or calculate these measures and ratios differently.
See the table below for supplemental data and the corresponding reconciliation
to GAAP financial measures for the three months ended March 31, 2003 and 2002.
Management reviews yields on certain asset categories and the net interest
margin of the Company, and its banking subsidiaries, on a fully
taxable-equivalent basis ("FTE"). In this non-GAAP presentation, net interest
income is adjusted to reflect tax-exempt interest income on an equivalent
before-tax basis. This measure ensures comparability of net interest income
arising from both taxable and tax-exempt sources. Net interest income on a
taxable-equivalent 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.
Management also evaluates the net interest margin excluding the interest expense
associated with the Company's Long-term Debt - Trust Preferred Securities ("Core
Net Interest Margin"). Because these instruments are utilized by the Company
primarily as capital instruments, management finds it useful to view the net
interest margin excluding this expense and deems it to be a more accurate view
of the operational net interest margin of the Company.
QUARTER ENDED MARCH 31,
-------------------------------------------------
(Dollars in thousands) 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
(A) INTEREST INCOME (GAAP) $ 47,239 $ 41,971
Taxable-equivalent adjustment - Loans 141 188
Taxable-equivalent adjustment - Liquidity management assets 61 20
--------------------- ---------------------
Interest income - FTE 47,441 42,179
(B) INTEREST EXPENSE (GAAP) 20,635 19,803
--------------------- ---------------------
Net interest income - FTE $ 26,806 $ 22,376
--------------------- ---------------------
(C) NET INTEREST INCOME (GAAP) (A MINUS B) $ 26,604 $ 22,168
Net interest income - FTE $ 26,806 $ 22,376
Add: Interest expense on long-term debt - trust preferred securities 928 1,288
--------------------- ---------------------
Core net interest income - FTE (1) $ 27,734 $ 23,664
--------------------- ---------------------
(D) NET INTEREST MARGIN (GAAP) 3.13 % 3.45 %
Net interest margin - FTE 3.15 % 3.48 %
Core net interest margin - FTE (1) 3.26 % 3.68 %
(E) EFFICIENCY RATIO (GAAP) 65.76 % 64.55 %
Efficiency ratio - FTE 65.46 % 64.17 %
================================================================================================================================
(1) Core net interest income and core net interest margin are by definition
non-GAAP measures/ratios. The GAAP equivalents are the net interest
income and net interest margin determined in accordance with GAAP (lines
C and D in the table).
- 6 -
(3) CASH AND CASH EQUIVALENTS
-------------------------
For the purposes of the Consolidated Statements of Cash Flows, the Company
considers cash and cash equivalents to include cash and due from banks, federal
funds sold and securities purchased under resale agreements which have anwith original
maturitymaturities of 90 days or less.
- 5 -
(3)(4) AVAILABLE-FOR-SALE SECURITIES
-----------------------------
The following table is a summary of the available-for-sale securities portfolio
as of the dates shown:
JUNE 30, 2002MARCH 31, 2003 December 31, 2001 June 30, 2001
------------------------------- ----------------------------2002 March 31, 2002
----------------------------------------------------------- ------------------------------
AMORTIZED FAIR Amortized Fair Amortized Fair
(In thousands) COST VALUE Cost Value Cost Value
------------------------------------------------------- -------------- ------------ --------------- -------------- ---------------------------------------------------------- ------------------------------
U.S. Treasury $ 2,58334,098 $ 2,58233,852 $ 3,04534,150 $ 3,04834,022 $ 1,0583,292 $ 1,0673,291
U.S. Government agencies 144,858 145,732 151,911 152,185 63,160 63,129241,145 242,280 139,707 140,752 131,175 131,117
Municipal 6,288 6,417 6,507 6,686 5,641 5,8216,045 6,187 6,311 6,467 5,903 6,144
Corporate notes and other 25,260 24,257 26,691 25,895 26,737 26,13372,347 72,258 76,809 75,193 26,688 25,846
Mortgage-backed 187,032 187,826 184,483 181,425 68,860 68,50999,635 98,954 270,091 270,962 190,192 183,583
Federal Reserve/FHLB Stock
and other equity securities 15,894 16,019 15,384 16,111 14,585 15,199
---------------- -------------- ------------50,598 50,659 20,221 20,283 15,457 15,559
--------------- -------------- ----------------------------------------------------------- -----------------------------
Total available-for-sale securities $ 381,915503,868 $ 380,833504,190 $ 388,021547,289 $ 385,350547,679 $ 180,041372,707 $ 179,858
================ ============== ============365,540
=============== ============== =========================================================== =============================
(4)(5) LOANS
-----
The following table is a summary of the loan portfolio as of the dates shown:
JUNE 30,MARCH 31, December 31, June 30,March 31,
(Dollars in thousands) 2003 2002 2001 20012002
- ------------------------------------------------------------------------------------ --------------------- ---------------------
BALANCE:
-------
Commercial and commercial real estate $ 1,134,0821,314,493 $ 1,007,5801,320,598 $ 826,3641,066,326
Home equity 318,397 261,049 209,149395,056 365,521 287,186
Residential real estate 138,595 140,041 135,429135,940 156,213 142,554
Premium finance receivables 459,558 348,163 345,789532,162 461,614 414,330
Indirect auto loans 183,855 184,209 190,141169,311 178,234 184,385
Tricom finance receivables 19,228 18,280 16,824
Other24,416 21,048 17,558
Consumer and other loans 55,230 59,157 63,56157,102 52,858 55,211
--------------------- --------------------- ---------------------
Total loans, net of unearned income $ 2,308,9452,628,480 $ 2,018,4792,556,086 $ 1,787,257
--------------------- --------------------- ---------------------2,167,550
===================== ===================== =====================
MIX:
---
Commercial and commercial real estate 49 % 50 % 4652 % 49 %
Home equity 15 14 13 12
Residential real estate 5 6 7 8
Premium finance receivables 20 1718 19
Indirect auto loans 87 7 9 11
Tricom finance receivables 1 1 1
OtherConsumer and other loans 2 3 32 2
------------------------ ---------------------- ----------------------------------------
Total loans, net of unearned income 100 % 100 % 100 %
------------------------ ---------------------- ---------------------======================== ====================== ===================
Included in loans as of June 30, 2002 is an aggregate of $1.7 million of loans
to the Company's Chief Executive Officer and Chief Operating Officer secured by
172,500 shares of the Company's common stock. The total maximum available to be
borrowed under these loan arrangements is $1.7 million. The loans are full
recourse to the borrowers.
- 67 -
(5)(6) DEPOSITS
--------
The following is a summary of deposits as of the dates shown:
JUNE 30,MARCH 31, December 31, June 30,March 31,
(Dollars in thousands) 2003 2002 2001 2001
-------------------------------------------------------------------------------- -----------------------------------------------
BALANCE:2002
------------------------------------------------------------------------------ -------------------------------------------------
BALANCE:
-------
Non-interest bearing $ 257,298313,207 $ 254,269305,540 $ 205,414242,966
NOW 292,370 286,860 193,752
Money market 356,352 335,881 296,362accounts 347,938 354,499 290,120
NOW - Brokerage customer deposits 97,531252,223 231,700 --
--Money market accounts 416,698 399,441 368,240
Savings 133,110 132,514 105,097accounts 155,228 147,669 133,963
Time certificatecertificates of deposits 1,471,846 1,305,112 1,254,720
---------------------deposit 1,785,001 1,650,275 1,382,026
-------------------- ------------------------------------------- -------------------
Total deposits $ 2,608,5073,270,295 $ 2,314,6363,089,124 $ 2,055,345
=====================2,417,315
==================== =========================================== ===================
MIX:
---
Non-interest bearing 109 % 1110 % 10 %
NOW accounts 11 11 12
9
Money market 14 15 15NOW - Brokerage customer deposits 48 8 --
--Money market accounts 13 13 15
Savings accounts 5 5 6
5
Time certificatecertificates of deposits 56 56 61
----------------------deposit 54 53 57
--------------------- -------------------- ----------------
Total deposits 100 % 100 % 100 %
====================== ===================== ==================== ================
As previously disclosed, following its acquisition of the Wayne Hummer
Companies in February 2002, Wintrust has undertakenundertook an effort to migrate funds from
the money market mutual fund balances managed by WHAMC into deposit accounts of the
Wintrust Banks.Banks ("NOW - Brokerage customer deposits" in the table above).
Consistent with reasonable interest rate risk parameters, the funds will
generally be invested in excess loan production of the Banks as well as other
investments suitable for banks. As of June 30, 2002, $97.5 million had
migrated into an insured bank deposit product at the various Banks. The migration of additional funds to the Banks
is subject to the desire of the customers to make the transition of their
funds into FDIC insuredFDIC-insured bank accounts, capital capacity of the Company and the
availability of suitable investments in which to deploy the funds. AsThe net
assets of Julythe WHAMC money market mutual fund decreased $262 million from March
31, 2002 a totalto March 31, 2003, of approximately $150which $252 million was resident in this account and Wintrust estimates that approximately
$200migrated to $300 million may migrate todeposit accounts
at the Banks by the end of 2002.
(6)Banks.
(7) NOTES PAYABLE, FEDERAL HOME LOAN BANK ADVANCES, SUBORDINATED NOTE AND OTHER
----------------------------------------------------------------------------
BORROWINGS:
--------------------------------------------------------------------- ----------
The following is a summary of notes payable, Federal Home Loan Bank advances,
subordinated note and other borrowings as of the dates shown:
JUNE 30,MARCH 31, December 31, June 30,March 31,
(In thousands) 2003 2002 2001 20012002
----------------------------------------------------------------------- --------------------------------------- ------------------
Notes payable $ 58,65046,975 $ 46,57544,025 $ 25,00066,125
Federal Home Loan Bank advances 140,000 140,000 90,000
Subordinated note 25,000 25,000 --
Other borrowings:
Federal funds purchased 1,400 11,800 -- 2,000 43,500
Securities sold under repurchase agreements 14,365 16,274 15,21720,604 24,560 17,193
Wayne Hummer Companies borrowings 50,947 -- --16,064 15,148 47,931
Other 5,000 -- --
---------------------------------------5,000 5,000
------------------- ------------------- ------------------
Total other borrowings $ 71,71241,668 $ 28,07446,708 $ 15,217
---------------------------------------113,624
------------------- ------------------- ------------------
Total notes payable, Federal Home Loan Bank advances,
subordinated note and other borrowings $ 270,362253,643 $ 164,649255,733 $ 40,217
=======================================269,749
=================== =================== ==================
The Wayne Hummer Companies borrowings consistsconsist of collateralized demand
obligations to third party brokers and banks at interest rates approximating the
fed funds rate that are used to finance securities purchased by customers on
margin and securities owned by WHI and demand obligations to brokers and clearing
organizations at rates approximating fed funds.organizations. Other represents the Company's interest-bearing deferred portion
of the purchase price of the Wayne Hummer Companies.
See Note 11 - Business Combinations for further discussion.
- 78 -
(7)(8) LONG-TERM DEBT - TRUST PREFERRED SECURITIES
-------------------------------------------
The Company issued a total of $51.1 million of Trust Preferred Securities
through two separate issuances by Wintrust Capital Trust I and Wintrust Capital Trust II ("Trusts"). The
Trusts issued a totalCompany owns all of $1,579,000 ofthe common securities all of which are ownedissued by the Company.Trusts. The Trust
Preferred Securities represent preferred undivided beneficial interests in the
assets of the Trusts. The Trusts invested the proceeds from the issuances of the
Trust Preferred Securities and the common securities in Subordinated Debentures
("Debentures") issued by the Company, with the same maturities and fixed
interest rates as the Trust Preferred Securities. The Debentures are the sole
assets of the Trusts and are eliminated, along with the related income statement
effects, in the consolidated financial statements.
The composition of the Trust Preferred Securities as of June 30, 2002 (DollarsMarch 31, 2003 is as
follows (dollars in thousands):
Earliest
Issuance Rate Maturity Redemption
Issuance Trust Amount Date Type Rate Date Date
---------------------------------------------------------------- ------------- --------------- ----------------- --------------- --------------- ---------------- ----------------
Wintrust Capital Trust I $ 31,050 10/98 Fixed 9.00% 09/30/28 09/30/03
Adjustment for fair value hedge (46)
Wintrust Capital Trust II 20,000 06/00 Fixed 10.50% 06/30/30 06/30/05
----------------------------
Total $ 51,050
===============51,004
=============
The Company has guaranteed the payment of distributions on and payments upon
liquidation or redemption of the Trust Preferred Securities, in each case to the
extent of funds held by the Trusts. The Company and the Trusts believe that,
taken together, the obligations of the Company under the guarantees, the
subordinated debentures, and other related agreements provide, in the aggregate,
a full, irrevocable and unconditional guarantee, on a subordinated basis, of all
of the obligations of the Trusts under the Trust Preferred Securities. Subject
to certain limitations, the Company has the right to defer payment of interest
on the Debentures at any time, or from time to time, for a period not to exceed
20 consecutive quarters. The Trust Preferred Securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Debentures at maturity or
their earlier redemption. The Debentures of the Trusts are redeemable in whole
or in part prior to maturity at anytimeany time after the date shown above, and earlier
at the discretion of the Company if certain conditions are met, and, in any
event, only after the Company has obtained Federal Reserve approval, if then
required under applicable guidelines or regulations.
The Trust Preferred Securities, subject to certain limitations, qualify as Tier
1 capital of the Company for regulatory purposes. Interest expense on the Trust
Preferred Securities is deductible for tax purposes.
(8)(9) EARNINGS PER SHARE
------------------
The following table shows the computation of basic and diluted earnings per
share for the periods shown:indicated (in thousands, except per share data):
For the Three Months For the Six Months
Ended June 30, Ended June 30,FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------------
---------------------------------
(In thousands, except per share data)2003 2002
2001 2002 2001
- -------------------------------------------------------------- --------------- ---------------------------------------------------------------------------------------------------------------- ---------------- ---------------
Net Incomeincome $ 6,3078,263 $ 4,363 $ 12,669 $ 8,267
=============== ===============6,362
================ ===============
Average common shares outstanding 15,948 12,992 15,513 12,95717,308 15,078
Effect of dilutive common shares 1,080 693 1,013 587
--------------- ---------------1,124 913
---------------- ---------------
Weighted average common shares and effect of dilutive common shares 17,028 13,685 16,526 13,544
=============== ===============18,432 15,991
================ ===============
Net income per average common share:
Basic $ 0.400.48 $ 0.34 $ 0.82 $ 0.64
--------------- --------------- ---------------- ---------------0.42
================ ===============
Diluted $ 0.370.45 $ 0.32 $ 0.77 $ 0.61
=============== ===============0.40
================ ===============
The effect of dilutive common shares outstanding results from stock options,
restricted stock unit awards, stock warrants, and shares issuableto be issued under the
Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, all
being treated as if they had been either exercised or issued, computed by
application of the treasury stock method.
- 89 -
(9)(10) SEGMENT INFORMATION
-------------------
The segment financial information provided in the following tables has been
derived from the internal profitability reporting system used by management to
monitor and manage the financial performance of the Company. The Company
evaluates segment performance based on after-tax profit or loss and other
appropriate profitability measures common to each segment. Certain indirect
expenses have been allocated based on actual volume measurements and other
criteria, as appropriate. Inter-segment revenue and transfers are generally
accounted for at current market prices. The other category, as shown in the
following table, reflects parent company information. The net interest income
and segment profit of the banking segment includes income and related interest
costs from portfolio loans that were purchased from the premium finance and
indirect auto segments. For purposes of internal segment profitability analysis,
management reviews the results of its premium finance and indirect auto segments
as if all loans originated and sold to the banking segment were retained within
that segment's operations, thereby causing the inter-segment elimination amounts
shown in the following table. The following table presents a summary of certain
operating information for each reportable segment for three months ended for the
periods shown:
Three Months Ended
June 30,March 31, $ Change in % Change in
---------------------------------------
(Dollars in thousands) 2003 2002 2001 Contribution Contribution
----------------------------------------------- ------------------ ------------------ ------------------- ----------------------
NET INTEREST INCOME:
Banking $ 22,76523,714 $ 17,12720,773 $ 5,638 32.92,941 14.2 %
Premium finance 8,060 6,510 1,550 23.89,244 8,117 1,127 13.9
Indirect auto 2,028 1,604 424 26.41,836 2,002 (166) (8.3)
Tricom 1,085 965 120 12.4
Trust, asset854 913 (59) (6.5)
Wealth management and brokerage 722 186 536 288.21,556 588 968 164.6
Inter-segment eliminations (8,221) (6,603) (1,618) (24.5)(8,685) (8,301) (384) (4.6)
Other (2,022) (1,774) (248) (14.0)(1,915) (1,924) 9 0.5
------------------ ------------------ ------------------- ----------------------
Total net interest income $ 24,41726,604 $ 18,01522,168 $ 6,402 35.54,436 20.0 %
================== ================== =================== ======================------------------ ------------------ ------------------- ----------------------
NON-INTEREST INCOME:
Banking $ 3,8689,319 $ 4,4574,942 $ (589) (13.2)4,377 88.6 %
Premium finance 827 1,449 (622) (42.9)1,162 2,016 (854) (42.4)
Indirect auto 10 217 8 400.09 112.5
Tricom 933 1,100 (167) (15.2)
Trust, asset1,091 821 270 32.9
Wealth management and brokerage 7,623 523 7,100 1,357.66,188 4,673 1,515 32.4
Inter-segment eliminations 456 (140) 596 N/M(53) (154) 101 65.6
Other 54 -- 54 N/M19 446 (427) (95.7)
------------------ ------------------ ------------------- ----------------------
Total non-interest income $ 13,77117,743 $ 7,39112,752 $ 6,380 86.34,991 39.1 %
================== ================== =================== ======================------------------ ------------------ ------------------- ----------------------
SEGMENT PROFIT (LOSS):
Banking $ 7,0218,487 $ 4,8716,193 $ 2,150 44.12,294 37.0 %
Premium finance 3,327 2,703 624 23.14,192 4,087 105 2.6
Indirect auto 810 558 252 45.2657 728 (71) (9.8)
Tricom 486 323 163 50.5
Trust, asset397 271 126 46.5
Wealth management and brokerage (87) (108) 21 19.4(281) (142) (139) (97.9)
Inter-segment eliminations (3,448) (2,462) (986) (40.0)(3,435) (3,463) 28 0.8
Other (1,802) (1,522) (280) (18.4)(1,754) (1,312) (442) (33.7)
------------------ ------------------ ------------------- ----------------------
Total segment profit $ 6,3078,263 $ 4,3636,362 $ 1,944 44.61,901 29.9 %
================== ================== =================== ======================------------------ ------------------ ------------------- ----------------------
SEGMENT ASSETS:
Banking $ 3,108,7043,834,507 $ 2,290,1682,826,154 $ 818,5361,008,353 35.7 %
Premium finance 487,953 379,969 107,984 28.4578,596 435,964 142,632 32.7
Indirect auto 189,797 197,396 (7,599) (3.8)174,854 190,244 (15,390) (8.1)
Tricom 33,351 27,683 5,668 20.5
Trust, asset38,308 28,212 10,096 35.8
Wealth management and brokerage 104,052 5,408 98,644 1,824.076,739 99,924 (23,185) (23.2)
Inter-segment eliminations (714,137) (592,704) (121,433) (20.5)(798,208) (634,976) (163,232) (25.7)
Other 9,680 14,163 (4,483) (31.7)10,199 9,631 568 5.9
------------------ ------------------ ------------------- ----------------------
Total segment assets $ 3,219,4003,914,995 $ 2,322,0832,955,153 $ 897,317 38.6959,842 32.5 %
================== ================== =================== ======================------------------ ------------------ ------------------- ----------------------
N/M = not meaningful
- 9 -
The following table presents a summary of certain operating information for each
reportable segment for six months ended for the periods shown:
Six Months Ended
June 30,
$ Change in % Change in
---------------------------------------
(Dollars in thousands) 2002 2001 Contribution Contribution
----------------------------------------------- ------------------ ------------------ ------------------- ----------------------
NET INTEREST INCOME:
Banking $ 43,538 $ 33,555 $ 9,983 29.8 %
Premium finance 16,177 12,483 3,694 29.6
Indirect auto 4,030 2,991 1,039 34.7
Tricom 1,998 1,849 149 8.1
Trust, asset management and brokerage 1,310 352 958 272.2
Inter-segment eliminations (16,522) (12,369) (4,153) (33.6)
Other (3,946) (3,570) (376) (10.5)
------------------ ------------------ ------------------- ----------------------
Total net interest income $ 46,585 $ 35,291 $ 11,294 32.0 %
================== ================== =================== ======================
NON-INTEREST INCOME:
Banking $ 9,398 $ 8,857 $ 541 6.1 %
Premium finance 2,843 2,348 495 21.1
Indirect auto 18 2 16 800.0
Tricom 1,754 2,142 (388) (18.1)
Trust, asset management and brokerage 12,296 973 11,323 1,163.7
Inter-segment eliminations (286) (222) (64) (28.8)
Other 500 141 359 254.6
------------------ ------------------ ------------------- ----------------------
Total non-interest income $ 26,523 $ 14,241 $ 12,282 86.2 %
================== ================== =================== ======================
SEGMENT PROFIT (LOSS):
Banking $ 13,214 $ 9,748 $ 3,466 35.6 %
Premium finance 7,414 4,772 2,642 55.4
Indirect auto 1,538 932 606 65.0
Tricom 757 602 155 25.7
Trust, asset management and brokerage (229) (304) 75 24.7
Inter-segment eliminations (6,911) (4,586) (2,325) (50.7)
Other (3,114) (2,897) (217) (7.5)
------------------ ------------------ ------------------- ----------------------
Total segment profit $ 12,669 $ 8,267 4,402 53.2 %
================== ================== =================== ======================
SEGMENT ASSETS:
Banking $ 3,108,704 $ 2,290,168 $ 818,536 35.7 %
Premium finance 487,953 379,969 107,984 28.4
Indirect auto 189,797 197,396 (7,599) (3.8)
Tricom 33,351 27,683 5,668 20.5
Trust, asset management and brokerage 104,052 5,408 98,644 1,824.0
Inter-segment eliminations (714,137) (592,704) (121,433) (20.5)
Other 9,680 14,163 (4,483) (31.7)
------------------ ------------------ ------------------- ----------------------
Total segment assets $ 3,219,400 $ 2,322,083 $ 897,317 38.6 %
================== ================== =================== ======================
- 10 -
(10)(11) DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------
The Company enters into certain derivative financial instruments as part of its
strategy to manage its exposure to market risk. Market risk is the possibility
that, due to changes in interest rates or other economic conditions, the
Company's net interest income will be adversely affected. The derivative
financial instruments that are currently being utilized by the Company to manage
this risk include interest rate cap and interest rate swap contracts. The
amounts potentially subject to market and credit risks are the streams of
interest payments under the contracts and not the notional principal amounts
used to express the volume of the transactions.
On January 1, 2001, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS
137 and SFAS 138 (collectively referred to as SFAS 133).
As a result of the adoption ofIn accordance with SFAS 133, the Company recognizes all derivative financial
instruments, such as interest rate cap and interest rate swap agreements, in the
consolidated financial statements at fair value regardless of the purpose or
intent for holding the instrument. Derivative financial instruments are included
in other assets or other liabilities, as appropriate, on the Consolidated
StatementStatements of Condition. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or in shareholders'
equity as a component of comprehensive income depending on whether the
derivative financial instrument qualifies for hedge accounting, and if so,
whether it qualifies as a fair value hedge or cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair value hedges are
recorded in income along within the portions ofsame period and in the same income statement line as
changes in the fair values of the hedged items that relate to the hedged
risk(s). Changes in fair values of derivative financial instruments accounted
for as cash flow hedges, to the extent they are effective hedges, are recorded
inas a component of other comprehensive income net of deferred taxes. Changes in
fair values of derivative financial instruments not qualifying as hedges are
reported in income.
Derivative financial instruments owned by the Company on January 1, 2001 were
not designated as hedges in accordance with SFAS 133. As a result, the effect of
recording the derivative financial instruments at fair value upon adoption
resulted in a charge of $254,000 (net of tax) in the Consolidated Statement of
Income to reflect the cumulative effect of a change in accounting principle.
During the first six monthsquarter of 2002, $1302003, $75 million notional principal amount of
interest rate cap contracts matured. At June 30, 2002, the Company had $125
million of notional principal amounts of interest rate caps with maturities
ranging from July 2002 to February 2003. These contracts were purchased to mitigate
the effect of rising rates on certain floating rate deposit products and
provideprovided for the receipt of payments when the 91-day Treasury bill rate exceedsexceeded
the predetermined strike rates that range from 3.75% to 6.50%. The
payment amounts, if any, are determined and received on a monthly basis and are
recorded as an adjustment to net interest income.rates. At June 30, 2002,March 31, 2003, the Company had $25no interest
rate cap contracts.
At March 31, 2003, the Company had $81.05 million notional principal amount of
an
interest rate swap contract maturing in February 2004. This contract effectively
converts a portioncontracts outstanding, all of the Company's floating-rate notes payable to a fixed-rate
basis, thus reducing the impact of interest rate changes on future interest
expense.which qualified for hedge
accounting. The following table presents a summary of these derivative
instruments that were
outstanding as of the dates shown and whether the contracts were cash flow (CF) hedges with changes in
fair values are
accounted forreported as other comprehensive income (OCI) or fair value (FV)
hedges with changes in fair values reported in the income statement (IS) or as other comprehensive income
(OCI):
JUNE 30, 2002MARCH 31, 2003 December 31, 2001
--------------------------------------- -------------------------------------2002
-------------------------- ------------------------
(In thousands) Type of Change in Maturity NOTIONAL FAIR Notional Fair
inhedge market value Date AMOUNT VALUE Amount Value
- ----------------------------- --------------------- ------------------- ------------------ -------------------- ---------------------------- ---------------- ----------------- -------------------------- ------------------------
Interest rate caps IS $55,000swap CF OCI 2/27/04 $25,000 $ --(953) $25,000 $ 185,000 $ --
Interest rate caps OCI 70,000 1 70,000 54(1,125)
Interest rate swap CF OCI 10/29/12 25,000 (959)(808) 25,000 (681)( 723)
Interest rate swap (callable) FV IS 9/30/28 (03) 31,050 ( 46) 31,050 ( 156)
Periodically, the Company will sell options to a bank or dealer for the right to
purchase certain securities held within the Banks' investment portfolios. These
covered call option transactions are designed primarily to increase the total
return associated with holding these securities as earning assets. These
transactions do not qualify as hedges pursuant to SFAS 133 and, accordingly,
changes in fair values of these contracts are reported in other non-interest
income. The option premium income generated by these transactions is also
recognized as other non-interest income. There were no call options outstanding as of June 30, 2002,March 31, 2003, December
31, 20012002 or June 30, 2001, respectively.
- 11 -
(11)March 31, 2002.
(12) BUSINESS COMBINATIONS
---------------------
In February 2003, Wintrust completed the acquisition of Lake Forest Capital
Management Company ("LFCM") based in Lake Forest, Illinois. Lake Forest Capital
Management is operating as a separate division of Wayne Hummer Asset Management
Company, Wintrust's existing asset management subsidiary. Accounted for as a
purchase, LFCM's results of operations are included in Wintrust's 2003 results
since the effective date of acquisition (February 1, 2003).
In February, 2002, Wintrust completed its acquisition of Wayne Hummer
Investments, LLC ("WHI" - including its wholly owned subsidiary, Focused
Investments LLC) and Wayne Hummer Management Company (subsequently renamed Wayne
Hummer Asset Management Company "WHAMC"). The results of the Wayne Hummer
Companies have been included in Wintrust's consolidated financial statements
only since the effective date (February 1, 2002) of the acquisition.
The acquisition of the Wayne Hummer Companies will augment fee-based revenue and
diversify Wintrust's revenue stream by adding brokerage services as well as
offering traditional banking products to the customers of the Wayne Hummer
Companies, thereby providing a more comprehensive menu of financial products and
services to the customers of Wintrust and the Wayne Hummer Companies.
The aggregate purchase price was $28 million consisting of $8 million in cash,
762,742 shares of Wintrust's common stock (then valued at $15 million) and $5
million of deferred cash payments to be made over a three-year period subsequent
to the closing date. Wintrust is obligated to pay additional consideration
contingent upon the attainment of certain performance measures over the next
five years. The additional consideration, if paid, will be recorded as
additional goodwill at its fair value when paid, or when the additional
consideration is deemed, beyond a reasonable doubt, to have been earned. The
value of Wintrust's common stock issued was determined based on the unweighted
average of the high and low sales prices of Wintrust's common stock on the
Nasdaq National Market for the 10 trading days ending on the second trading day
preceding the effective date of the acquisition. The Company recorded $15.1
million of goodwill and $1.4 million of finite-lived intangible assets related
to the customer list of WHAMC.
The following pro forma information reflects the Company's results of operations
for the periods shown as if the Wayne Hummer Companies would have been included
from the beginning of the periods shown. The Wintrust as reported results
include the results of the Wayne Hummer Companies since the effective date of
the acquisition:
Three Months Ended
June 30,
-----------------------------------------
(Dollars in thousands, except per share data) 2002 2001
-------------------------------------------------------------------------------------- -------------------- --------------------
NET REVENUE:
Wintrust as reported (includes WHC from February 1, 2002) $ 38,188 $ 25,406
WHC (results prior to February 1, 2002) -- 8,270
-------------------- --------------------
Pro forma net revenue $ 38,188 $ 33,676
==================== ====================
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
Wintrust as reported (includes WHC from February 1, 2002) $ 9,799 $ 6,860
WHC (results prior to February 1, 2002) -- 680
-------------------- --------------------
Pro forma income before taxes and cumulative effect of accounting change $ 9,799 $ 7,540
==================== ====================
NET INCOME:
Wintrust as reported (includes WHC from February 1, 2002) $ 6,307 $ 4,363
WHC (results prior to February 1, 2002) -- 442
-------------------- --------------------
Pro forma net income $ 6,307 $ 4,805
==================== ====================
BASIC EPS:
Wintrust as reported (includes WHC from February 1, 2002) $ 0.40 $ 0.34
WHC (results prior to February 1, 2002) -- 0.01
-------------------- --------------------
Pro forma basic EPS $ 0.40 $ 0.35
==================== ====================
DILUTED EPS:
Wintrust as reported (includes WHC from February 1, 2002) $ 0.37 $ 0.32
WHC (results prior to February 1, 2002) -- 0.01
-------------------- --------------------
Pro forma diluted EPS $ 0.37 $ 0.33
==================== ====================
- 1211 -
The following pro forma information reflects the Company's results of operations
for the periods shown as if the Wayne Hummer Companies would have been included
from the beginning of the periods shown. The Wintrust as reported results
include the results of the Wayne Hummer Companies since the effective date of
the acquisition:
Six Months Ended
June 30,
-----------------------------------------
(Dollars in thousands, except per share data) 2002 2001
-------------------------------------------------------------------------------------- -------------------- --------------------
NET REVENUE:
Wintrust as reported (includes WHC from February 1, 2002) $ 73,108 $ 49,532
WHC (results prior to February 1, 2002) 2,919 16,690
-------------------- --------------------
Pro forma net revenue $ 76,027 $ 66,222
==================== ====================
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
Wintrust as reported (includes WHC from February 1, 2002) $ 19,692 $ 13,377
WHC (results prior to February 1, 2002) 108 1,199
-------------------- --------------------
Pro forma income before taxes and cumulative effect of accounting change $ 19,800 $ 14,576
==================== ====================
NET INCOME:
Wintrust as reported (includes WHC from February 1, 2002) $ 12,669 $ 8,267
WHC (results prior to February 1, 2002) 70 779
-------------------- --------------------
Pro forma net income $ 12,739 $ 9,046
==================== ====================
BASIC EPS:
Wintrust as reported (includes WHC from February 1, 2002) $ 0.82 $ 0.64
WHC (results prior to February 1, 2002) (0.01) 0.02
-------------------- --------------------
Pro forma basic EPS $ 0.81 $ 0.66
==================== ====================
DILUTED EPS:
Wintrust as reported (includes WHC from February 1, 2002) $ 0.77 $ 0.61
WHC (results prior to February 1, 2002) (0.01) 0.02
-------------------- --------------------
Pro forma diluted EPS $ 0.76 $ 0.63
==================== ====================
(12)(13) GOODWILL AND OTHER INTANGIBLE ASSETS
------------------------------------
In July 2001,Wintrust adopted the Financial Accounting Standards Board ("FASB") issued Statementprovisions of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"),
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS 141 also specifies the criteria for intangible assets acquired in a
purchase method business combination to be recognized and reported apart from
goodwill.effective January 1, 2002. SFAS 142 requires companies to no longer
amortize goodwill and intangible assets with indefinite useful lives, but
instead test these assets for impairment at least annually in accordance with
the provisions of SFAS 142. Under SFAS 142, intangible assets with definite
useful lives continue to be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with the FASB's Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
Wintrust adopted the provisions of SFAS 142 effective January 1, 2002. AsA summary of the date of adoption, Wintrust had unamortized goodwill in the amount of $10.0
million, and unamortized identifiable intangible assets in the amount of
$109,000, all of which were subject to the transition provisions of SFAS 141 and
SFAS 142. As part of its adoption of SFAS 142, the Company has performed a
transitional impairment test on its goodwill assets, which indicated that no
impairment charge was required. In addition, no material reclassifications or
adjustments to the useful lives of finite-lived intangible assets were made as a
result of adopting the new guidance. The full impact of adopting SFAS 142 is
expected to result in an increase in net income of approximately $413,000, or
approximately $0.02 per diluted share, in 2002 as a result of Wintrust no longer
having to amortize goodwill against earnings.
- 13 -
Assuming retroactive adoption of SFAS 142, net income for the six months ended
June 30, 2001 increased as a result of ceasing amortization of goodwill. The
following table sets forth the reconcilement of net income and earnings per
share excluding goodwill amortization for the periods shown. The 2001 period is
presented on a pro forma basis excluding goodwill amortization:
Six Months Ended Six Months Ended
June 30, June 30,
2002 2001
---------------------------------- ---------------------------------
NET EARNINGS Net Earnings
(Dollars in thousands, except per share data) INCOME PER SHARE Income Per Share
- ---------------------------------------------------------- ----------------- --------------- --------------- ---------------
Earnings per share - Basic:
Net income/Basic EPS as reported $ 12,669 $ 0.82 $ 8,267 $ 0.64
Add back: Goodwill amortization -- -- 313 0.02
Less: Tax on deductible goodwill -- -- 99 (0.01)
----------------- --------------- --------------- ---------------
Adjusted net income/Basic EPS $ 12,669 $ 0.82 $ 8,481 $ 0.65
================= =============== =============== ===============
Earnings per share - Diluted:
Net income/Diluted EPS as reported $ 12,669 $ 0.77 $ 8,267 $ 0.61
Add back: Goodwill amortization -- -- 313 0.02
Less: Tax on deductible goodwill -- -- 99 (0.01)
----------------- --------------- --------------- ---------------
Adjusted net income/Diluted EPS $ 12,669 $ 0.77 $ 8,481 $ 0.62
================= =============== =============== ===============
A summary ofCompany's goodwill assets by business segment is presented in
the following table:
January 1, Goodwill Impairment JUNE 30,MARCH 31,
(In thousands) 20022003 Acquired Losses 2002
------------------------------------------2003
------------------------------------------------ ------------------ ----------------------------------- --------------------- ------------------------------------
Banking $ 1,018 $ -- $ -- $ 1,018
Premium finance -- -- -- --
Indirect auto -- -- -- --
Tricom 8,958 -- -- 8,958
Trust, assetWealth management and brokerage15,290 4,249 -- 15,115 -- 15,11519,539
Parent and other -- -- -- --
------------------ ----------------------------------- --------------------- ------------------------------------
Total $ 9,97625,266 $ 15,1154,249 $ -- $ 25,09129,515
================== =================================== ===================== ====================================
At June 30,March 31, 2003 and 2002, and 2001, Wintrust had $1.4$2.7 million and $143,000,$92,000, respectively,
in unamortized finite-lived intangible assets. As a result of the acquisitionacquisitions
of WHAMC and LFCM, $1.38 million was$1.65 million, respectively, were assigned to
the customer listlists of WHAMC and isthe acquired companies. These intangible assets are being
amortized over a 7-year periodperiods on an accelerated basis. Total amortization
expense associated with these intangible assets in the first sixthree months of
2002
and 20012003 was $117,000 and $34,000, respectively.$122,000. Estimated amortization expense on finite-lived intangible
assets for the years ended 20022003 through 20062007 is as follows:
(In thousands)
--------------------------------------
20022003 $ 324
2003 310614
2004 229552
2005 202476
2006 168
- 14 -
(13) RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
On January 1, 2002, Wintrust adopted SFAS 144, which superseded SFAS 121 and
provides a single accounting model for long-lived assets to be disposed of.
Although retaining many of the fundamental recognition and measurement
provisions of SFAS 121, the new rules significantly change the criteria that
would have to be met to classify an asset as held-for-sale. SFAS 144 also
supersedes the provisions of410
2007 341
(14) STOCK-BASED COMPENSATION PLANS
------------------------------
The Company follows Accounting Principles Board (APB) Opinion 30No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock option plans. APB 25 uses the intrinsic value method
and provides that compensation expense for employee stock options is generally
not recognized if the exercise price of the option equals or exceeds the fair
value of the stock on the date of grant. The Company follows the disclosure
requirements of SFAS 123, "Accounting for Stock-Based Compensation" (as amended
by SFAS 148), rather than the recognition provisions of SFAS 123, as allowed by
the statement. Compensation expense for restricted share awards is ratably
recognized over the period of service, usually the restricted period, based on
the fair value of the stock on the date of grant.
- 12 -
The following table reflects the Company's pro forma net income and earnings per
share as if compensation expense for the Company's stock options, determined
based on the fair value at the date of grant consistent with regardthe method of SFAS
123, had been included in the determination of the Company's net income (in
thousands, except per share data):
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------------
2003 2002
- ------------------------------------------------------------------------------------------------- ---------------- ---------------
Net income
As reported $ 8,263 $ 6,362
Compensation cost of stock options based on fair value, net of related tax effect (328) (267)
---------------- ---------------
Pro forma $ 7,935 $ 6,095
---------------- ---------------
Earnings per share - Basic
As reported $ 0.48 $ 0.42
Compensation cost of stock options based on fair value, net of related tax effect (0.02) (0.02)
---------------- ---------------
Pro forma $ 0.46 $ 0.40
---------------- ---------------
Earnings per share - Diluted
As reported $ 0.45 $ 0.40
Compensation cost of stock options based on fair value, net of related tax effect (0.02) (0.02)
---------------- ---------------
Pro forma $ 0.43 $ 0.38
---------------- ---------------
The fair values of stock options granted were estimated at the date of grant
using the Black-Scholes option-pricing model. The Black-Scholes model is
sensitive to reportingchanges in the subjective assumptions, which can materially affect
the fair value estimates. As a result, the pro forma amounts indicated above may
not be representative of the effects on reported net income for future years.
Included in the determination of net income as reported is compensation expense
related to restricted share awards of $191,000 ($118,000 net of tax) in the
first quarter of 2003 and $130,000 ($80,000 net of tax) in the first quarter of
2002.
(15) RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In November 2002, the FASB issued FASB interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". This interpretation expands the
disclosure to be made by a guarantor in its financial statements about its
obligations under certain guarantees and requires the guarantor to recognize a
liability for the fair value of an obligation assumed under a guarantee. FIN 45
clarifies that a guarantor is required to recognize, at the inception of a
disposalguarantee, a liability for the fair value of a segmentthe obligation undertaken in
issuing the guarantee. The disclosure requirements of a businessFIN 45 are effective for
the Company as of December 31, 2002, and requires expectedrequire disclosure of the nature of the
guarantee, the maximum potential amount of future operating losses from discontinued operationspayments that the guarantor
could be required to make under the guarantee, and the current amount of the
liability, if any, for the guarantor's obligation under the guarantee. The
recognition requirements of FIN 45 are to be displayed in discontinued operations inapplied prospectively to guarantees
issued or modified after December 31, 2002. The Company does not expect the
period(s) in which the losses are
incurred (rather than asrequirements of the measurement date as presently required by APB
Opinion 30). In addition, more dispositions will qualify for discontinued
operations treatment in the income statement. The adoption of SFAS 144 did notFIN 45 to have a material impact on Wintrust's financial condition orthe results of operations.operations,
financial position, or liquidity.
In January 2003, the FASB issued FASB interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities". The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity (VIE) and determine when the assets, liabilities, noncontrolling
interest, and results of operations of a VIE need to be included in a company's
consolidated financial statements. Because the Company does not have an interest
in any VIEs, the Company does not expect the adoption of FIN 46 to have material
impact on its results of operations, financial position, or liquidity.
- 1513 -
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition as of June 30,
2002,March 31,
2003, compared with December 31, 2001,2002, and June 30, 2001,March 31, 2002, and the results of
operations for the three and six-monththree-month periods ended June 30,March 31, 2003 and 2002 and 2001 should be
read in conjunction with the Company's unaudited consolidated financial
statements and notes contained in this report. This discussion contains
forward-looking statements that involve risks and uncertainties and, as such,
future results could differ significantly from management's current
expectations. See the last section of this discussion for further information on
forward-looking statements.
On January 24, 2002, Wintrust's Board of Directors declared a 3-for-2 stock
split of its common stock, effected in the form of a 50% stock dividend, paid on
March 14, 2002 to shareholders of record as of March 4, 2002. All historical
share data and per share amounts have been restated to reflect this split.
OVERVIEW AND STRATEGY
Wintrust's operatingbank subsidiaries were organized within approximately the last tentwelve
years. We have grown from $2.32to $3.91 billion in total assets at June 30, 2001 to
$3.22March 31, 2003 from
$2.96 billion in total assets at June 30,March 31, 2002, an increase of 39%32%. 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 recent financial performance generally reflects the improved
profitability of our operating subsidiaries as they mature, offset by the costs
of openingestablishing new banks and opening new branch facilities. The Company's
experience has been that it generally takes 13 to 24 months for new banks to
first achieve operational profitability depending on the number and timing of
branch facilities added.
The Banks began operations during the period indicated in the table below:
Operations openedbegan in:
-----------------------------------
Month Year
----------------- ------------------------------ ---------------
Lake Forest Bank................................................................................Bank___________________________________________________ December 1991
Hinsdale Bank...................................................................................Bank______________________________________________________ October 1993
North Shore Bank................................................................................Bank___________________________________________________ September 1994
Libertyville Bank...............................................................................Bank__________________________________________________ October 1995
Barrington Bank.................................................................................Bank____________________________________________________ December 1996
Crystal Lake Bank...............................................................................Bank__________________________________________________ December 1997
Northbrook Bank.................................................................................Bank____________________________________________________ November 2000
Subsequent to these initial dates of operations, each of the Banks, except
Northbrook Bank, has established additional full-service banking facilities. As
of June 30, 2002,March 31, 2003, the Banks had 3132 banking facilities. Since June 30, 2001,
Barrington Bank opened a branch facility in Hoffman Estates in September 2001,
Northbrook Bank opened its new permanent facility in December 2001 and Hinsdale
Bank opened a branch facility in Riverside in January 2002. In MayMarch 31, 2002,
Lake Forest Bank opened a new branch in Highland Park.Park (May 2002) and Crystal
Lake Bank opened a new temporary facility in Cary. In addition, in June 2002 and
July 2002, respectively, we opened a new permanent facility for our Wauconda
branch of Libertyville Bank and our McHenry branch of Crystal Lake Bank, respectively.Bank.
Construction is currently underway on oura new larger facility in South
Libertyville (a branch of Libertyville Bank). North Shore Bank and ouropened an
additional Skokie branch of North Shore Community Bank. Additionallyin April 2003 and has purchased property for another
new branch. In addition, the Company has purchased property for a permanent
facility in Highland Park and has purchased property
for new facilities in Cary and Deerfield.Park.
While committed to a continuing growth strategy, management's ongoing focus is
also to balance further asset growth with earnings growth by seeking to more
fully leverage the existing capacity within each of the Banks, FIFC, WHTC,
Tricom and the Wayne Hummer Companies.operating subsidiaries.
One aspect of this strategy is to continue to pursue specialized 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.
- 16 -
On February 20, 2002, the Company completed its acquisition of the Wayne Hummer
Companies, comprising Wayne Hummer Investments LLC ("WHI"), Wayne Hummer
Management Company (subsequently renamed Wayne Hummer Asset Management Company
"WHAMC") and Focused Investments LLC ("FI"), each based in the Chicago area.
WHI, established in 1931, has been providing a full-range of investment products
and services tailored to meet the specific needs of individual investors
throughout the country, primarily in the Midwest. WHI also operates an office in
Appleton, Wisconsin that opened in 1936. WHI has approximately 163 employees,
including over 40 active brokers, and is a member of the New York Stock
Exchange, the American Stock Exchange and the National Association of Securities
Dealers. At June 30, 2002, the number of WHI client households was estimated to
be in excess of 20,000, with over $3.8 billion in customer assets in custody.
WHI's Appleton branch serves the greater Appleton area.
WHAMC, established in 1981, is the investment advisory affiliate of WHI and is
advisor to the Wayne Hummer family of mutual funds. The Wayne Hummer family of
funds includes the Wayne Hummer Growth Fund, the Wayne Hummer CorePortfolio
Fund, the Wayne Hummer Income Fund, and the Wayne Hummer Money Market Fund. With
assets under management in excess of $895 million, the investment management
group provides advisory services to individuals and institutions, municipal and
tax-exempt organizations, including approximately $488 million in the Wayne
Hummer Mutual Funds. Additionally, WHAMC also provides portfolio management and
continuous financial supervision for a wide-range of pension and profit sharing
plans. These defined portfolios are managed for public and private clients, bank
portfolios and trusts, endowments and foundations, and both taxable and
tax-deferred portfolios for individual investors. WHAMC manages over $400
million in these portfolios.
FI, a NASD member broker/dealer, is a wholly-owned subsidiary of WHI and
provides a full range of investment services to clients through a network of
relationships with community-based financial institutions primarily in Illinois.
FIFC is the Company's most significant specialized earning asset niche,
originating approximately $1.3 billion$543 million in loan (premium finance receivables) volume for the full year of 2001
and $837 million in the
first six monthsquarter of 2002.2003. 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
- 14 -
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. The majority of these loans are purchased by the Banks in order to
more fully utilize their lending capacity. These loans generally provide the
Banks higher yields than alternative investments. However, as a result of
continued growth in origination volume in 2003, FIFC sold approximately $72.7
million, or 13%, of the receivables generated in the first quarter of 2003 to an
unrelated third party with servicing retained. The Company began selling the
excess of FIFC's originations over the capacity to retain such loans within the
Banks' loan portfolios during the second quarter of 1999 to an unrelated third party with servicing retained.1999. In addition to recognizing gains on the sale
of these receivables, the proceeds provide the Company with additional
liquidity. Consistent with the Company's strategy to be asset-driven, it is
probable that similar sales of these receivables will occur in the future;
however, future sales of these receivables depends on the level of new volume
growth in relation to the capacity to retain such loans within the Banks' loan
portfolios.
In October 1999, the Company acquired Tricom as part of its continuing strategy
to pursue specialized earning asset niches. Based in the Milwaukee area, Tricom is a Milwaukee-based company
that
has been in business for more than teneleven years 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, withindustry. Tricom's clients, located throughout the United States.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 sourcesources of repayments on the receivables are payments
to borrowers from their customers who are located throughout the United States.
The Company mitigates this risk by employing lockboxes and other cash management
techniques to protect their interests. By virtue of the Company's funding
resources, this acquisition has provided Tricom with additional capital
necessary to expand its financing services in a national market. Tricom's
revenue principally consists of interest income from financing activities and
fee-based revenues from administrative services.
In addition to expanding the Company's earning asset
niches, this acquisition has added to the level of fee-based income.
In addition to the earning asset niches provided by the Company's non-bank
subsidiaries, several earning asset niches operate within the Banks, including
our indirect auto lending which we conductis conducted through a division of Hinsdale
Bank, Lake Forest Bank's MMF Leasing Services equipment leasing division and Barrington Bank's
Community Advantage
- 17 -
program that provides lending, deposit and cash management
services to condominium, homeowner and community associations. In addition,
Hinsdale Bank'sBank 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 recently developed a
specialty in small aircraft lending. The Company plans to continue pursuing the
development or acquisition of other specialty lending businesses that generate
assets suitable for bank investment and/or secondary market sales. The Company
is not pursuing growth in the indirect auto segment, however, and anticipates
that the indirect auto loan portfolio will comprise a smaller portion of the net
loan portfolio in the future.
Wintrust's strategy also includes building and growing its wealth management
business, including trust, asset management and brokerage services. On February
20, 2002, the Company completed its acquisition of the Wayne Hummer Companies,
comprising Wayne Hummer Investments LLC ("WHI"), Wayne Hummer Management Company
(subsequently renamed Wayne Hummer Asset Management Company "WHAMC") and Focused
Investments LLC ("FI"), each based in the Chicago area.
WHI, established in 1931, provides a full-range of investment products and
services tailored to meet the specific needs of individual investors throughout
the country, primarily in the Midwest. Although headquartered in Chicago, WHI
also operates an office in Appleton, Wisconsin that opened in 1936 that serves
the greater Appleton area. WHI has established branch locations in offices at
Lake Forest Bank and Hinsdale Bank and plans to open offices at each of the
Banks. WHI is a member of the New York Stock Exchange, the American Stock
Exchange and the National Association of Securities Dealers, and has
approximately $3.7 billion in customer assets in custody at March 31, 2003. FI,
a NASD member broker/dealer, is a wholly-owned subsidiary of WHI and provides a
full range of investment services to clients through a network of relationships
with community-based financial institutions primarily in Illinois.
WHAMC, established in 1981, is the investment advisory affiliate of WHI and is
advisor to the Wayne Hummer family of mutual funds. The Wayne Hummer family of
funds includes the Wayne Hummer Growth Fund, the Wayne Hummer
- 15 -
Core Portfolio Fund, the Wayne Hummer Income Fund, and the Wayne Hummer Money
Market Fund. WHAMC also provides money management and advisory services to
individuals and institutional, municipal and tax-exempt organizations and
portfolio management and financial supervision for a wide-range of pension and
profit sharing plans. To further expand the Company's wealth management business
in the Chicago metropolitan area, on February 4, 2003, the Company acquired Lake
Forest Capital Management Company, a registered investment advisor, with
approximately $282 million of assets under management. LFCM is operating as a
division of WHAMC. At March 31, 2003, individual accounts managed by WHAMC
(including the accounts of LFCM) totaled approximately $658 million while the
four managed mutual funds had approximately $312 million in total assets.
In September 1998, the Company formed a trust subsidiary originally named
Wintrust Asset Management Company, which was renamed in May 2002 to Wayne Hummer
Trust Company ("WHTC") to expand the trust and investment management services
that were previously provided through the trust department of Lake Forest Bank.
With a separately chartered trust subsidiary, the Company is better able to
offer trust and investment management services to all communities served by the
Banks. In addition to offering these 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 March 31, 2003 were approximately $464
million.
- 1816 -
RESULTS OF OPERATIONS
EARNINGS SUMMARY
The Company's key operating measures, as compared to the same period last year,
are shown in the table below:
SIXTHREE MONTHS Six MonthsENDED Percentage (%)/
ENDED Ended-------------------------------------------
MARCH 31, March 31, Basis Point (bp)
(Dollars in thousands, except per share data) JUNE 30,2003 2002 June 30, 2001 Change
- ------------------------------------------------------------------------------------------------------------------------------- --------------------- --------------------- -----------------------------------------------------------
Net income before cumulative effect of accounting change $ 12,6698,263 $ 8,521 48.76,362 30 %
Net income 12,669 8,267 53.2
Net income per common share - Basic 0.82 0.64 28.10.48 0.42 14
Net income per common share - Diluted 0.77 0.61 26.20.45 0.40 13
Net revenues 73,108 49,532 47.6revenue (1) 44,347 34,920 27
Net interest income 46,585 35,291 32.026,604 22,168 20
Net interest margin 3.52(5) 3.15 % 3.633.48 % (11)(33) bp
Core net interest margin(1) 3.72 3.89 (17)margin(2) (5) 3.26 3.68 (42)
Net overhead ratio (2) 1.54 1.68 (14)(3) 1.21 1.43 (22)
Efficiency ratio (3) 65.96 65.05 91(4) (5) 65.46 64.17 129
Return on average assets 0.88 0.77 110.89 0.92 (3)
Return on average equity 15.85 15.81 4
THREE MONTHS Three Months Percentage (%)/
ENDED Ended Basis Point (bp)
JUNE 30, 2002 June 30, 2001 Change
--------------------- --------------------- ------------------
Net income before cumulative effect of accounting change $ 6,307 $ 4,363 44.6 %
Net income 6,307 4,363 44.6
Net income per common share - Basic 0.40 0.34 17.6
Net income per common share - Diluted 0.37 0.32 15.6
Net revenues 38,188 25,406 50.3
Net interest income 24,417 18,015 35.5
Net interest margin 3.56 % 3.59 % (3) bp
Core net interest margin(1) 3.74 3.84 (10)
Net overhead ratio (2) 1.63 1.61 2
Efficiency ratio (3) 67.61 63.77 384
Return on average assets 0.85 0.79 6
Return on average equity 14.75 16.21 (146)14.51 17.12 (261)
AT END OF PERIODPERIOD:
Total assets $ 3,219,4003,914,995 $ 2,322,083 38.62,955,153 32 %
Total loans net of unearned income 2,308,945 1,787,257 29.22,628,480 2,167,550 21
Total deposits 2,608,507 2,055,345 26.93,270,295 2,417,315 35
Total shareholders' equity 205,999 132,969 54.9238,905 163,521 46
Book value per common share 12.15 9.20 32.113.75 10.41 32
Market price per common share 34.57 16.57 108.6
Allowance for loan losses to total loans 0.69 % 0.68 % 1 bp28.60 22.97 25
Non-performing assets to total assets 0.37 0.55 (18)0.34 % 0.39 % (5)bp
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(1) Net revenue includes net interest income and non-interest income.
(2) The core net interest margin excludes the interest expense associated
with Wintrust's Long-term Debt - Trust Preferred Securities.
(2)(3) The net overhead ratio is calculated by netting total non-interest
expense and total non-interest income, annualizing this amount, and
dividing by that period's total average assets. A lower ratio indicates
a higher degree of efficiency.
(3)(4) The efficiency ratio is calculated by dividing total non-interest
expense by tax-equivalent net revenuesrevenue (less securities gains or losses).
A lower ratio indicates more efficient revenue generation.
(5) See "Supplemental Financial Measures/Ratios" for additional information
on this performance measure/ratio.
- 19 -
The Company analyzes its performance on a net income basis in accordance with
accounting principles generally accepted in the United States, as well as other
ratios such as the net overhead ratio, efficiency ratio and core net interest
margin. These performance measures are presented as supplemental information to
enhance the readers' understanding of, and highlight trends in, the Company's
financial results. These measures should not be viewed as a substitute for net
income and earnings per share as determined in accordance with accounting
principles generally accepted in the United States. The calculations used by the
Company to derive core net interest margin, net overhead ratio and the
efficiency ratio may vary from, and not be comparable to, other companies. See
Note 2 "Supplemental Measures/Ratios" on page 6 for additional information.
- 17 -
The preparation of the financial statements requires management to make
estimates, assumptions and judgments that affect the reported amounts of assets
and liabilities. These estimates, assumptions and judgments are based on
information available as of the date of the financial statements; accordingly,
as information changes, the financial statements could reflect different
estimates and assumptions. Certain policies and accounting principles inherently
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. The determination of the allowance for loan
losses and the valuation of the retained interest in the premium finance
receivables sold are the areas that require the most subjective and complex
judgments. For a more detailed discussion on these critical accounting policies,
see "Summary of Critical Accounting Policies" on page 62 of the Company's Annual
Report to shareholders for the year ended December 31, 2002.
Net income for the second quarter ended June 30, 2002March 31, 2003 totaled $6.3$8.3 million, an
increase of $1.9 million, or 45%30%, over the $4.4$6.4 million recorded in the secondfirst
quarter of 2001.2002. On a per share basis, net income for the secondfirst quarter of 20022003
totaled $0.37$0.45 per diluted common share, a $0.05 per share, or 16%13%, increase as
compared to the 2001 second2002 first quarter total of $0.32$0.40 per diluted common share. The
lower growth rate in the earnings per share as compared to net income was
primarily due to the issuance of 1,488,7501,362,750 additional shares of common stock in
June 2001, 762,742 shares issued in the February 2002 acquisitionand July of the Wayne
Hummer Companies and the issuance of 1,185,000 additional shares of common stock
in June 2002. The return on average equity for the secondfirst quarter of
2002 stood
at 14.75%.
For the first six months of 2002, net income totaled $12.7 million, or $0.77 per
diluted common share, an increase of $4.4 million, or 53%2003 was 14.51%, when compared to $8.3
million, or $0.61 per diluted common share,17.12% for the same period in 2001. Return
on average equity for the first six months of 2002 was 15.85% versus 15.81% for
the same period of 2001.prior year quarter.
The results for the first six monthsquarter of 2002 include pre-tax income of $1.25
million ($754,000 after-tax), or $754,000 after-tax,$0.05 per diluted share, for a partial
settlement related to the non-recurring chargepremium finance defalcation recorded by the Company in
2000.
Excluding this settlement income, net
income in the first six months of 2002 was $11.9 million, or $0.72 per diluted
share. Included in the first six months of 2001 is a cumulative effect of a
change in accounting for interest rate caps resulting in an after-tax charge of
$254,000, or $0.02 per diluted share.
OnIn February 20, 2002,2003, Wintrust completed its acquisition of the Wayne Hummer
Companies. Accounted forLake Forest Capital
Management Company. LFCM is operating as a purchase,division of WHAMC, the Wayne Hummer CompaniesCompany's
existing asset management subsidiary. LFCM's results of operations are included
in Wintrust's year-to-date 20022003 results only since the effective date of the acquisition (February
1, 2002)2003).
NET INTEREST INCOME
Net interest income, which is the difference between interest income and fees on
earning assets and interest expense on deposits and borrowings, is the major
source of earnings for Wintrust. Tax-equivalent net interest income for the
quarter ended June 30, 2002March 31, 2003 totaled $24.6$26.8 million, an increase of $6.4$4.4 million,
or 35%20%, as compared to the $18.2$22.4 million recorded in the same quarter of 2001.2002.
This increase mainly resulted from loan growth offsetting the effect of narrower
spreads. Average loans in the secondfirst quarter of 20022003 represented 78% of total
earning assets and increased $483$593 million, or 28%, over the secondfirst quarter of
2001. This growth helped offset2002, while the lower spreads as a
resultinterest rate spread (the difference between the yield earned on
earning assets and the rate paid on interest-bearing liabilities) decreased to
2.92% in the first quarter of 2003, compared to 3.15% in the eleven rate cuts by the Federal Reserve in 2001 totaling 475 basis
points.same period of
2002.
- 18 -
Net interest margin represents tax-equivalent net interest income as a
percentage of the average earning assets during the period. For the secondfirst
quarter of 20022003 the net interest margin was 3.56%3.15%, representing a decrease of three33
basis points when compared to the net interest margin of 3.59%3.48% in the prior year
second quarter. This decline resulted primarily fromfirst quarter, and an increase of 2 basis points when compared to the effectsfourth
quarter 2002 net interest margin of continued
decreases during 2001 in short-term rates causing compression in the spread
between the rates on interest-bearing liabilities and the yields on earning
assets. Spread compression results when deposit rates cannot be reduced
commensurate with changes in market rates due to current low level of rates paid
on certain deposit accounts.3.13%. The core net interest margin, which
excludes the interest expense related to Wintrust's Long-term Debt - Trust
Preferred Securities, was 3.74%3.26% for the secondfirst quarter of 2002,2003, and decreased 1042
basis points when compared to the prior year secondfirst quarter's core margin of
3.84%3.68%. In
the absence of additional rate cuts by the Federal Reserve and a changing yield
curve, Wintrust'sThe net interest margin improvedcontracted due to compression caused by eight basis points when
compared tolower
interest rates, the first quarter of 2002. This improvement was a result of total
funding costs declining by 21 basis points whileCompany's preference for variable rate commercial and
commercial real estate loans and agency securities with call options written
against them being called with the yield on total earningproceeds being invested in lower yielding
liquid assets, declined by nine basis points. Interest-bearing deposits accounted forcombined with the majorityasset sensitivity of the decline in the cost of funding, decreasing by 20 basis
points from the first quarter of 2002.
- 20 -
balance sheet.
The following table presents a summary of the Company's net interest income and
related net interest margins, calculated on a fully taxable equivalent basis,
for the periods shown:
FOR THE QUARTERTHREE MONTHS ENDED
For the Quarter Ended
JUNE 30,----------------------------------------------------------------------------------
MARCH 31, 2003 March 31, 2002
June 30, 2001---------------------------------------- ---------------------------------------
---------------------------------------(Dollars in thousands) YIELD/ Yield/
(Dollars in thousands)----------------------
AVERAGE INTEREST RATE Average Interest Rate
---------------------- ------------------------------------------------------------------------------- ---------------------------------------
Liquidity management assets (1) (2) (8) $ 484,483715,338 $ 5,444 4.516,314 3.58 % $ 302,848458,922 $ 3,863 5.124,816 4.26 %
Other earning assets (3) 71,100 751 4.24 -- -- --41,221 395 3.89 44,920 514 4.64
Loans, net of unearned income (2) (4) 2,218,968 38,534 6.97 1,735,696 37,741 8.72
---------------------------------------(8) 2,695,146 40,732 6.13 2,101,802 36,849 7.11
---------------------------------------- ---------------------------------------
Total earning assets (8) $ 2,774,5513,451,705 $ 44,729 6.4747,441 5.57 % $ 2,038,5442,605,644 $ 41,604 8.1942,179 6.56 %
------------------------------------------------------------------------------- ---------------------------------------
Interest-bearing deposits $ 2,203,2472,851,643 $ 16,585 3.0217,102 2.43 % $ 1,769,9102,097,388 $ 21,423 4.8516,675 3.22 %
Federal Home Loan Bank advances 104,938 1,078 4.12 -- -- --140,000 1,457 4.22 90,000 897 4.04
Notes payable and other borrowings 164,587 1,170 2.85 46,915 664 5.6892,018 704 3.10 119,698 943 3.20
Subordinated note 25,000 444 7.10 -- -- --
Long-term debt - trust preferred securities 50,894 928 7.29 51,050 1,288 10.09
51,050 1,288 10.09
------------------------------------------------------------------------------- ---------------------------------------
Total interest-bearing liabilities $ 2,523,8223,159,555 $ 20,121 3.2020,635 2.65 % $ 1,867,8752,358,136 $ 23,375 5.0219,803 3.41 %
------------------------------------------------------------------------------- ---------------------------------------
Interest rate spread (5) 3.27(8) 2.92 % 3.173.15 %
Net free funds/contribution (6) $ 250,729 0.29292,150 0.23 $ 170,669 0.42247,508 0.33
=============== ------------============ =============== ------------============
Net interest income/Net interest margin (8) $ 24,608 3.5626,806 3.15 % $ 18,229 3.5922,376 3.48 %
========================= ======================================== ==============
============ ============
Core net interest margin (7) 3.74(8) 3.26 % 3.843.68 %
============ ============
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(1) Liquidity management assets include available-for-sale securities,
interest earning deposits with banks and federal funds sold.
(2) Interest income on tax-advantaged loans and securities reflects a
tax-equivalent adjustment based on a marginal federal corporate tax rate
of 35%. The total adjustments for the quarters ended June 30,March 31, 2003 and
2002 were $202,000 and 2001
were $191,000 and $214,000$208,000, respectively.
(3) Other earning assets include brokerage customer receivables and trading
account securities.
(4) Loans, net of unearned income includes 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 contribution is
based on the rate paid for total interest-bearing liabilities.
(7) The core net interest margin excludes the impact of Wintrust's Long-term
Debt - Trust Preferred Securities.
(8) See Note 2, Supplemental Financial Measures/Ratios, on page 6 for
additional information on this performance measure/ratio.
- 19 -
The yield on total earning assets for the secondfirst quarter of 20022003 was 6.47%5.57% as
compared to 8.19%6.56% in 2001,2002, a decrease of 17299 basis points, resulting primarily
from the effect of decreases in general market rates of interest on liquidity
management assets and loans. The other earning assets shown in the second quarter of 2002
reflect interest-bearing brokerage customer receivables and trading account
securities managed at the Wayne Hummer Companies. The yield on earning assets is heavily dependent on
the yield earned on loans since average loans comprised approximately 80%78% of total average
earning assets.assets in the first quarter of 2003 and 81% of average earning assets in
the same period of 2002. The secondfirst quarter 20022003 yield on loans was 6.97%6.13%, a 17598
basis point decrease when compared to the prior year secondfirst quarter yield of 8.72%7.11%. The average prime lending rate was 4.75% during
the second quarter of 2002 versus 7.35% for the second quarter of 2001,
reflecting a decrease of 260 basis points.
Wintrust's loan portfolio does not re-price in a parallel fashion to decreases
or increases in the prime lending rate; however, it is impacted by changes in
the prime lending rate. The average prime lending rate due
to a portionwas 4.25% during the
first quarter of 2003 versus 4.75% during the portfolio being longer-term fixed rate loans.
The rate paid on interest-bearing liabilities for the secondfirst quarter of 2002, was
3.20%, compared to 5.02% in the second quarter of 2001, a decline of 182 basis
points. Interest-bearing deposits accounted for 87% of total interest-bearing
funding in the second quarter of 2002, compared to 95% in the same period of
2001. The rate paid on interest-bearing deposits averaged 3.02% for the second
quarter of 2002 versus 4.85% for the same quarter of 2001,reflecting
a decrease of 18350 basis points. During 2001, Wintrust initiated borrowing from the Federal Home
Loan Bank ("FHLB"). The Company initially borrowed from the FHLB in the third
and fourth quarters of 2001 and borrowed an additional $50 million in the second
quarter of 2002. The increase in notes payable and other borrowings in the
second quarter of 2002 was a result of the funding at the Wayne Hummer Companies
for the brokerage customer receivables, additional funding required
- 21 -
for the purchase of the Wayne Hummer Companies and borrowings utilized to fund
the additional capital requirements of the Banks. The rate paid on Federal Home
Loan Bank advances, notes payable and other borrowings decreased 233 basis
points to 3.35% in the second quarter of 2002 as compared to 5.68% in the second
quarter of 2001.
The following table presents a summary of the Company's net interest income and
related net interest margins, calculated on a fully taxable equivalent basis,
for the periods shown:
FOR THE SIX MONTHS ENDED For the Six Months Ended
-----------------------------------------------------------------------------------
JUNE 30, 2002 June 30, 2001
-----------------------------------------------------------------------------------
YIELD/ Yield/
(Dollars in thousands) AVERAGE INTEREST RATE Average Interest Rate
---------------------- -----------------------------------------------------------------------------------
Liquidity management assets (1) (2) $ 468,103 $ 10,260 4.42% $ 310,887 $ 8,796 5.71 %
Other earning assets (3) 58,082 1,265 4.39 -- -- --
Loans, net of unearned income (2) (4) 2,162,593 75,383 7.03 1,674,309 74,795 9.01
-----------------------------------------------------------------------------------
Total earning assets $ 2,688,778 $ 86,908 6.52% $ 1,985,196 $ 83,591 8.49 %
-----------------------------------------------------------------------------------
Interest-bearing deposits $ 2,151,117 $ 33,260 3.12% $ 1,720,246 $ 43,595 5.11 %
Federal Home Loan Bank advances 97,735 1,975 4.08 -- -- --
Notes payable and other borrowings 139,325 2,113 3.06 57,348 1,710 6.01
Long-term debt - trust preferred securities 51,050 2,576 10.09 51,050 2,576 10.09
-----------------------------------------------------------------------------------
Total interest-bearing liabilities $ 2,439,227 $ 39,924 3.30% $ 1,828,644 $ 47,881 5.28 %
-----------------------------------------------------------------------------------
Interest rate spread (5) 3.22 % 3.21 %
Net free funds/contribution (6) $ 249,551 0.30 $ 156,552 0.42
================ ============================== ============
Net interest income/Net interest margin $ 46,984 3.52 % $ 35,710 3.63 %
========================== =========================
Core net interest margin (7) 3.72 % 3.89 %
============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Liquidity management assets include available-for-sale securities, interest
earning deposits with banks and federal funds sold.
(2) Interest income on tax-advantaged loans and securities reflects a
tax-equivalent adjustment based on a marginal federal corporate tax rate of
35%. The total adjustments for the six months ended June 30, 2002 and 2001
were $399,000 and $419,000 respectively.
(3) Other earning assets include brokerage customer receivables and trading
account securities.
(4) Loans, net of unearned income includes 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 contribution is based on
the rate paid for total interest-bearing liabilities.
(7) The core net interest margin excludes the impact of Wintrust's Long-term
Debt - Trust Preferred Securities.
For the first six months of 2002, tax-equivalent net interest income totaled
$47.0 million and increased $11.3 million, or 32% over the $35.7 million
recorded in the same period in 2001. Growth in the Company's earning asset base
was the primary contributor to this increase, as year-to-date average loans
increased 29%.
The yield on total earning assets for the first six months of 2002 was 6.52% as
compared to 8.49% in 2001, a decrease of 197 basis points resulting primarily
from the effect of decreases in general market rates on liquidity management
assets and loans.
The rate paid on interest-bearing liabilities for the first six monthsquarter of 20022003 was
3.30%2.65%, compared to 5.28%3.41% in the secondfirst quarter of 2001,2002, a decline of 19876 basis
points. The interest rate spread (difference betweenInterest-bearing deposits accounted for 90% of total interest-bearing
funding in the yield on earning assets andfirst quarter of 2003, compared to 89% in the same period of
2002. The rate paid on interest-bearing liabilities)
remained stabledeposits averaged 2.43% for the first
quarter of 2003 versus 3.22% for the same quarter of 2002, a decrease of 79
basis points. Since the first quarter of 2002, Wintrust borrowed an additional
$50 million from the Federal Home Loan Bank, issued $25 million of subordinated
debt and hedged the interest payments on $31.05 million of its trust-preferred
securities with an interest rate swap. The average rate paid on Company's
interest-bearing liabilities, excluding deposits, was 4.65% in the first six monthsquarter
of 2002, increasing by one2003, a decrease of 22 basis point
whenpoints, compared to 4.87% in the first six monthsquarter
of 2001. The decline in the net interest
margin was mainly caused by a 12 basis point reduction in the contribution from
net free funds as the substitute value of these free funds fell by 198 basis
points in 2002.
- 22 -
The following table presents a reconciliation of the Company's tax-equivalent
net interest income between the three-month periods ended June 30, 2002March 31, 2003 and
March 31, 2002 the six-month periods ended June 30, 2002 and June 30, 2001 and between the three-month periods ended June 30, 2002March 31, 2003 and
June 30, 2001.December 31, 2002. The reconciliation sets forth the change in the
tax-equivalent net interest income as a result of changes in volumes, the change
in rates and the change due to the combination of volume and rate and the
differing number of days in each period:quarter.
SecondFirst Quarter First Six Months Second Quarter
of 20022003 of 2002 of 2002
Compared to2003
Compared to Compared to
First Quarter First Six Months SecondFourth Quarter
(Dollars in thousands) of 2002 of 2001 of 20012002
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------
Tax-equivalent net interest income for comparative period $ 22,376 $ 35,710 $ 18,22926,396
Change due to mix and growth of earning assets and
interest-bearing liabilities (volume) 1,292 12,906 5,9196,566 725
Change due to interest rate fluctuations (rate) 640 (612) 373(1,727) 100
Change due to rate and volume fluctuations (rate/volume) 38 (1,020) 87(409) (32)
Change due to number of days in each quarter (days) 262 -- --
-----------------------------------------------------------
TAX-EQUIVALENT NET INTEREST INCOME FOR THE PERIOD ENDED
JUNE 30, 2002(383)
-------------------------------------------
Tax-equivalent net interest income for the period ended March 31, $ 24,608 $
46,984 $ 24,608
===========================================================2003 26,806 26,806
===========================================
- 20 -
NON-INTEREST INCOME
For the secondfirst quarter of 2002,2003, non-interest income totaled $13.8$17.7 million, and
increased $6.4an
increase of $5.0 million, or 86%39%, over the prior year quarter. The first quarter
of 2002 includes a $1.25 million partial settlement related to a non-recurring
charge recorded by the Company in 2000. All categories of non-interest income
(excluding the non-recurring settlement) increased over the first quarter of
2002. Wealth management fees and fees on mortgage loans sold accounted for the
majority of the increase in non-interest income. Non-interest income as a
percentage of net revenue increased to 40% in the first quarter of 2003,
compared to 37% in the first quarter of 2002.
The following table presents non-interest income by category for the periods
presented:
Three Months Ended
June30,THREE MONTHS ENDED
MARCH 31,
-------------------------------------
$ %
-------------------------------------
(Dollars in thousands) 2003 2002 2001 Change Change
- --------------------------------------------------------------- ------------------ ------------------ --------------- -------------
Trust and asset management and brokerage fees $ 7,4311,614 $ 523 6,908 1,320.81,409 $ 205 15 %
Brokerage fees 4,337 3,161 1,176 37
------------------ ------------------ --------------- -------------
Total wealth management fees 5,951 4,570 1,381 30
Fees on mortgage loans sold 1,934 1,948 (14) (0.7)4,598 2,017 2,581 128
Service charges on deposit accounts 753 606 147 24.3855 738 117 16
Gain on sale of premium finance receivables 828 1,449 (621) (42.9)1,162 766 396 52
Administrative services revenue 931 1,121 (190) (16.9)1,091 822 269 33
Fees from covered call options 789 956 (167) (17.5)2,144 1,568 576 37
Net available-for-sale securities gains 62 86 (24) (27.9)(losses) 386 (215) 601 NM
Premium finance defalcation-partial settlement -- 1,250 (1,250) NM
Other 1,043 702 341 48.61,556 1,236 320 26
------------------ ------------------ --------------- -------------
Total non-interest income $ 13,77117,743 $ 7,391 6,380 86.3
================== ================== =============== =============
Six Months Ended
June 30,
-------------------------------------12,752 $ 4,991 39 %
(Dollars in thousands) 2002 2001 Change Change
- ---------------------------------------------------------------
------------------ ------------------ --------------- -------------
Trust, asset management and brokerage fees $ 12,001 $ 973 11,028 1,133.4
Fees on mortgage loans sold 3,951 3,472 479 13.8
Service charges on deposit accounts 1,491 1,153 338 29.3
Gain on sale of premium finance receivables 1,594 2,391 (797) (33.3)
Administrative services revenue 1,753 2,142 (389) (18.2)
Fees from covered call options 2,357 2,303 54 2.3
Net available-for-sale securities (losses) gains (153) 372 (525) (141.1)
Premium finance defalcation-partial settlement 1,250 -- 1,250 N/M
Other 2,279 1,435 844 58.8
------------------ ------------------ --------------- -------------
Total non-interest income $ 26,523 $ 14,241 12,282 86.2
================== ================== =============== =============
N/M = calculation not meaningful
- 23 -
For the six months ended June 30, 2002 non-interest income totaled $26.5 millionTrust and increased $12.3 million, or 86%, over the same period last year. Significant
increases were realized in both the second quarter of 2002 and the first six
months of 2002 in trust, asset management fees represent the revenue streams generated by Wayne
Hummer Trust Company ("WHTC") and brokerageWayne Hummer Asset Management Company
("WHAMC"), which includes the fees as a resultgenerated by Lake Forest Capital Management
Company ("LFCM") since its acquisition in February 2003. WHTC generates fees for
assets under management, custody fees and other trust related fees and WHAMC
fees include fees for advisory services to individuals and institutions,
municipal and tax-exempt organizations, including the management of the Wayne
Hummer Companies acquisition which occurred duringMutual Funds. WHAMC was acquired effective February 1, 2002 and LFCM was
acquired effective February 1, 2003 and the first quarterresults of 2002.
Trust, asset management and brokerage feesoperations of each of
these acquisitions are comprisedincluded in the Company's financials from the effective
dates of the asset management
revenue of Wayne Hummer Trust Company (name changed from Wintrust Asset
Management Company in May 2002) and the asset managementrespective acquisitions. Brokerage fees include brokerage
commissions, trading commissions and insurance product commissions at thegenerated by
Wayne Hummer Companies.Investments ("WHI") and Focused Investments ("FI"). WHI and FI were
also acquired effective February 1, 2002 and the revenue from these entities are
included in the first quarter 2002 results from that date. The increase in
this category, up $6.9wealth management fees of $1.4 million, over the second
quarter of 2001 and $11.0 millionor 30%, over the first six monthsquarter of 2001,2002,
is primarily attributable to the additional month of revenues from WHAMC, WHI
and FI included in the Wayne Hummer Companies.2003 results and the two months of revenue generated by
LFCM in 2003. Recent equity market declines and weaker economic conditions have
negatively impacted wealth management fees. Lower valuations of the equity
securities under management affect the fees earned thereon and lower trading
volumes affect brokerage fees. Wintrust is committed to growing the trust and investmentwealth
management business in order to better service its customers and create a more
diversified revenue stream. This
commitment isstream, as evidenced by theits acquisition of the Wayne Hummer Companies.
Non-interest income comprised approximately 29% of total net revenuesLFCM in the
second quarter of 2001. Primarily as a result of the Wayne Hummer Companies
acquisition, this has increased to approximately 36% for the second quarter of
2002.February
2003.
Fees on mortgage loans sold include incomefees from originating and selling
residential real estate loans into the secondary market. For the quarter ended
June 30, 2002,March 31, 2003, these fees totaled $1.9$4.6 million, a slight decreasean increase of $14,000,$2.6 million, or
1%128%, from the prior year secondfirst quarter and down slightlyan increase of $84,000 from the $2.0$4.5
million recorded in the firstfourth quarter of 2002. Although theythese fees are a
continuous source of revenue, these fees have historically increasedcontinue to increase due to higher
levels of mortgage origination volumes, particularly refinancing activity caused
by the historically low level of mortgage interest rates. It is possibleManagement anticipates
that the levels of refinancing activity may taper off for the remainder of 2002,in 2003, barring any
further reductions in mortgage interest rates.
- 21 -
Service charges on deposit accounts totaled $753,000$855,000 for the secondfirst quarter of
2002,2003, an increase of $147,000,$117,000, or 24%16%, when compared to the same quarter of
2001.2002. This increase was mainly due to a larger deposit base and a greater number
of accounts at the banking subsidiaries. The majority of deposit service charges
relates to customary fees on overdrawn accounts and returned items. The level of
service charges received is substantially below peer group levels, as management
believes in the philosophy of providing high quality service without encumbering
that service with numerous activity charges.
The administrative services revenue contributed by Tricom added $931,000$1.1 million to
total non-interest income in the secondfirst quarter of 2002, a decrease2003, an increase of $190,000$269,000
from the secondfirst quarter of 20012002 and an increase of $109,000$284,000 from the firstfourth
quarter of 2002. This revenue comprises income from administrative services,
such as data processing of payrolls, billing and cash management services, to
clients in the temporary staffing industryservice clients located throughout the United States. The
revenue growthincrease in the first quarter of 2003 is attributable to the acquisition
of a competitor's customer base in early January 2003. The revenue at Tricom had
stagnateddeclined in previous quarters2002 and 2001 due to the general slowdown in the United States
economy and the reduction in the placement of temporary staffing individuals by
Tricom's customers. This business segment
appears to be rebounding as exhibited by the higher levels of revenue recorded
by Tricom when compared to the first quarter of 2002. Tricom also earns interest and fee income from providing
short-term accounts receivable financing to this same client base, which is
included in the net interest income category.
Fees from covered call option transactions in the secondfirst quarter of 2002
decreased2003
increased by $167,000$576,000 to $789,000,$2.1 million, compared to $956,000$1.6 million in the same
quarter last year. On a year-to-date basis the Company has recognized $2.4
million in fees in 2002 compared to $2.3 million in 2001, an increase of
$54,000. During the first sixthree months of 2002,2003, call option contracts
were written against $864$488 million of underlying securities, compared to $531$382
million in the first sixthree months of last year. The same security may be
included in this total more than once to the extent that multiple call option
contracts were written against it if the initial call option contracts were not
exercised. The Company
routinely enters into these transactions with the goal of enhancing its overall
return on its investment portfolio. In the first sixthree months of both years, the Company wrote call
options with terms of less than three months against certain U.S. Treasury and
agency securities held in its portfolio for liquidity and other purposes for terms of less than
three months.purposes. The
call option transactions are designed to increase the total return associated
with holding certain investment securities and do not qualify as hedges pursuant
to SFAS 133. There were no outstanding call options at June 30, 2002,March 31, 2003, December
31, 20012002 or June 30, 2001.March 31, 2002.
As a result of continued strong loan originations of premium finance
receivables, Wintrust sold premium finance receivables to an unrelated third
party financial institution in the secondfirst quarter of 20022003 and recognized gains
of $828,000totaling $1.2 million related to this activity on sales of $74.1$72.7 million of net
receivables, compared with $1.4
million$766,000 of recognized gains in the second
- 24 -
first quarter of 2001 on sales of $71.7 million. On a year-to-date basis, the Company
recognized gains of $1.6 million in
2002 on sales of $136.0 million, compared to
$2.4 million in 2001 on sales of $122.9$61.8 million. Recognized gains related to this activity are
significantly influenced by the spread between the net yield on the loans sold
and the rate based on a fixed spread to LIBOR, passed on to the purchaser. This spread ranged from 4.85% to 5.51% in the first six months of
2002 compared to a range of 5.96% to 6.54% in the same period last year. The net yield on the loans sold and the
ratesrate passed on to the purchaser typically do not react in a parallel fashion,
therefore causing the spreads to vary from period to period. This spread
averaged 4.52% in the first three months of 2003 compared to a range of 5.17% to
5.61% in the same period last year. The lowerhigher amount of gain recognized in the
secondfirst quarter of 20022003 compared to the prior year, despite lower interest
spreads, was influenced bydue to a higher volume of loans sold, lower spreadsestimated credit losses
and adjustments from clean up calls during the periods. FIFC continues to
maintain an interest in the loans sold and establishes a servicing asset,
interest only strip and a recourse obligation upon each sale. Recognized gains
as well as increasedthe Company's retained interests in these loans are based on the
Company's projection of cash flows that will be generated from the loans. The
cash flow model incorporates the amounts FIFC is contractually entitled to
receive from the customers, including an estimate of late fees, the amounts due
to the purchaser of the loans, commissions paid to agents as well as estimates
of the term of the loans and credit losses. DuringSignificant differences in actual
cash flows and the first six months of 2002 credit
losses were estimated at 0.75%, comparedprojected cash flows can cause impairment to 0.25%the servicing
asset and interest only strip as well as the recourse obligation. The Company
typically makes a clean up call by repurchasing the remaining loans in the first sixpools
sold after approximately 10 months of
2001. The increase was a result of a higher level of charge-offs in recent
quartersfrom the sale date. Upon repurchase, the
loans are recorded in the overallCompany's premium finance receivables portfolio (see page 34
"Allowance for Loan Losses".)and
any remaining balance of the Company's retained interest is recorded as an
adjustment to the gain on sale of premium finance receivables. Clean up calls
made during the first quarter of 2002 resulted in charges of approximately
$281,000. The lower gain recognizedCompany continuously monitors the performance of the loan pools to
the projections and adjusts the assumptions in 2002 was also
significantly influenced by a reductionits cash flow model when
warranted. In the first quarter of 2003, clean up calls resulted in increased
gains of approximately $111,000. In addition, estimated credit losses were
reduced to 0.50% of the estimated average balances in the numberfirst quarter of 2003,
compared to 0.75% in the first three months these loans are
estimated to be outstanding. This reduction was due to recent trends of early
pay-downs as the economy has weakened, insurance rates have escalated and
borrowers cancelled their existing insurance in favor of cheaper alternatives.2002. The average terms of the
loans induring the first six monthsquarter of 2003 and 2002 were estimated at approximately
8 months compared to 9 months in the same period last year.months. The applicable discount rate used in determining gains related to this
activity was unchanged from the discount rate used in 2001.2002.
- 22 -
At June 30, 2002,March 31, 2003, premium finance loans sold and serviced for others for which
we retain a recourse obligation related to credit losses is retained totaled approximately
$112.4$135.0 million. The recourse obligation is considered in computing the net gain
on the sale of the premium finance receivables. At June 30, 2002,March 31, 2003, the remaining
estimated recourse obligation carried in other liabilities is approximately
$504,000.$716,000.
Credit losses incurred on loans sold are applied against the recourse obligation
liability that is established at the date of sale. Credit losses, net of
recoveries, in the first sixthree months of 20022003 for premium finance receivables
sold and serviced for others totaled $10,000. Non-performing$48,000. At March 31, 2003, non-performing
loans related to this sold portfolio at June 30, 2002 were approximately $1.7$1.2 million, or 1.53%0.87%,
of the sold loans. Ultimate losses on premium finance loans are substantially
less than non-performing loans for the reason noted in the "Non-performing
Premium Finance Receivables" portion of the "Asset Quality" section of this
report on
page 37.report.
Wintrust has a philosophy of maintaining its average loan-to-deposit ratio in
the range of 85-90%. During the secondfirst quarter of 2002,2003, the ratio was
approximately 90%86%. Consistent with Wintrust's strategy to be asset-driven and
the desire to maintain our loan-to-deposit ratio in the aforementioned range, it
is probable that similar sales of premium finance receivables will occur in the
future.
- 25 -
Other non-interest income for the first quarter of 2003 includes $410,000 of
income from Bank Owned Life Insurance ("BOLI"). During the third quarter of
2002, the Company purchased $41.1 million of BOLI. The BOLI policies were
purchased to consolidate existing term life insurance contracts of executive
officers and to mitigate the mortality risk associated with death benefits
provided for in the executives' employment contracts. Adjustments to the cash
surrender value of the BOLI policies are recorded as non-interest income.
NON-INTEREST EXPENSE
Non-interest expense for the secondfirst quarter of 2003 totaled $28.9 million, an
increase of $6.2 million, or 27%, from the first quarter 2002 total of $22.7
million. All categories of non-interest expense increased over the first quarter
of 2002, totaled $25.9 millionreflecting the continued growth and increased $9.6 million, or 59%, fromexpansion of the secondBanks, the growth
in the premium finance business, the addition of LFCM in the first quarter 2001 total of
$16.3
million. Operating2003 and a full quarter's operating expenses ofattributable to the Wayne Hummer
Companies and the continued
growth of the loan and deposit portfolios are the major causes for this
increase. Since June 30, 2001 total deposits and total loans have increased 27%
and 29%, respectively, requiring higher levels of staffing and other costs to
both attract and service the larger customer base. Excluding the impact of the
Wayne Hummer Companies, total non-interest expense increased $2.5 million, or
16%, when compared to the second quarter of 2001, well below the pace of the
balance sheet growth.(which were acquired effective February 1, 2002).
The following table presents non-interest expense by category for the periods
presented:
Three Months Ended
June 30,THREE MONTHS ENDED
MARCH 31,
--------------------------------------
$ %
--------------------------------------
(Dollars in thousands) 2003 2002 2001 Change Change
------------------------------------------------------------ ------------------ ------------------ --------------- -------------
Salaries and employee benefits $ 15,40017,450 $ 8,735 6,665 76.313,362 4,088 31 %
Equipment 1,842 1,730 112 6
Occupancy, net 1,609 1,178 431 36.6
Equipment 1,796 1,582 214 13.51,898 1,544 354 23
Data processing 1,042 822 220 26.81,053 1,014 39 4
Advertising and marketing 533 426 107 25.1539 524 15 3
Professional fees 685 534 151 28.3
Amortization of goodwill -- 152 (152) (100.0)782 611 171 28
Amortization of other intangibles 100139 17 83 488.2122 718
Other 4,741 2,836 1,905 67.25,208 3,877 1,331 34
------------------ ------------------ --------------- -------------
Total non-interest expense $ 25,90628,911 $ 16,282 9,624 59.1
================== ================== =============== =============22,679 6,232 27 %
------------------ ------------------ --------------- -------------
Six Months Ended
June 30,
-------------------------------------- $ %
(Dollars in thousands) 2002 2001 Change Change
------------------------------------------------------------ ------------------ ------------------ --------------- -------------
Salaries and employee benefits $ 28,762 $ 17,213 11,549 67.1
Occupancy, net 3,153 2,422 731 30.2
Equipment 3,526 3,066 460 15.0
Data processing 2,056 1,652 404 24.5
Advertising and marketing 1,057 733 324 44.2
Professional fees 1,296 1,065 231 21.7
Amortization of goodwill -- 313 (313) (100.0)
Amortization of other intangibles 117 34 83 244.1
Other 8,618 5,755 2,863 49.7
------------------ ------------------ --------------- -------------
Total non-interest expense $ 48,585 $ 32,253 16,332 50.6
================== ================== =============== =============
On a year-to-date basis non-interest expense totaled $48.6 million and increased
$16.3 million, or 51%, over the first six months of 2001. The Wayne Hummer
Companies contributed $11.9 million of this increase. The $4.4 million increase,
excluding the Wayne Hummer Companies, is predominantly due to a $2.8 million
increase in salaries and employee benefits costs and the higher general
operating costs associated with operating additional and larger banking offices.
Despite balance sheet growth in loans and deposits of near 30%, Wintrust's net
overhead ratio, excluding the impact of the Wayne Hummer Companies, decreased
from 1.68% for the first six months of 2001 to 1.49% for the comparable period
in 2002.
Salaries and employee benefits totaled $15.4$17.5 million for the secondfirst quarter of
2002,2003, an increase of $6.7$4.1 million, or 76%31%, as compared to the prior year's secondfirst
quarter total of $8.7$13.4 million. This increase was primarily due to an additional
month in the first quarter of 2003 of employee costs associated with the Wayne
Hummer Companies and the salary and benefit costs of Lake Forest Capital
Management Company (increasing $2.0 million), commissions associated with
increased mortgage loan origination activity (increasing $697,000) and increases
in salaries and employee benefit costs as a result of continued growth and
expansion of the Banksbanking franchise and normal annual increases in salaries and
the employee benefit costs.
Excluding the impact of the Wayne Hummer Companies, total salaries and employee
benefits expense increased $1.5costs (increasing $1.4 million).
- 2623 -
million, or 18%, when compared to the second quarter of 2001 and decreased
slightly by $59,000, or less than 1%, when compared to the first quarter of
2002.
Other categories of non-interest expense, such as occupancy costs, equipment
expense, and data processing, alsoadvertising and marketing, professional fees and other
increased by $2.1 million over the prior year secondfirst quarter
primarily due to the
acquisition of the Wayne Hummer Companies.
Amortization expense related to goodwillCompanies, the acquisition of Lake Forest
Capital Management Company and other intangibles totaled $100,000
for the second quartergeneral growth and expansion of 2002, compared with $169,000 in the second quarter of
2001. See Note 12 - Goodwill and Other Intangible Assets to the Company's
unaudited consolidated financial statements for a detailed discussion of
intangible amortization.Banks.
INCOME TAXES
The Company recorded income tax expense of $3.5$4.5 million for the three months
ended June 30, 2002March 31, 2003, versus $2.5$3.5 million for the same period of 2001. On a
year-to-date basis, income tax expense was $7.0 million in 2002 and $4.9 million
in 2001.2002. The
effective tax rate was 35.6%35.4% and 35.7%, in the secondfirst quarter of 2003 and 2002,
and 36.4
% in the second quarter of 2001.respectively.
OPERATING SEGMENT RESULTS
As shown in Note 910 to the unaudited consolidated financial statements, the
Company's operations consist of five primary segments: banking, premium finance,
indirect auto, Tricom and trust/asset management/brokerage.wealth management. The Company's profitability is
primarily dependent on the net interest income, provision for loan losses,
non-interest income and operating expenses of its banking segment.
For the secondfirst quarter of 2002,2003, the banking segment's net interest income totaled
$22.8$23.7 million, an increase of $5.6$2.9 million, or 33%14%, as compared to $17.1$20.8 million
recorded in the same quarter of 2001.2002. This increase was the direct result of
earning asset growth, particularly in the loan portfolio. The banking segment's
non-interest income totaled $3.9$9.3 million for the secondfirst quarter of 20022003 and
decreased $589,000,increased $4.4 million, or 13%89%, when compared to the prior year quarterly total
of $4.5$4.9 million. Contributing to this decrease wasincrease were a $167,000 decline$2.6 million increase in
fees on mortgage loans sold, a $576,000 increase in premium income from certain
covered call option transactions, which are routinely entered
into to enhance the overall return on the investment portfolio.a $601,000 increase in net securities gains
and $385,000 from BOLI. The banking segment's after-tax profit for the quarter
ended June 30, 2002,March 31, 2003, totaled $7.0$8.5 million, an increase of $2.1$2.3 million, or 44%37%,
as compared to the prior year quarterly total of $4.9 million. On a year-to-date basis, net interest income
totaled $43.5 million for the first six months of 2002, an increase of $10.0
million, or 30%, as compared to the $33.5 million recorded last year.
Non-interest income increased $541,000 to $9.4 million in the first six months
of 2002. This increase was due primarily to a $479,000 increase in fees on
mortgage loans sold resulting from higher levels of refinancing activity as well
as increased service charges on deposit accounts of $338,000 due to a larger
deposit base and a higher number of accounts at the banking subsidiaries. The
banking segment's after-tax profit for the six months ended June 30, 2002,
totaled $13.2 million, an increase of $3.5 million, or 36%, as compared to the
prior year total of $9.7 million. The banking segment accounted for the majority
of the Company's total asset growth since June 30, 2001, increasing by $819$6.2 million.
Net interest income from the premium finance segment totaled $8.1$9.2 million for
the quarter ended June 30, 2002,March 31, 2003, an increase of $1.6$1.2 million, or 24%14%, over the
$6.5$8.1 million recorded in the same quarter of 2001.2002. This improvement was due to
an increase in average premium finance receivables of approximately 21% and
higher net spread contributions on these balances.33%.
Non-interest income for the three months ended June 30, 2002March 31, 2003 totaled $827,000$1.1
million, compared to $1.4$2.0 million in the same quarter of 2001.2002. Gains from the
sale of premium finance receivables decreasedincreased by $621,000$396,000 compared to the same
period last year. The first quarter of 2002 included pretax income of $1.25
million for a partial settlement related to a non-recurring charge recorded in
2000. After-tax profit for the premium finance segment totaled $3.3$4.2 million for
the three-month period ended June 30, 2002, and increased $624,000,March 31, 2003, an increase of $105,000, or 23%2.6%,
over the same period of 2001.2002, which included $754,000 after-tax from the partial
settlement described earlier. This increase was due to higher levels of premium
finance receivables createdresulting from targeted marketing programs and market increases in insurance premiums
charged by insurance carriers. On a year-to-date basis, net
interest income totaled $16.2 million for the first six months of 2002, an
increase of $3.7 million, or 30%, as compared to the $12.5 million recorded last
year. Non-interest income increased $495,000 to $2.8 million in the first six
months of 2002. The proceeds from a partial settlement during the first quarter
of 2002, related to the premium finance defalcation which occurredcarriers and was
recognized in 2000, of $1.25 million was offset by a decrease of $797,000 on
gains from the sale of premium finance receivables compared to the same period
last year. The premium finance segment's after-tax profit for the six months
ended June 30, 2002, totaled $7.4 million, an increase of $2.6 million, or 55%,
as compared to the prior year total of $4.8 million.
- 27 -
continued targeted marketing programs.
The indirect auto segment recorded $2.0$1.8 million of net interest income for the
secondfirst quarter of 2002, an increase2003, a decrease of $424,000,$166,000, or 26%8%, as compared to the 20012002
quarterly total. Average outstanding loans decreased 3%6% in the secondfirst quarter of
2002,2003, compared to the same quarter of 2001.2002. After-tax segment profit totaled
$810,000$657,000 for the three-month period ended June 30 2002, an increaseMarch 31, 2003, a decrease of $252,000,$71,000,
or 45%10%, when compared to the same period of 2001.2002. The increasedecrease in this segment's
profitability was caused mainly by the lower variable rate funding costs involume of outstanding loans
compared to the secondfirst quarter of 2002, contributing to the higherlower levels of net
interest income.
On a year-to-date basis, net interest income totaled $4.0 million for the first
six months of 2002, an increase of $1.0 million, or 35%, as compared to the $3.0
million recorded last year. The indirect auto segment's after-tax profit for the
six months ended June 30, 2002 totaled $1.5 million, an increase of $606,000, or
65%, as compared to the prior year total of $932,000. Consistent with the
after-tax profit contribution in the second quarter of 2002, year-to-date
profitability was positively impacted due to lower variable rate funding costs.
The Tricom segment data reflects the net interest income, non-interest income
and segment profit associated with short-term accounts receivable financing and
value-added out-sourced administrative services, such as data processing of
payrolls, billing and cash management services, that Tricom provides to its
clients in the temporary staffing industry. The Tricom segment reported net
interest income of $1.1 million$854,000 for the secondfirst quarter of 2002, an increase2003, a decrease of
$120,000,$59,000, or 12%7%, compared to
$965,000- 24 -
$913,000 reported in the same period of 2001.2002. Non-interest income was $933,000 in the second quarter of 2002, a decrease of
$167,000, or 15%, compared to $1.1
million in the secondfirst quarter of 2001. This
represents2003, an increase of $270,000, or 33%, compared
to $821,000 in the first quarter of increased2002. The increase in non-interest revenue from this segment
after three consecutive quartersincome in
the first quarter of declines.2003 is attributable to the acquisition of a competitor's
customer base in early January 2003. The segment's after-tax profit was $486,000$397,000
in the secondfirst quarter of 2002,2003, an increase of $163,000,$126,000, or 51%47%, as compared to
the prior year secondfirst quarter of $323,000. On a year-to-date basis,
net interest income totaled $2.0 million for the first six months of 2002, an
increase of $149,000, or 8%, as compared to the $1.8 million recorded in the
first six months of 2001. Non-interest income decreased $388,000 to $1.8 million
in the first six months of 2002.$271,000.
The Tricom segment's after-tax profit for the
six months ended June 30, 2002, totaled $757,000, an increase of $155,000, or
26%, as compared to $602,000 in the first six months of 2001. As discussed in
Note 12 - Goodwill and Other Intangible Assets to the Company's unaudited
consolidated financial statements, Tricom benefited from the adoption of SFAS
142. Ceasing amortization of goodwill contributed $86,000 to the segment's
after-tax profit in the second quarter of 2002 and $172,000 to the segment's
year-to-date 2002 after-tax profits.
The trust, assetwealth management and brokerage segment reported net interest income of $722,000$1.6 million for
the secondfirst quarter of 2002 and $186,0002003 compared to $588,000 for the same period last year.
The rise in net interest income reported is due to an increasethe net interest allocated to
the segment from non-interest bearing and interest-bearing account balances on
deposit at the Banks offsetting a decrease in the segment's earning assets,
primarily the interest-bearing brokerage customer receivables at WHI, as well as the net interest allocated to the segment from account balances
on deposit at the Banks.WHI. This
segment recorded non-interest income of $7.6$6.2 million for the secondfirst quarter of
20022003 as compared to $523,000$4.7 for the same quarter of 2001,2002, an increase of $7.1$1.5
million. The increase is attributable to the additional month of revenues from
the Wayne Hummer Companies. Wintrust is committedCompanies included in the 2003 results and the two months of
revenue from Lake Forest Capital Management Company. The acquisition of Lake
Forest Capital Management Company demonstrates Wintrust's commitment to growing
the trust and investment business in order to better service its customers and
create a more diversified revenue stream. The trust, assetwealth management and
brokerage segment's
after-tax loss totaled $87,000$281,000 for the three-month period ended June 30, 2002,March 31, 2003,
as compared to an after-tax loss of $108,000$142,000 for the same period of 2001. On a year-to-date basis, net interest income totaled $1.3
million for the first six months of 2002, an increase of $958,000, or 272%, as
compared to the $352,000 recorded last year. Non-interest income increased $11.3
million to $12.3 million in the first six months of 2002. The increase is
attributable to the revenues from the Wayne Hummer Companies. This segment's
after-tax loss for the six months ended June 30, 2002, totaled $229,000, an
improvement of $75,000, or 25%, as compared to the prior year loss of $304,000.
FINANCIAL CONDITION
Total assets were $3.22$3.91 billion at June 30, 2002,March 31, 2003, representing an increase of
$897$960 million, or 39%32%, over $2.32$2.96 billion at June 30, 2001,March 31, 2002, and $514$193 million, or
38%21% on an annualized basis, over $2.71$3.72 billion at December 31, 2001.2002. Growth at
the newer Banks and branches along with market share increases at the more
mature Banks and the addition of the Wayne Hummer Companies were the primary factors for the increases since year-end, adding $420 million and $94 million in total assets,
respectively.during these periods.
Total funding, which includes retail deposits, wholesale borrowings and
Long-term Debt-Trust Preferred Securities, was $2.93$3.57 billion at June 30, 2002, and increased $783March 31, 2003,
representing an increase of $837 million, or 36%31%, over the June 30, 2001March 31, 2002
reported amounts, and $400$179 million, or 32%21% on an annualized basis, since
December 31, 2001.2002. The increased funding was primarily utilized to fund growth
in the loan portfolio of $522$461 million since June 30, 2001March 31, 2002 and $290$72 million since
year-end.year-end and to provide liquidity to the Company on a temporary basis. See Notes
3-74-8 of the Company's unaudited consolidated financial statements on pages 6-87-9
for additional period-end detail.
During the third quarter of 2002, the Company purchased $41.1 million of Bank
Owned Life Insurance ("BOLI"). The BOLI policies were purchased to consolidate
existing term life insurance contracts of executive officers to mitigate the
mortality risk associated with death benefits provided for in the executives'
employment contracts. The BOLI balances as of March 31, 2003 are $41.7 million
and are included in "Accrued interest receivable and other assets" on the
Company's consolidated statement of condition. Adjustments to the cash surrender
value of the BOLI policies are recorded as non-interest income.
- 2825 -
INTEREST-EARNING ASSETS
The following table sets forth, by category, the composition of average earning
asset balances and the relative percentage of total average earning assets for
the periods presented:
THREE MONTHS ENDED
Three Months Ended Three Months Ended
JUNE 30,-----------------------------------------------------------------------------------
MARCH 31, 2003 December 31, 2002 March 31, 2002
June 30, 2001
---------------------------- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands) BALANCE PERCENT Balance Percent Balance Percent
-------------------------------------------------------------------------- -------------------------------------------------------- ----------------------------------------------------------------------------- ------------------------------------------------------
Loans:
Commercial and commercial real estate $ 1,059,4131,283,931 37 % $ 1,285,811 38 % $ 982,902 38 %
$ 754,170 37 %
Home equity 304,674378,320 11 357,517 11 274,076 11 191,661 9
Residential real estate (1) 161,663 6234,737 7 223,282 7 168,443 6 150,532 7
Premium finance receivables 432,603 16544,114 15 495,015 15 408,869 16 358,817 18
Indirect auto loans 183,209 6174,387 5 182,231 5 184,993 7 189,168 9
Tricom finance receivables 18,43622,285 1 22,302 1 18,153 1
18,753 1
OtherConsumer and other loans 58,97057,372 2 62,345 2 64,366 2
72,595 4
---------------------------- -------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $ 2,218,968 802,695,146 78 % $ 2,628,503 79 % $ 2,101,802 81 %
$ 1,735,696 85 %
Liquidity management assets (2) 484,483 17715,338 21 671,887 20 458,922 17 302,848 15
Other earning assets (3) 71,100 341,221 1 44,431 1 44,920 2
-- --
---------------------------- -------------------------------------------------------------------------------------------------------------
Total earning assets $ 2,774,5513,451,705 100 % $ 3,344,821 100 % $ 2,605,644 100 %
$ 2,038,544 100 %
============================ =======================================================---------------------------- ------------------------------------------------------
Total assets $ 2,992,1333,757,564 $ 3,637,851 $ 2,805,594
$ 2,214,280
================ ================ ===============---------------- ---------------- ---------------
Total earning assets to total assets 9392 % 92 % 93 %
92 %
============ ============ ============------------ ------------ -----------
- ------------------------------------------------------------------------------------------------------
(1) Includes mortgages held for salesale.
(2) Liquidity management assets include available-for-sale securities,
interest earning deposits with banks and federal funds sold.sold and
securities purchased under resale agreements.
(3) Other earning assets include brokerage customer receivables and trading
account securities.
Average earning assets for the secondfirst quarter of 2002,2003 increased $169$846 million, or
26%32%, over the prior year first quarter and $107 million, or 13% on an annualized
basis, over the firstfourth quarter of 2002. The ratio of average earning assets as a
percent of total average assets remained consistent at approximately 92% - 93%
asfor each of each reporting period datethe quarterly periods shown in the above table.
Loan growth continued to fuel the Company's earning asset growth in the second
quarter of 2002. Total average loans increased by $117$593 million, or 28%, over the previous year first
quarter. Commercial and commercial real estate loans grew on average by 31%,
home equity by 45%38%, residential real estate by 39% and premium finance
receivables by 23%33%, compared to the first quarter of 2002. Average loans
increased $66.6 million, or 10% on an annualized basis, over the fourth quarter
of 2002. The slower growth rate in the first quarter of 2003 in average loans
over the previous quarter was due in large part to the reduction in usage of
mortgage warehouse lines, declining $65.5 million on average. This resulted in
average commercial and commercial real estate loan balances remaining flat
compared to the fourth quarter of 2002. Home equity loans increased 24%,
residential real estate loans increased 21% and premium finance receivables
increased 40%, all on an annualized basis, overfrom the firstfourth quarter of 2002.
AverageOther earning assets forin the second quarter of 2002, increased $736 million,
or 36%, over the year-earlier second quarter. Average loans accounted for $483
million of the total average earning asset growth. Average other earning assets,
comprising thetable include brokerage customer receivables and
trading account securities and brokerage customer receivables as
a result of the acquisition offrom the Wayne Hummer Companies, contributed $71
million to total average earning asset growth.Companies. In the normal course
of business, Wayne Hummer Investments, LLC ("WHI")WHI activities involve the execution, settlement, and financing of
various securities transactions. These activities may expose WHI to risk in the
event the customer is unable to fulfill its contractual obligations. WHI
maintains cash and margin accounts for its customers generally located in the
Chicago, Illinois and Appleton, Wisconsin metropolitan areas of the Midwest.
WHI's customer securities activities are transacted on either a cash or margin
basis. In margin transactions, WHI extends credit to its customers, subject to
various regulatory and internal margin requirements, collateralized by cash and
securities in customer's accounts. In connection with these activities, WHI
executes and clears customer transactions relating to the sale of securities not
yet purchased, substantially all of which are transacted on a margin basis
subject to
- 26 -
individual exchange regulations. Such transactions may expose WHI to
off-balance-sheet risk, particularly in volatile trading markets, in the event
margin requirements are not sufficient to fully cover losses that customers may
incur. In the event the customer fails to satisfy its obligations, WHI may be
required to purchase or sell financial instruments at
- 29 -
prevailing market prices
to fulfill the customer's obligations. WHI seeks to control the risks associated
with its customers' activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal guidelines. WHI
monitors required margin levels daily and, pursuant to such guidelines, requires
the customer to deposit additional collateral or to reduce positions when
necessary.
WHI's customer financing and securities settlement activities require WHI to
pledge customer securities as collateral in support of various secured financing
sources such as bank loans and securities loaned. In the event the counterparty
is unable to meet its contractual obligation to return customer securities
pledged as collateral, WHI may be exposed to the risk of acquiring the
securities at prevailing market prices in order to satisfy its customer
obligations. WHI attempts to control this risk by monitoring the market value of
securities pledged on a daily basis and by requiring adjustments of collateral
levels in the event of excess market exposure. In addition, WHI establishes
credit limits for such activities and monitors compliance on a daily basis.
The following table sets forth, by category, the composition of average earning
asset balances and the relative percentage of total average earning assets for
the periods presented:
SIX MONTHS ENDED Six Months Ended
JUNE 30, 2002 June 30, 2001
-------------------------------- -------------------------------
(Dollars in thousands) BALANCE PERCENT Balance Percent
------------------------------------------------------- ----------------- ------------- ----------------- -------------
Loans:
Commercial and commercial real estate $ 1,021,374 38 % $ 709,066 36 %
Home equity 289,677 11 186,969 9
Residential real estate (1) 165,417 6 145,243 7
Premium finance receivables 421,224 15 351,858 18
Indirect auto loans 184,174 7 192,557 9
Tricom finance receivables 18,295 1 18,681 1
Other loans 62,432 2 69,935 4
----------------- ------------- ----------------- -------------
Total loans, net of unearned income $ 2,162,593 80 % $ 1,674,309 84 %
Liquidity management assets (2) 468,103 17 310,887 16
Other earning assets (3) 58,082 3 -- --
----------------- ------------- ----------------- -------------
Total earning assets $ 2,688,778 100 % $ 1,985,196 100 %
================= ============= ================= =============
Total assets $ 2,897,465 $ 2,162,430
================= =================
Total earning assets to total assets 93 % 92 %
============= =============
- ------------------------------------------------------------
(1) Includes mortgages held for sale.
(2) Liquidity management assets include available-for-sale securities, interest
earning deposits with banks and federal funds sold.
(3) Other earning assets include brokerage customer receivables and trading
account securities.
Average earning assets for the six months ended June 30, 2002 increased $704
million, or 35%, over the first six months of 2001. The ratio of year-to-date
total average earning assets as a percent of year-to date total average assets
remained stable at approximately 92% to 93% for each reporting period shown in
the above table, consistent with this ratio on a quarterly basis. Loan growth
has fueled the Company's year-to-date total earning asset growth in 2002. Total
average loans increased by $488 million in the second quarter of 2002 over the
previous quarter. Commercial and commercial real estate loans grew on average by
44%, home equity by 55% and premium finance receivables by 20% in the first six
months of 2002 compared to the first six months of 2001.
- 30 -
DEPOSITS
Total average deposits for the second quarter of 2002 were $2.44 billion, an
increase of $477 million, or 24%, over the second quarter of 2001 and an
increase of $105 million, or 18% on an annualized basis, over the first quarter
of 2002.
The following table sets forth, by category, the composition of average deposit
balances and the relative percentage of total average deposits for the periods
presented:
THREE MONTHS ENDED
Three Months Ended Three Months Ended
JUNE 30,------------------------------------------------------------------------------------------
MARCH 31, 2003 December 31, 2002 March 31, 2002
June 30, 2001
--------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) BALANCE PERCENT Balance Percent Balance Percent
------------------------------------------ --------------------------------------------------------- ---------------------------------------------------------------------- ----------------------------------------------------------------------------------------
Non-interest bearing $ 241,180298,977 9 % $ 294,152 10 % $ 242,012 10 %
$ 197,870 10 %
NOW 286,013 12345,299 11 351,789 11 285,756 12
178,766 9NOW-Brokerage customer deposits 243,973 8 208,265 7 -- --
Money market 364,754 15406,229 13 392,413 13 352,574 15
294,797 15
Brokerage customer deposits 14,631 1 -- -- -- --
Savings 130,247151,218 5 141,906 5 128,410 6 92,449 5
Time certificate of deposits 1,407,602 571,704,924 54 1,632,566 54 1,330,648 57
1,203,898 61
--------------------------------------------------------- -------------------------------------------------------------------------- ------------------------------------------
Total deposits $ 2,444,4273,150,620 100 % $ 3,021,091 100 % $ 2,339,400 100 %
$ 1,967,780 100 %
========================================================= ========================================================================== ==========================================
The percentage mix ofTotal average deposits for the first quarter of 2003 were $3.15 billion, an
increase of $811 million, or 35%, over the first quarter of 2002 was
relatively consistent withand an increase
of $130 million, or 17% on an annualized basis, over the deposit mix asfourth quarter of the prior period dates
presented. Growth in both the number of accounts and balances has been primarily
the result of newer bank and branch growth, and continued marketing efforts at
the more established Banks to create additional deposit market share.2002.
As previously disclosed, following its acquisition of the Wayne Hummer Companies
in February 2002, Wintrust has undertakenundertook efforts to migrate funds from the money
market mutual fund balances managed by Wayne Hummer Asset Management Company
into deposit accounts of the Wintrust Banks ("NOW - Brokerage customer deposits"
in table above). Consistent with reasonable interest rate risk parameters, the
funds will generally be invested in excess loan production of the Banks as well
as other investments suitable for banks. As of June 30, 2002,
$97.5March 31, 2003, $252 million had
migrated into an insured bank deposit product at the various Banks. The
migration of additional funds to the Banks is subject to the desire of the
customers to make the transition of their funds into FDIC insuredFDIC-insured bank accounts,
capital capacity of the Company and the availability of suitable investments in
which to deploy the funds. As of July 31, 2002, a total of
approximately $150 million was resident in this account and Wintrust estimates
that approximately $200 to $300 million may migrate to the Banks by the end of
2002.
OTHER FUNDING SOURCES
Although deposits are the Company's main source of funding its interest-earning
asset growth, the Company's ability to manage the types and terms of deposits is
somewhat limited by customer preferences and market competition. As a result,
the Company uses several other funding sources to support its interest-earning
asset growth. These sources include short-term borrowings, notes payable, FHLB
advances, subordinated debt, trust preferred securities, the issuance of equity
securities as well as the retention of earnings.
- 27 -
Average total interest-bearing funding, from sources other than deposits and
including trust preferred securities, increaseddecreased by $60$20 million in the secondfirst
quarter of 2003 to $308 million, compared to the fourth quarter of 2002 to $321average
balance of $328 million. These funding sources increased by $47 million compared
to the first quarter of 2002 average total balance of $261 million. These funding sources increased by $223 million
compared to the second quarter of 2001 average total balance of $98 million.
- 31 -
The following table sets forth, by category, the composition of average other
funding sources for the periods presented:
Three Months EndedTHREE MONTHS ENDED
----------------------------------------------------------
JUNE 30,MARCH 31, December 31, March 31,
June 30,
(In thousands) 2003 2002 2002 2001
----------------------------------------------------------------------- --------------------------------------- ------------------
Notes payable $ 66,32342,837 $ 55,38448,522 $ 31,04855,384
Federal Home Loan Bank advances 104,938140,000 140,000 90,000 --
Federal funds purchased 24,3862,162 4,347 4,760 121
Securities sold under repurchase agreements 19,23023,623 39,628 28,704 15,746
Wayne Hummer Companies borrowings 49,64818,397 21,608 28,628 --
Other 5,000 5,000 2,222
Subordinated note 25,000 17,391 --
Long-term Debt - Trust Preferred Securities 51,05050,894 51,050 51,050
--------------------------------------- ------------------
Total other funding sources $ 320,575307,913 $ 327,546 $ 260,748
$ 97,965
======================================= ==================--------------------------------------- ------------------
During 2001, Wintrust initiated borrowing from the Federal Home Loan Bank
("FHLB"). The Company initially borrowed from the FHLB in the third and fourth
quarters of 2001 and borrowed an additional $50 million in the second quarter of
2002 as part of the Company's interest rate risk management.
The Wayne Hummer Companies borrowings consist of demand obligations to third
party banks primarily collateralized with customer assets at interest rates
approximating the fed funds rate that are used to finance securities purchased
by customers on margin and securities owned by WHI and demand obligations to
brokers and clearing organizations at rates approximating fed funds. The
increasedecrease in the average balance in the secondfirst quarter of 2003 compared to the
fourth quarter of 2002 compared toand the first quarter of 2002 is a result of the amounts being included in the Company's
results for the full quarter.
During 2001, Wintrust initiated borrowing from the Federal Home Loan Bank
("FHLB"). The Company initially borrowed from the FHLB in the third and fourth
quarters of 2001 and borrowed an additional $50 million in the second quarter of
2002 as part of the Company's interest rate risk management.lower
balances required to finance securities purchased by customers on margin.
Other represents the Company's interest-bearing deferred portion of the purchase
price of the Wayne Hummer Companies.
During the fourth quarter of 2002, the Company completed a $25 million
subordinated debt agreement with an unaffiliated bank.
Subsequent to the first quarter of 2003, the Company completed an additional $25
million subordinated debt agreement with the same unaffiliated bank and issued
$25 million of floating rate trust preferred securities in a private placement
offering. Proceeds will primarily be used to support the continued growth of the
Company and to reduce other indebtedness in the near-term.
- 28 -
SHAREHOLDERS' EQUITY
Total shareholders' equity was $206.0$238.9 million at June 30,March 31, 2003 and increased
$75.4 million since March 31, 2002 and increased
$73.0 million since June 30, 2001 and $64.7$11.9 million since the end of 2001.2002.
Significant changes from the prior year first quarter resulted from the issuance
of 1,362,750 shares of common stock through an underwritten public offering
completed in July 2002 (including the sale of shares subject to the
underwriters' over-allotment option), through which the Company realized net
proceeds of approximately $36.5 million and the retention of earnings of
approximately $27.4 million. The increase in shareholders' equity from year-end
2002 was the result of the Company'sretention of earnings of $6.9 million, the issuance
of 762,742
shares or $15.0 million, of its common stock in connection with the acquisition of the Wayne
Hummer Companies, issuance of 1,185,000 shares of common stock through a public
offering completedLFCM in June 2002, realizing net proceeds in the second quarter of
approximately $31.7February 2003 valued at
$3.5 million, net income of $12.7and $1.6 million $5.4 million of
proceeds from the issuance of stock pursuant to the
Company's commonvarious stock for stock options,
warrants, employee stock purchase plan and directorincentive compensation plan, a
$847,000 decrease in the unrealized loss on securities and derivative financial
instruments offset by $875,000 of cash dividends paid on the Company's common
stock.plans. The annualized return on
average equity for the sixthree months ended June 30,
2002 increasedMarch 31, 2003 decreased to 15.85%14.51% as
compared to 15.81%17.12% for the first sixthree months of 2001.
On June 14, 2002 Wintrust announced the closing of an underwritten offering of
1,185,000 shares of common stock at a price of $28.70 per share. Wintrust sold
all 1,185,000 shares of common stock. In connection with the offering, Wintrust
granted the underwriters of the offering a 30-day over-allotment option to
purchase up to an additional 177,750 shares, which was exercised and closed in
July, 2002. Net proceeds to the Company, including the over-allotment option and
after deducting the underwriting discount and estimated offering expenses, were
approximately $36.5 million. The net proceeds of this offering will be used to
increase the capital at our existing Banks, to pursue growth opportunities
(internal, additional de novo locations and possible acquisitions) and for
general corporate purposes.
- 32 -
The following tables reflect various consolidated measures of capital as of the
dates presented and the capital guidelines established by the Federal Reserve
Bank for a bank holding company:
JUNE 30,MARCH 31, December 31, June 30,March 31,
2003 2002 2001 2001
-------------------- ------------------- -----------------2002
---------------------- --------------------- ------------------
Leverage ratio 7.86.9 % 7.17.0 % 7.67.0 %
Tier 1 risk-based capital ratio 8.6 7.7 8.38.0 8.0 7.6
Total risk-based capital ratio 9.2 8.5 9.3 9.4 8.2
Dividend payout ratio 7.7 7.4 7.68.9 7.5 7.5
- ------------------------------------------------------------------- --------------------------------------------------------------
---------------------------------------------------------------- -----------------------------------------------------------------
Minimum
Capital Adequately Well
Requirements Capitalized
Capitalized
-------------------- ------------------- -----------------
--------------------- ------------------
Leverage ratio 3.0 % 4.0 % 5.0 %
Tier 1 risk-based capital ratio 4.0 4.0 6.0
Total risk-based capital ratio 8.0 8.0 10.0
- ------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------
The Company attempts to maintain an efficient capital structure in order to
provide higher returns on equity. Additional capital is required from time to
time, however, to support the growth of the organization. The issuance of
additional common stock, additional trust preferred securities or subordinated
debt are the primary forms of capital that are considered as the Company
evaluates its capital position. As previously discussed, subsequent to the end
of the first quarter, the Company completed an additional $25 million
subordinated debt agreement with an unaffiliated bank that qualifies as Tier II
regulatory capital. Additionally, the Company issued $25 million of trust
preferred securities that qualify as Tier II regulatory capital and may qualify
as Tier I regulatory capital subject to certain regulatory capital limitations.
The Company's goal is to support the continued growth of the Company and to meet
the well-capitalized total risk-based capital ratio as a result of these new
issuances of regulatory capital.
On January 24, 2002,23, 2003, Wintrust declared a semi-annual cash dividend of $0.08 per
common share. In January and July 2002, the Company declared semi-annual cash
dividends of $0.06 per common share.
Subsequent to the end of the second quarter, the Company declared
a semi-annual cash dividend of $0.06 per common share, payable August 20, 2002
to shareholders of record on August 6, 2002. Both 2002 semi-annual dividends
represent a 29% increase over the comparable dividends per share paid in 2001.
The Company has repurchased no shares of the Company's common stock since the
third quarter of 2000.
- 3329 -
ASSET QUALITY
ALLOWANCE FOR LOAN LOSSES
A reconciliation of the activity in the balance of the allowance for loan losses
for the periods presented is shown below:
Three Months Ended
Six Months Ended
June 30, June 30,
-------------------------------------- --------------------------------------March 31,
-------------------------------------
(Dollars in thousands) 2003 2002
2001 2002 2001
- --------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT BEGINNING OF PERIOD $ 14,69718,390 $ 11,067 $ 13,686 $ 10,433
PROVISION FOR LOAN LOSSES 2,483 2,264 4,831 3,9022,641 2,348
CHARGE-OFFS:
Commercial and commercial real estate loans 178 278 403 375445 225
Home equity loans -- -- -- --
Residential real estate loans -- 13 -- 13
Consumer and other loans 73 10 148 20103 76
Premium finance receivables 977 836 1,844 1,548673 867
Indirect automobile loans 187 203 475 490216 287
Tricom finance receivables 9 -- 9 --
---------------- --------------- ----------------- ---------------
Total charge-offs 1,424 1,340 2,879 2,446
----------------1,437 1,455
--------------- ----------------- ---------------
RECOVERIES:
Commercial and commercial real estate loans 115 2 135 443 20
Home equity loans -- -- -- --
Residential real estate loans -- --
-- --
Consumer and other loans 12 -- 1223 --
Premium finance receivables 66 83 129 12967 63
Indirect automobile loans 40 35 70 8942 30
Tricom finance receivables 20 -- 25 --
----------------4 5
--------------- ----------------- ---------------
Total recoveries 253 120 371 222
----------------179 118
--------------- ----------------- ---------------
NET CHARGE-OFFS (1,171) (1,220) (2,508) (2,224)
----------------(1,258) (1,337)
--------------- ---------------
-----------------
BALANCE AT JUNE 30MARCH 31 $ 16,00919,773 $ 12,111 $ 16,009 $ 12,111
================14,697
=============== ================= ===============
Annualized net charge-offs as a percentage of average:
Commercial and commercial real estate loans 0.020.13 % 0.15 % 0.05 % 0.110.08 %
Home equity loans -- -- -- --
Residential real estate loans -- 0.03 -- 0.02
Consumer and other loans 0.41 0.06 0.44 0.060.57 0.48
Premium finance receivables 0.84 0.84 0.82 0.810.45 0.80
Indirect automobile loans 0.32 0.36 0.44 0.420.40 0.56
Tricom finance receivables (0.24) -- (0.18) --
-------------------------------------- --------------------------------------(0.07) (0.11)
--------------- ---------------
Total loans 0.210.19 % 0.280.26 %
0.24 % 0.27 %
====================================== ===================================================== ===============
Net charge-offs as a percentage of the provision for loan losses 47.1647.63 % 53.8956.94 %
51.91 % 57.00 %
====================================== ===================================================== ===============
Loans at June 30March 31 $ 2,308,9452,628,480 $ 1,787,257
======================================2,167,550
Allowance as a percentage of loans at period-end 0.69 % 0.680.75 % ======================================0.68 %
- 30 -
Management believes that the loan portfolio is well diversified and well
secured, without undue concentration in any specific risk area. Loan quality is
continually monitored by management and is reviewed by the Banks' Boards of
Directors and their Credit Committees on a monthly basis. Independent external
review of the loan portfolio is provided by the examinations conducted by
regulatory authorities and an independent loan review performed by an entity
engaged by the Board of Directors. The amount of additions to the allowance for
loan losses, which is charged to earnings through - 34 -
the provision for loan losses,
is determined based on management's assessment of the adequacy of the allowance
for loansloan losses. Management evaluates on a quarterly basis a variety of factors,
including actual charge-offs during the year, historical loss experience,
delinquent and other potential problem loans, and economic conditions and trends
in the market area in assessing the adequacy of the allowance for loan losses.
The provision for loan losses totaled $2.5$2.6 million for the secondfirst quarter of
2002,2003, an increase of $219,000$293,000 from a year earlier. For the quarter ended June
30, 2002,March
31, 2003, net charge-offs totaled $1.2$1.3 million, unchangeddown $79,000 from the $1.2$1.3
million of net charge-offs recorded in the same period of 2001.2002. On a ratio
basis, annualized net charge-offs as a percentage of average loans decreased to
0.21%0.19% in the secondfirst quarter of 20022003 from 0.28%0.26% in the same period in 2001.
On a year-to-date basis, the provision for loan losses totaled $4.8 million for
the first six months of 2002, an increase of $929,000 over the same period last
year. Net charge-offs for the first six months of 2002 increased slightly to
$2.5 million, a $284,000 or 13% increase over the $2.2 million recorded in the
same period last year. On a ratio basis, annualized net charge-offs as a
percentage of average loans decreased to 0.24% for the first six months of 2002
from 0.27% in the first six months of 2001.2002.
The allowance for loan losses is maintained at a level believed adequate by
management to cover losses inherent in the portfolio and is based on an
assessment of individual problem loans, actual and anticipated loss experience
and other pertinent factors. The allowance for loan losses consists of an
allocated and unallocated component. The Company reviews potential problem loans
on a case-by-case basis to allocate a specific dollar amount of reserves,
whereas all other loans are reserved for based on assigned reserve percentages
evaluated by loan groupings. The loan groupings utilized by the Company are
commercial, commercial real estate, residential real estate, home equity,
premium finance receivables, indirect automobile, Tricom finance receivables and
consumer. The reserve percentages applied to these loan groups attempts to
account for the inherent risk in the portfolio based upon various factors
including industry concentration, geographical concentrations, local and
national economic indicators, levels of delinquencies, historical loss
experience including an analysis of the lack of maturity in the loan portfolio,
changes in trends in risk ratings assigned to loans, changes in underwriting
standards and other pertinent factors. The unallocated portion of the allowance
for loan losses reflects management's estimate of probable inherent but
undetected losses within the portfolio due to uncertainties in economic
conditions, delays in obtaining information, including unfavorable information
about a borrower's financial condition, the difficulty in identifying triggering
events that correlate perfectly to subsequent loss rates, and risk factors that
have not yet manifested themselves in loss allocation factors. Management
believes the unallocated portion of the allowance for loan losses is necessary
due to the imprecision inherent in estimating expected future credit losses. The
amount of future additions to the allowance for loan losses will be dependent
upon the economy, changes in real estate values, interest rates, the regulatory
environment, the level of past-due and non-performing loans, and other factors.
(See "Past Due Loans and Non-performing Assets" below).
The increase in the allowance for loan losses of $2.3$1.4 million from December 31,
20012002 to June 30, 2002March 31, 2003, is primarily related to growth in the commercial and
commercial real estate portfolio of $126.5 million, or 25% on an annualized
basis, growth in the premium finance
receivables portfolio of $111.4$70.5 million, or 65%62% on an annualized basis, andas well
as the increase in potential problem loans.the performing loans on the Company's Watch List from $34.3
million at December 31, 2002 to $42.3 million at March 31, 2003. The allowance
for loan losses as a percentage of total loans was 0.69%0.75% at June 30,
2002March 31, 2003,
compared to 0.68% at June 30, 2001.March 31, 2002. The commercial and commercial real estate
portfolios and the premium finance portfolio have traditionally experienced the
highest levels of charge-offs by the Company, along with losses related to the
indirect automobile portfolio. The level of the allowance for loan losses was
not impacted significantly by changes in the amount or credit risk associated
with the indirect automobile loan portfolio as that portfolio has declineddecreased by
$354,000$8.9 million, or 20% on an annualized basis, from the prior yearDecember 31, 2002, and
the allocated loss hasimprovements have been reduced due to improvementmade in the delinquencies, underwriting standards and
collection routines.
- 3531 -
PAST DUE LOANS AND NON-PERFORMING ASSETS
The following table sets forth the Company's non-performing assets as of the
dates presented:
JUNE 30, MarchMARCH 31, December 31, June 30,March 31
(Dollars in thousands) 2003 2002 2002
2001 2001
- --------------------------------------------------------------- ------------------------------------------------------------------------------------------- --------------- ----------------- ------------------------------
PAST DUE GREATER THAN 90 DAYS AND STILL ACCRUING:
Residential real estate and home equity $ 1613 $ 13632 $ 168 $ 389136
Commercial, consumer and other 1,0552,053 3,047 208 1,059 866
Premium finance receivables 2,1411,574 2,198 1,582 2,402 2,982
Indirect automobile loans 340399 423 249 361 372
Tricom finance receivables -- -- --
--
----------------- --------------- ----------------- ------------------------------
Total past due greater than 90 days and still accruing 3,5524,039 5,700 2,175 3,990 4,609
-----------------
--------------- ----------------- ------------------------------
NON-ACCRUAL LOANS:
Residential real estate and home equity 401375 711 1,912 1,385 411
Commercial, consumer and other 1,5282,053 1,132 742 1,180 978
Premium finance receivables 5,4175,694 4,725 6,277 5,802 6,392
Indirect automobile loans 163246 254 266 496 274
Tricom finance receivables 14 20 104 104 104 112
-----------------
--------------- ----------------- ------------------------------
Total non-accrual 7,6138,382 6,842 9,301 8,967 8,167
-----------------
--------------- ----------------- ------------------------------
TOTAL NON-PERFORMING LOANS:
Residential real estate and home equity 417388 743 2,048 1,553 800
Commercial, consumer and other 2,5834,106 4,179 950 2,239 1,844
Premium finance receivables 7,5587,268 6,923 7,859 8,204 9,374
Indirect automobile loans 503645 677 515 857 646
Tricom finance receivables 14 20 104 104 104 112
-----------------
--------------- ----------------- ------------------------------
Total non-performing loans 11,16512,421 12,542 11,476 12,957 12,776
-----------------
--------------- ----------------- ------------------------------
OTHER REAL ESTATE OWNED 756984 76 100 100 100
-----------------
--------------- ----------------- ------------------------------
TOTAL NON-PERFORMING ASSETS $ 11,92113,405 $ 12,618 $ 11,576
$ 13,057 $ 12,876
================= =============== ================= ==============================
Total non-performing loans by category as a percent of its own respective
category:
Residential real estate and home equity 0.090.07 % 0.480.14 % 0.39 % 0.230.48 %
Commercial, consumer and other 0.220.30 0.30 0.08 0.21 0.21
Premium finance receivables 1.641.37 1.50 1.90 2.36 2.71
Indirect automobile loans 0.270.38 0.38 0.28 0.47 0.34
Tricom finance receivables 0.540.06 0.10 0.59
0.57 0.67
------------------------------ ------------- --------------- ----------------- --------------
Total non-performing loans 0.480.47 % 0.49 % 0.53 %
0.64 % 0.71 %
================= =============== ================= ==============------------- ------------- ---------------
Total non-performing assets as a percentage of total assets 0.370.34 % 0.34 % 0.39 %
0.48 % 0.55 %
================= =============== ================= ==============------------- ------------- ---------------
Allowance for loan losses as a percentage of non-performing loans
143.39159.19 % 146.63 % 128.07 %
105.63 % 94.79 %
============================== ============= =============== ================= ==============
The information in the table should be read in conjunction with the detailed
discussion following the table.
- 3632 -
Non-performing Residential Real Estate, Commercial, Consumer and Other Loans
Total non-performing loans for Wintrust's residential real estate, commercial,
consumer and other loans were $3.0$4.5 million, unchangedup from the $3.0 million reported at
March 31, 2002, butand down from the $3.8$4.9 million reported at December 31, 2001.2002.
These loans consist primarily of a small number of commercial, residential real
estate and home equity loans, which management believes are well secured and in
the process of collection. The small number of such non-performing loans allows
management to monitor the status of these credits and work with the borrowers to
resolve these problems effectively.
Non-performing Premium Finance Receivables
The table below presents the level of non-performing premium finance receivables
as of June 30,March 31, 2003 and 2002, and 2001, and the amount of net charge-offs for the
six
monthsquarters then ended.
MARCH 31, March 31,
(Dollars in thousands) JUNE 30,2003 2002
June 30, 2001
- ---------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- ------------------------- -----------------------
Non-performing premium finance receivables $ 7,5587,268 $ 9,3747,859
- as a percent of premium finance receivables 1.64% 2.71%1.37% 1.90%
Net charge-offs of premium finance receivables $ 1,715606 $ 1,419804
- - annualized as a percent of premium finance receivables 0.82% 0.81%0.45% 0.80%
- ---------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- ------------------------- -----------------------
The improvement in the level of non-performing premium finance receivables since
June 30, 2001 is indicative of actions taken by management. As noted in
Wintrust's prior quarterly earnings releases in 2001, Wintrust has eliminated
more than 1,300 relationships with certain insurance agents that were referring
new business to our premium finance subsidiary that had relatively small
balances and higher than normal delinquency rates. The business associated with
those accounts has become a less significant percent of the entire portfolio and
is nearly extinguished.
Management continues to see progress in this portfolio and continues to expect
the level of non-performing loans related to this portfolio to remain at
relatively low levels.
The ratio of non-performing premium finance receivables fluctuates throughout
the year due to the nature and timing of canceled account collections from
insurance carriers. Due to the nature of collateral for premium finance
receivables it customarily takes 60-150 days to convert the collateral into cash
collections. Accordingly, the level of non-performing premium finance
receivables is not necessarily indicative of the loss inherent in the portfolio.
In the event of default, Wintrust has the power to cancel the insurance policy
and collect the unearned portion of the premium from the insurance carrier. In
the event of cancellation, the cash returned in payment of the unearned premium
by the insurer should generally be sufficient to cover the receivable balance,
the interest and other charges due. Due to notification requirements and
processing time by most insurance carriers, many receivables will become
delinquent beyond 90 days while the insurer is processing the return of the
unearned premium. Management continues to accrue interest until maturity as the
unearned premium is ordinarily sufficient to pay-off the outstanding balance and
contractual interest due.
Non-performing Indirect Automobile Loans
Total non-performing indirect automobile loans were $503,000$645,000 at June 30,March 31, 2003,
increasing from $515,000 at March 31, 2002 and decreasing from $857,000$677,000 at
December 31, 2001 and $646,000 at June 30, 2001.2002. The ratio of these non-performing loans to total indirect
automobile loans decreased
to 0.27%stood at 0.38% of total indirect automobile loans at June 30,March 31,
2003, 0.28% at March 31, 2002 from 0.47%and 0.38% at December 31, 2001 and 0.34% at June 30, 2001.2002. As noted in the
Allowance for Loan Losses table, net charge-offs as a percent of total indirect
automobile loans has decreased from 0.36%0.56% in the secondfirst quarter of 20012002 to 0.32%0.40%
in the secondfirst quarter of 2002.2003. The level of non-performing and net charge-offs of
indirect automobile loans continues to be below standard industry ratios for
this type of lending. Due to the impact of the current economic and competitive
environment surrounding this type of lending, management continues to
de-emphasize, in relation to other loan categories, growth in the indirect
automobile loan portfolio. Indirect automobile loans at June 30, 2002March 31, 2003 were
$184$169.3 million, unchangeddown from $178.2 million at December 31, 2001 but down $62002 and $184.4 million
or 3% from June 30, 2001.at March 31, 2002.
Potential Problem Loans
Management believes that any loan where there are serious doubts as to the
ability of such borrowers to comply with the present loan repayment terms should
be identified as a non-performing loan and should be included in the disclosure
of "Past Due Loans and Non-performing Assets" on page 32. Accordingly, at the
periods presented in this report, the Company has no potential problem loans as
defined by Securities and Exchange Commission regulations.
- 3733 -
Potential Problem LoansCredit Quality Review Procedures
The Company utilizes a loan rating system to assign risk to loans and utilizes
that risk rating system to assist in developing an internal problem loan
identification system ("Watch List"). The Watch List is used to monitor the
credits as well as a means of reporting non-performing and potential problem
loans. At each scheduled meeting of the Boards of Directors of the Banks and the
Wintrust Board, a Watch List is presented, showing all loans that are
non-performing and loans that may warrant additional monitoring. Accordingly, in
addition to those loans disclosed under "Past Due Loans and Non-performing
Assets," there are certain loans in the portfolio which management has
identified, through its Watch List, which exhibit a higher than normal credit
risk. These credits are reviewed individually by management to determine whether
any specific reserve amount should be allocated for each respective credit.
However, these loans which the Company defines as "potential
problem loans", are still performing and, accordingly, are not included in
non-performing loans. Management's philosophy is to be proactive and
conservative in assigning risk ratings to loans and identifying loans to be
included on the Watch List. As evidence of
this conservative posture, over 75% of all loans identified as potential problem
loans were current as to principal and interest at June 30, 2002.
Examples of these potential problem loans include certain loans that are in a
past-due status, loans with borrowers that have recent adverse operating cash
flow or balance sheet trends, or loans with general risk characteristics that
the loan officer feels might jeopardize the future timely collection of
principal and interest payments. Management's review of the total loan portfolio
to identify loans where there is concern that the borrower might not be able to
continue to satisfy present loan repayment terms includes factors such as review
of individual loans, recent loss experience and current economic conditions. The principal amount of potential problem loans on the Company's Watch
List (exclusive of those loans reported as non-performing) as of June 30,March 31, 2003,
December 31, 2002 and DecemberMarch 31, 2001 was approximately $48.82002 were $42.3 million, $34.3 million and $23.8$30.2
million, respectively. In excess
of $38 million of the potential problemWe believe these loans as of June 30, 2002 were currentare performing and, accordingly,
do not cause management to have serious doubts as to principal and interest payments and, accordingly, we believe the loans
identified as potential problem loansability of such
borrowers to quite conservative in nature. The
increase in potential problem loans relates primarily to a few larger credits
that management believes have no current loss exposure but for which additional
proactive monitoring is prudent givencomply with the current economic and business climate.present loan repayment terms.
LIQUIDITY
Wintrust manages the liquidity position of its banking operations to ensure that
sufficient funds are available to meet customers' needs for loans and deposit
withdrawals. The liquidity to meet the demand is provided by maturing assets,
sales of premium finance receivables, liquid assets that can be converted to
cash, and the ability to attract funds from external sources. Liquid assets
refer to federal funds sold and to marketable, unpledged securities, which can
be quickly sold without material loss of principal.
Please refer to the Interest-Earning Assets, Deposits, Other Funding Sources and
Shareholders' Equity discussions on pages 29-3326-29 for additional information
regarding the Company's liquidity position.
INFLATION
A banking organization's assets and liabilities are primarily monetary. Changes
in the rate of inflation do not have as great an impact on the financial
condition of a bank as do changes in interest rates. Moreover, interest rates do
not necessarily change at the same percentage as does inflation. Accordingly,
changes in inflation are not expected to have a material impact on the Company.
An analysis of the Company's asset and liability structure provides the best
indication of how the organization is positioned to respond to changing interest
rates. See "Quantitative and Qualitative Disclosure About Market Risks"
beginning on page 40.36.
- 3834 -
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. 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 anticipated improvements in financial performance and
management's long-term performance goals, as well as statements relating to the
anticipated effects on results of operations and financial condition from
expected development 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 the acquisition of banks, specialty finance or fee-related businesses. Actual
results could differ materially from those addressed in the forward-looking
statements as a result of numerous factors, including the following:
o The level of reported net income, return on average assets and return on
average equity for the Company will in the near term continue to be
impacted by start-up costs associated with de novo bank formations,
branch openings, and expanded trust and investment operations. De novo
banks may typically require 13 to 24 months of operations before
becoming profitable, due to the impact of organizational and overhead
expenses, the start-up phase of generating deposits and the time lag
typically involved in redeploying deposits into attractively priced
loans and other higher yielding earning assets. Similarly the expansion
of wealth management services through the Company's acquisitions of the
Wayne Hummer Companies and Lake Forest Capital Management will depend on
the successful integration of these businesses.
o The Company's success to date has been and will continue to be strongly
influenced by its ability to attract and retain senior management
experienced in banking and financial services.
o Although management believes the allowance for loan losses is adequate
to absorb losses that may develop in the existing portfolio of loans and
leases, there can be no assurance that the allowance will prove
sufficient to cover actual future loan or lease losses.
o If market interest rates should move contrary to the Company's gap
position on interest earning assets and interest bearing liabilities,
the "gap" will work against the Company and its net interest income may
be negatively affected.
o The financial services business is highly competitive which may affect
the pricing of the Company's loan and deposit products as well as its
services.
o The Company may not be able to successfully adapt to technological
changes to compete effectively in the marketplace.
o FutureUnforeseen future events that may cause slower than anticipated
development and growth of the Tricom business shouldand/or changes in the
temporary staffing industry experience
continued slowness.industry.
o Changes in the economic environment, competition, or other factors, may
influence the anticipated growth rate of loans and deposits, the quality
of the loan portfolio and the pricing of loans and deposits and may
affect the Company's ability to successfully pursue acquisition and
expansion strategies.
o UnforeseenThe conditions in the financial markets and economic conditions
generally, as well as unforeseen future events surrounding the trust, assetwealth
management and
brokerage business, including competition and related pricing of
brokerage, trust and asset management products, or difficulties integrating the acquisition
of the Wayne Hummer Companies.products.
- 3935 -
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As a continuing part of its financial strategy, the Company attempts to manage
the impact of fluctuations in market interest rates on net interest income. This
effort entails providing a reasonable balance between interest rate risk, credit
risk, liquidity risk and maintenance of yield. Asset-liability management
policies are established and monitored by management in conjunction with the
boards of directors of the Banks, subject to general oversight by the Company's
Board of Directors. The policy establishes guidelines for acceptable limits on
the sensitivity of the market value of assets and liabilities to changes in
interest rates.
Interest rate risk arises when the maturity or repricing periods and interest
rate indices of the interest earning assets, interest bearing liabilities, and
derivative financial instruments are different. It is the risk that changes in
the level of market interest rates will result in disproportionate changes in
the value of, and the net earnings generated from, the Company's interest
earning assets, interest bearing liabilities and derivative financial
instruments. The Company continuously monitors not only the organization's
current net interest margin, but also the historical trends of these margins. In
addition, management attempts to identify potential adverse swings in net
interest income in future years, as a result of interest rate movements, by
performing simulation analysis of potential interest rate environments. If a
potential adverse swing in net interest margin and/or net income is identified,
management then would take appropriate actions with its asset-liability
structure to counter these potentially adverse situations. Please refer to
the "Net Interest Income" sectionearlier sections of this discussion and analysis for further discussion of the
net interest margin.
SinceAs the Company's primary source of interest bearing liabilities is customer
deposits, the Company's ability to manage the types and terms of such deposits
may be somewhat limited by customer preferences and local competition in the
market areas in which the Company operates. The rates, terms and interest rate
indices of the Company's interest earning assets result primarily from the
Company's strategy of investing in loans and short-term securities that permit
the Company to limit its exposure to interest rate risk, together with credit
risk, while at the same time achieving an acceptable interest rate spread.
One method utilized by financial institutions to manage interest rate risk is to
enter into derivative financial instruments. A derivative financial instrument
includes interest rate swaps, interest rate caps and floors, futures, forwards,
option contracts and other financial instruments with similar characteristics.
As of June 30, 2002, the Company had $125 million notional principal amount of
interest rate cap contracts outstanding that mature between July 2002 and
February 2003. These contracts were purchased to mitigate the effect of rising
rates on certain floating rate deposit products. Additionally, during 2001, the
Company entered into a $25 million notional principal amount interest rate swap
contract that matures in February 2004. This contract effectively converts a
portion of the Company's floating-rate notes payable to a fixed-rate basis, thus
reducing the impact of rising interest rates on future interest expense.
During the first six months of 2002, the Company also entered into certain
covered call option transactions related to certain securities held by the
Company. These transactions are designed to increase the total return associated
with holding these securities as earning assets and are not used to manage
exposure to changing market interest rates. However, theThe Company's exposure to interest rate risk may be effected by these transactions. To mitigate this risk,
the Company may acquire fixed rate term debt or use financial derivative
instruments. There were no call options outstanding as of June 30, 2002.
The Company's exposure to market risk is reviewed on a regular basis by
management and the boards of directors of the Banks and the Company. The
objective is to measure the effect on net interest income and to adjust balance sheet and
off-balance sheetderivative financial instruments to minimize the inherent risk while at the same
time maximizemaximizing net interest income. Tools used by management include a standard
gap reportanalysis and a rate simulation model whereby changes in net interest income
are measured in the event of various changes in interest rate indices. An
institution with more assets than liabilities repricing over a given time frame
is considered asset sensitive and will generally benefit from rising rates, and
conversely, a higher level of repricing liabilities versus assets would be
beneficial in a declining rate environment.
- 40 -
Standard gap analysis starts with contractual repricing information for assets,
liabilities and derivative financial instruments. These items are then combined
with repricing estimations for administered rate (NOW, savings and money market
accounts) and non-rate related products (demand deposit accounts, other assets,
other liabilities.liabilities). These estimations recognize the relative insensitivity of
these accounts to changes in market interest rates, as demonstrated through
current and historical experiences. Also included are estimates for those items
that are likely to materially change their payment structures in different rate
environments, including residential loan products, certain commercial and
commercial real estate loans and certain mortgage-related securities. Estimates
for these sensitivities are based on industry assessments and are substantially
driven by the differential between the contractual coupon of the item and
current market rates for similar products.
- 36 -
The following table illustrates the Company's estimated interest rate
sensitivity and periodic and cumulative gap positions as of June
30, 2002:March 31, 2003:
TIME TO MATURITY OR REPRICING
------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------
Time to Maturity or Repricing
------------------------------------------------------------------
0-90 91-365 1-5 Over 5
(Dollars in thousands) Days Days Years Years Total
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
LiquidityFederal funds sold and securities purchased under
resale agreements $ 331,640 $ -- $ -- $ -- $ 331,640
Interest-bearing deposits with banks 4,870 -- -- -- 4,870
Available-for-sale securities 280,496 80,839 45,879 96,976 504,190
--------------------------------------------------------------------
Total liquidity management assets $ 263,225 $ 64,508 $ 95,263 $ 156,469 $ 579,465617,006 80,839 45,879 96,976 840,700
Loans, net of unearned income (1) 1,390,909 435,528 469,743 40,500 2,336,6801,750,714 482,465 448,342 43,309 2,724,830
Other earning assets 73,46241,182 -- -- -- 73,462
-----------------------------------------------------------------------41,182
--------------------------------------------------------------------
Total earning assets 1,727,596 500,036 565,006 196,969 2,989,6072,408,902 563,304 494,221 140,285 3,606,712
Other non-earning assets -- -- -- 229,793 229,793
-----------------------------------------------------------------------308,283 308,283
--------------------------------------------------------------------
Total assets (RSA) $ 1,727,5962,408,902 $563,304 $494,221 $ 500,036 $565,006448,568 $ 426,762 $ 3,219,400
=======================================================================3,914,995
--------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits (2) $ 1,300,1641,610,010 $654,511 $683,267 $ 648,508 $385,8199,300 $ 16,718 $ 2,351,2092,957,088
Federal Home Loan Bank advances -- -- 115,000 25,000121,000 19,000 140,000
Notes payable and other borrowings 130,36288,643 -- -- -- 130,36288,643
Subordinated note 25,000 -- -- -- 25,000
Long-term Debt - Trust Preferred Securities -- -- -- 51,050 51,050
-----------------------------------------------------------------------51,004 51,004
--------------------------------------------------------------------
Total interest-bearing liabilities 1,723,653 654,511 804,267 79,304 3,261,735
Demand deposits -- -- -- 257,298 257,298313,207 313,207
Other liabilities -- -- -- 83,482 83,482101,148 101,148
Shareholders' equity -- -- -- 205,999 205,999238,905 238,905
EFFECT OF DERIVATIVE FINANCIAL INSTRUMENTS:
Interest rate swap (Company pays fixed, receives floating) (25,000)(50,000) 25,000 -- 25,000 --
Interest rate swap (Company pays floating, receives fixed) 31,050 (31,050) -- ------------------------------------------------------------------------- --
--------------------------------------------------------------------
Total liabilities and shareholders' equity including effect
of derivative financial instruments (RSL) $ 1,405,5261,704,703 $648,461 $804,267 $ 648,508 $525,819757,564 $ 639,547 $ 3,219,400
=======================================================================3,914,995
--------------------------------------------------------------------
Repricing gap (RSA - RSL) $ 322,070704,199 $ (148,472)(85,157) $ 39,187 $(212,785)(310,046) $(308,996)
Cumulative repricing gap $ 322,070 $ 173,598 $212,785704,199 $619,042 $308,996 $ --
Cumulative RSA/Cumulative RSL 123% 108% 108%141% 126% 110%
Cumulative RSA/Total assets 54% 69% 87%62% 76% 89%
Cumulative RSL/Total assets 44% 64% 80%60% 81%
Cumulative GAP/Total assets 10% 5% 7%18% 16% 8%
Cumulative GAP/Cumulative RSA 19% 8% 8%29% 21% 9%
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(1) Loans, net of unearned income, includesinclude mortgages held for sale and
nonaccrual loans.
(2) Non-contractual interest-bearing deposits are subject to immediate
withdrawal and, therefore, are included in 0-90 days.
While the gap position and related ratios illustrated in the table are useful
tools that management can use to assess the general positioning of the Company's
and its subsidiaries' balance sheets, it is only as of a point in time.
Additionally, the gap position does not reflect the impact of the interest rate
cap contracts that may mitigate the effect of rising rates on certain floating
rate deposit products. See Note 10-Derivative Financial Instruments to the
unaudited consolidated financial statements for further information on the
interest rate cap contracts.
- 4137 -
Management uses an additional measurement tool to evaluate its asset-liability
sensitivity that determines exposure to changes in interest rates by measuring
the percentage change in net interest income due to changes in interest rates
over a two-year time horizon. Management measures its exposure to changes in
interest rates using many different interest rate scenarios. One interest rate
scenario utilized is to measure the percentage change in net interest income
assuming an immediateinstantaneous permanent parallel shift in the yield curve of 200
basis points, both upward and downward. This analysis also includes the impact of both
interest rate cap agreements mentioned above. Utilizing this measurement concept, the
interest rate risk of the Company, expressed as a percentage change in net
interest income over a two-year time horizon due to changes in interest rates,
as of the dates shownat March 31, 2003, December 31, 2002 and March 31, 2002, is as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
+ 200 BASISBasis - 200 BASIS
POINTS POINTS
--------------- --------------Basis
Points Points
--------------------- --------------------
Percentage change in net interest income due to an immediate permanent 200 basis point parallel
shift in the yield curve:
(1)
JUNE 30, 2002 7.4 % (16.4) MARCH 31, 2003 6.9% (25.9)%
December 31, 2001 7.2 2002 7.5% (26.4)%
(11.4) %
June 30, 2001 4.7 % (7.0) March 31, 2002 6.9% (12.3)%
- -------------------------------------------------------------------------------------------------
(1) The June 30, 2002 and the December 31, 2001 200 basis point immediate
permanent downward parallel shift in the yield curve impacted a majority of
rate sensitive assets by the entire 200 basis points, while certain
interest-bearing deposits may already be at their floor, or reprice
significantly less than 200 basis points. This caused the results in a 200
basis point immediate permanent downward parallel shift in the yield curve,
to reflect a larger decrease in net interest income at June 30, 2002 and
December 31, 2001 compared to June 30, 2001.
------------------------------------------------------------------------------------------------------------------------------------
These results are based solely on an immediatea permanent parallel shift in the yield curve
and do not reflect the net interest income sensitivity that may arise from other
factors, such as changes in the shape of the yield curve or the change in spread
between key market rates. NoThe above results are conservative estimates due to
the fact that no management actionsaction to mitigate potential changes in net interest
income are included in this simulation.simulation process. These management actions could
include, but would not be limited to, delaying a change in deposit rates,
extending the maturitymaturities of liabilities, the use of derivative financial
instruments, changing the pricing characteristics of loans or modifying the
growth rate of certain types of assets or liabilities.
As the table above shows, management has positioned the balance sheet so that
the Company benefits from a rise in interest rates and believes this is a
prudent position. Until a rise in rates occurs, the Company is fortunate that
the business strategy provides a solid base to grow the deposit and loan
portfolios. This growth in the balance sheet has helped fuel earnings growth
despite the lower net interest margins. The Company also mitigates the net
interest margin pressure by realizing income from strong residential real estate
lending activity and by using income from covered call option transactions to,
in effect, hedge a portion of the reduced net interest income. Management
actively monitors the relationships between growth, net interest income and
other income to provide for earnings growth in a tough interest rate
environment.
One method utilized by financial institutions to manage interest rate risk is to
enter into derivative financial instruments. A derivative financial instrument
includes interest rate swaps, interest rate caps and floors, futures, forwards,
option contracts and other financial instruments with similar characteristics.
During 2001, the Company entered into a $25 million notional principal amount
interest rate swap contract that matures in February 2004. This contract
effectively converts a portion of the Company's floating-rate notes payable to a
fixed-rate basis, thus reducing the impact of rising interest rates on future
interest expense. During the fourth quarter of 2002, the Company renewed and
increased its revolving loan agreement, and completed a $25 million subordinated
debt agreement with an unaffiliated bank that qualifies as Tier II regulatory
capital. The Company also entered into two interest rate swap contracts in 2002.
A $25 million notional principal amount swap was entered into to convert the
newly issued subordinated note from variable-rate to fixed-rate. The swap
matures in 2012, and the notional principal amount is reduced $5 million
annually, beginning in 2008, to match the principal reductions on the
subordinated note. Additionally, a $31.05 million interest rate swap contract
was entered into to convert the Company's 9% Trust Preferred Securities from
fixed-rate to variable-rate. This swap has a termination date of September 30,
2028, and provides the counterparty with a call option on any date on or after
September 30, 2003. The call option in the swap coincides with the Company's
call option in the trust preferred securities. All of the Company's interest
rate swap contracts qualify as perfect hedges pursuant to SFAS 133.
During the first quarter of 2003, the Company also entered into certain covered
call option transactions related to certain securities held by the Company. The
Company uses these covered call option transactions (rather than entering into
other derivative interest rate contracts, such as interest rate floors), to
mitigate the effects of an asset-sensitive balance sheet in a falling rate
environment and increase the total return associated with the related
securities. Although the revenue from these covered call option transactions is
recorded as non-interest income rather than interest income, the increased
return
- 4238 -
attributable to the related securities from these transactions contributes to
the Company's overall profitability. The Company's exposure to interest rate
risk may be effected by these transactions. To mitigate this risk, the Company
may acquire fixed rate term debt or use financial derivative instruments. There
were no call options outstanding as of March 31, 2003.
ITEM 4
CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company's Chief
Executive Officer and Chief Financial Officer carried out an evaluation under
their supervision, with the participation of other members of management as they
deemed appropriate, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as contemplated by Exchange Act
Rule 13a-15. Based upon, and as of the date of that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective, in all material respects, in
timely alerting them to material information relating to the Company (and its
consolidated subsidiaries) required to be included in the periodic reports the
Company is required to file and submit to the SEC under the Exchange Act.
There have been no significant changes to the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date that the internal controls were most recently evaluated. There were no
significant deficiencies or material weaknesses identified in that evaluation
and, therefore, no corrective actions were taken.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 2: CHANGES IN SECURITIES.SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders was held on May 23, 2002.
(b) At the Annual Meeting of Shareholders, the following matters were submitted
to and approved by a vote of the shareholders:
(1) The election of eight Class III directors to the Board of Directors to hold
office for a three-year term expiring in 2005.
Votes Withheld
Director Nominees For Authority
------------------------------------------------------ ----------------- ----------------
Joseph Alaimo 13,771,661 275,568
Peter D. Crist 13,777,966 269,263
Philip W. Hummer 13,775,917 271,312
John S. Lillard 13,776,217 271,012
Hollis W. Rademacher 13,777,123 270,106
John N. Schaper 13,694,928 352,301
John J. Schornack 13,773,270 273,959
Larry V. Wright 13,777,072 270,187
All director nominees were re-elected at the Annual Meeting. The following
directors continued to serve after the Annual Meeting:
Continuing Director Term Expires
------------------------------------------------------ -----------------
James B. McCarthy 2003
Raymond L. Kratzer 2003
Dorothy M. Mueller 2003
Thomas J. Neis 2003
Penelope J. Randel 2003
J. Christopher Reyes 2003
Peter R. Rusin 2003
Edward J. Wehmer 2003
Bruce K. Crowther 2004
Bert A. Getz, Jr. 2004
William C. Graft 2004
Marguerite Savard McKenna 2004
Albin F. Moschner 2004
Christopher J. Perry 2004
Ingird S. Stafford 2004
Katharine V. Sylvester 2004
None
- 4339 -
(2) A proposal to amend the Wintrust Financial Corporation 1997 Stock Incentive
Plan to increase the number of shares authorized under the Plan.
Votes For Votes Against Abstentions
-------------------- --------------------------- ------------------------
8,242,833 3,272,449 64,231
ITEM 5: OTHER INFORMATION.
None.
- 44 -
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
3.1 Amended and Restated Articles of Incorporation of Wintrust Financial
Corporation (incorporated by reference to Exhibit 3.1 of the Company's
Form S-1 Registration Statement (No. 333-18699) filed with the
Securities and Exchange Commission on December 24, 1996).
3.2 Statement of Resolution Establishing Series of Junior Serial Preferred
Stock A of Wintrust Financial Corporation (incorporated by reference to
Exhibit 3.2 of the Company's Form 10-K for the year ended December 31,
1998).
3.3 Amended and Restated By-laws of Wintrust Financial Corporation
4.1 Rights Agreement between Wintrust Financial Corporation and Illinois
Stock Transfer Company, as Rights Agent, dated July 28, 1998
(incorporated by reference to Exhibit 4.1 of the Company's Form 8-A
Registration Statement (No. 000-21923) filed with the Securities and
Exchange Commission on August 28, 1998).
4.2 Certain instruments defining the rights of holders of long-term debt of
the Company and certain of its subsidiaries, none of which authorize a
total amount of indebtedness in excess of 10% of the total assets of the
Company and its subsidiaries on a consolidated basis, have not been
filed as Exhibits. The Company hereby agrees to furnish a copy of any of
these agreements to the Commission upon request.
99.1 Certification of President and Chief Executive Officer and Executive
Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Reports on Form 8-K.
- -------------------
- Form 8-K report filed with the SEC on January 16, 2003, provided the
Company's first quarter 2003 earnings release dated January 16, 2003.
- Form 8-K report filed with the SEC on February 4, 2003, provided the
Company's press release dated February 4, 2003 announcing the
consummation of the previously announced acquisition of Lake Forest
Capital Management Company.
- 40 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINTRUST FINANCIAL CORPORATION
(Registrant)
Date: May 14, 2003 /s/ DAVID L. STOEHR
-------------------
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
- 41 -
CERTIFICATIONS
- --------------
I, Edward J. Wehmer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wintrust Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 14, 2003
/s/ EDWARD J. WEHMER
--------------------------------------------
Name: Edward J. Wehmer
Title: President and Chief Executive Officer
- 42 -
CERTIFICATIONS
- --------------
I, David L. Stoehr, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wintrust Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 14, 2003
/s/ DAVID L. STOEHR
---------------------------------
Name: David L. Stoehr
Title: Executive Vice President
and Chief Financial Officer
- 43 -
EXHIBIT INDEX
-------------
3.1 Amended and Restated Articles of Incorporation of Wintrust Financial
Corporation (incorporated by reference to Exhibit 3(i)3.1 of the Company's
Form 10-QS-1 Registration Statement (No. 333-18699) filed with the Securities
and Exchange Commission on December 24, 1996).
3.2 Statement of Resolution Establishing Series of Junior Serial Preferred
Stock A of Wintrust Financial Corporation (incorporated by reference to
Exhibit 3.2 of the Company's Form 10-K for the quarteryear ended June 30,December 31,
1998).
3.3 Amended and Restated By-laws of Wintrust Financial Corporation.
4.1 Rights Agreement between Wintrust Financial Corporation and Illinois Stock
Transfer Company, as Rights Agent, dated July 28, 1998 (incorporated by
reference to Exhibit 4.1 of the Company's Form 8-A Registration Statement
(No. 000-21923) filed with the Securities Exchange Commission on August
28, 1998).
4.2 Certain instruments defining the rights of holders of long-term debt of
the Company and certain of its subsidiaries, none of which authorize a
total amount of indebtedness in excess of 10% of the total assets of the
Company and its subsidiaries on a consolidated basis, have not been filed
as Exhibits. The Company hereby agrees to furnish a copy of any of these
agreements to the Commission upon request.
99.1 Certification of President and Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Seniorand Executive Vice
President Chief Operating
Officer & Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
--------------------
- - Form 8-K report dated April 19, 2002, filed with the SEC on May 3,
2002, provided the Company's first quarter 2002 earnings release dated
April 19, 2002 and included a copy of the Company's letter to
shareholders mailed in May 2002.
- 45 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINTRUST FINANCIAL CORPORATION
(Registrant)
Date: August 14, 2002 /s/ EDWARD J. WEHMER
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President & Chief Executive Officer
Date: August 14, 2002 /s/ DAVID A. DYKSTRA
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Senior Executive Vice President
Chief Operating Officer &
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 2002 /s/ DAVID L. STOEHR
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Senior Vice President - Finance
(Principal Accounting Officer)
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EXHIBIT INDEX
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3.1 Amended and Restated Articles of Incorporation of Wintrust Financial
Corporation (incorporated by reference to Exhibit 3.1 of the Company's
Form S-1 Registration Statement (No. 333-18699) filed with the
Securities and Exchange Commission on December 24, 1996).
3.2 Statement of Resolution Establishing Series of Junior Serial Preferred
Stock A of Wintrust Financial Corporation (incorporated by reference to
Exhibit 3.2 of the Company's Form 10-K for the year ended December 31,
1998).
3.3 Amended By-laws of Wintrust Financial Corporation (incorporated by
reference to Exhibit 3(i) of the Company's Form 10-Q for the quarter
ended June 30, 1998).
4.1 Rights Agreement between Wintrust Financial Corporation and Illinois
Stock Transfer Company, as Rights Agent, dated July 28, 1998
(incorporated by reference to Exhibit 4.1 of the Company's Form 8-A
Registration Statement (No. 000-21923) filed with the Securities
Exchange Commission on August 28, 1998).
4.2 Certain instruments defining the rights of holders of long-term debt of
the Company and certain of its subsidiaries, none of which authorize a
total amount of indebtedness in excess of 10% of the total assets of
the Company and its subsidiaries on a consolidated basis, have not been
filed as Exhibits. The Company hereby agrees to furnish a copy of any
of these agreements to the Commission upon request.
99.1 Certification of President and Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Senior Executive Vice President, Chief Operating
Officer & Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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