Wintrust Financial Corporation
727 North Bank Lane, Lake Forest, Illinois 60045
August, 2001
Dear Shareholders,
This letter provides a brief update on our financial performance
through the second quarter of 2001 and other news of Wintrust Financial
Corporation. We have also attached the July 18, 2001 news release of our
earnings for the quarter ended June 30, 2001 for your information.
HIGHLIGHTS FOR SECOND QUARTER OF 2001
We again achieved record earnings for this quarter while deposit and
asset levels also hit new record highs. Here is a summary of our financial
results and accomplishments for the three months ending June 30, 2001:
o Net income reached $4.36 million for the quarter ended June 30, 2001,
an increase of 31% over the second quarter of 2000;
o On a per share basis, net income totaled $0.48 per diluted common share
for the second quarter of 2001, a 30% increase as compared to year ago;
o Return on average equity for the quarter increased to 16.21%, up from
13.86% for the prior year quarter;
o Total assets rose to $2.32 billion as of June 30, 2001, an increase of
$459 million, or 25%, compared to a year ago;
o Total deposits reached $2.06 billion as of June 30, 2001, an increase
of $426 million, or 26%, compared to June 30, 2000;
o Total loans grew to $1.81 billion as of June 30, 2001, an increase of
$405 million, or 29%, compared to a year ago;
o Our operating efficiency improved as evidenced by a decline in the net
overhead ratio to 1.61% from 1.89% in the prior year quarter; and
o We successfully completed an offering of 992,500 shares of common stock
at a price of $24.00 per share that generated net capital to the
company of approximately $22.2 million, after the deduction of expenses
and underwriting commissions.
INCOME AND EARNINGS
Although the interest rate environment continued to be volatile with
additional rate cuts by the Federal Reserve Bank during the second quarter, our
net interest income increased 21% as compared to the prior year but our net
interest margin declined slightly. The decline in the net interest margin is
primarily a function of the continuing decline in short-term interest rates in
an environment where rates are already relatively low. The large declines have
resulted in some compression in the spread between the rates on interest-bearing
liabilities and interest-earning assets. This compression results when deposit
rates cannot be reduced commensurate with changes in market rates. A good
example of this is to consider a drop of 2% in short-term interest rates and its
impact on certain assets and liabilities. In this example, our home equity
accounts and other prime rate based products would re-price down the full 2%;
however, rates paid on NOW accounts could not be lowered significantly since
they generally were paying approximately 1% before the rate drop. We attempt to
mitigate risk from changing interest rate environments and, given the current
interest rate situation, we do not expect to see significant fluctuations in the
net interest margin in future quarters
Non-interest income growth remains strong and increased to a total of
$7.4 million in the second quarter, an increase of 64% over the prior year. The
growth in this category was mainly a result of a higher level of fees from
originating and selling residential mortgage loans into the secondary market,
enhanced fee income received from covered call option transactions, and the
continued gains from the sale of excess premium finance receivables production.
Non-interest expenses totaled $16.3 million for the second quarter of
2001, representing a 26% increase over a year ago. These increases are
attributable to the general growth of the Company's balance sheet and costs
associated with supporting our additional fee revenue.
YEAR-TO-DATE PERFORMANCE VERSUS GOAL
At Wintrust, we set aggressive goals and evaluate our performance
versus those goals. We have made good progress towards achieving most of these
goals and expect continued improvement as our young franchises-- the de novo
community banks, and our other subsidiaries Wintrust Asset Management, First
Insurance Funding and Tricom--mature. As always, we believe in always being
accountable to you and sharing our results with you. Accordingly, the following
performance statistics indicate that we are making overall improvement in these
areas.
QUARTER ENDED
----------------------------------------------------------------------
JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30,
GOAL 2001 2001 2000 2000(1) 2000
---- ---- ---- ---- ---- ----
Core Net Interest Margin (2) 4 - 4.5% 3.84% 3.94% 3.93% 3.92% 3.94%
Net Overhead Ratio 1.5 - 2% 1.61% 1.75% 1.90% 1.90% 1.89%
Return on Average Equity 20 - 25% 16.21% 15.39% 15.44% 14.74% 13.86%
Return on Average Assets 1.5% 0.79% 0.75% 0.75% 0.75% 0.75%
Earnings per diluted
Common share $0.48 $0.44 $0.43 $0.41 $0.37
Non-Performing Assets
as a percent of total assets 0.55% 0.64% 0.46% 0.35% 0.33%
- ----------------------------
<FN>
(1) Excludes the impact of a one-time charge of to $2.7 million to its
third quarter earnings.
(2) By definition, our Core Net Interest Margin excludes the impact of
interest expense associated with the Company's Trust Preferred
Securities offerings.
</FN>
NON-PERFORMING ASSETS
Our core loan portfolio continued to be very solid. The level of
non-performing assets in our core banking loan portfolio remained low and very
manageable at $2.6 million, or 0.21% of the core banking loan portfolio. The
non-performing assets in the indirect auto portfolio remained fairly constant at
approximately $646,000, or 0.34% of that portfolio. The Tricom finance
receivable portfolio had only $112,000 of non-performing assets.
In our last quarterly communication to you, we spoke about the reasons
for the increase in the non-performing assets related to our premium finance
portfolio. We also presented an action plan for reducing the overall level of
those delinquent accounts. As of June 30, 2001, we are pleased to inform you
that the non-performing premium finance receivables decreased to $9.4 million,
or 2.71% of that portfolio from $10.8 million, or 3.22% of that portfolio as of
March 31, 2001. We continue to implement our corrective actions and are
continuing to devote the appropriate resources to further improve the level of
non-performing accounts in this portfolio. As such, the delinquency levels
should again show improvement during the third quarter.
CAPITAL OFFERING
In late June, we announced the closing of our offering of 992,500
shares of common stock at a price of $24.00 per share. Net proceeds to the
Company, after deducting the underwriting commissions and estimated expenses,
were approximately $22.2 million.
We always consider shareholder value and returns while managing this
organization. Accordingly, we take the issuance of additional capital seriously
because of the dilutive effects of such issuance. Prior to the recent common
stock offering, the Company's growth in deposits, loans and assets had fully
utilized our existing capital base. We needed to raise the additional capital in
order to continue to grow our community banking franchise in a marketplace that
we think still favors our style of personalized service and products.
The additional equity has helped to increase the liquidity of our stock
in the marketplace and raised our market capitalization to well over $200
million. Additionally, our Company was recently added to the Russell 2000 Index,
which is based on market capitalization. Wintrust's increased market
capitalization, liquidity and inclusion in the Russell 2000 Index increases its
visibility to a broad range of new institutional investors.
We are very pleased with the results of the offering and pledge to
utilize the additional capital in an effective manner.
STOCK PRICE IMPROVEMENT
We are also pleased with the recent improvement in our stock price. As
of the date of this writing (July 30, 2001), our stock price stood at $31.68 per
share. This represents an increase of 70% since the end of the first quarter and
98% since the beginning of 2001. Our common stock has clearly out-performed most
broad market indices during 2001 and we are certainly pleased with the result
but know very well that we must continue to perform and execute our strategy in
order for the market to continue to reward us for our results. So we will
continue to stay focused on balancing growth and profitability of our young
company.
EXPANSION ACTIVITIES
Our seventh separately chartered de novo bank, Northbrook Bank & Trust,
is off to a terrific start after opening in November 2000. At the writing of
this report, they have assets over $60 million and are on track to be the
fastest growing de novo bank in this Company's history. The gratifying aspect of
their remarkable growth is that it demonstrates that a good strategy with great
people and great service still works. NB&T is well along on construction of
their new permanent main bank facility at the corner of Shermer Road and
Waukegan Road. This new facility will bring much needed additional space along
with very accessible drive-through banking lanes. Their grand opening is
scheduled for early 2002.
We have also made good progress on a number of new branches for our
existing banks:
o Renovation of a new facility in Winnetka, which will upgrade our
facilities and add safe deposit boxes and an ATM, is almost completed.
That facility should be opened shortly.
o Construction is well along on Hoffman Estates Community Bank, a branch
of Barrington Bank & Trust. This full service facility with
drive-through lanes is scheduled to open within a couple of months.
o Our new McHenry Bank & Trust (a branch of Crystal Lake Bank & Trust) is
also growing rapidly. Since February 2001, they have grown deposits to
over $30 million and have certainly made their presence known in that
community. Construction will be starting soon on their permanent
location with attached drive-through lanes.
o Wauconda Community Bank, a branch of Libertyville Bank & Trust, is
moving ahead with construction of its new permanent main bank and
drive-through facility on our property centrally located across the
street from the big bank competitor in town.
o Property has been purchased in a suburb nearby Hinsdale, Illinois for a
new branch of Hinsdale Bank & Trust.
o We have also identified a number of other desirable market areas that
are currently under-served from a community banking perspective and are
pursuing those additional locations. We will keep you informed.
In addition to bank and branch expansion, we are actively looking to
assist in the growth of our trust and asset management subsidiary. We
continually look for solid management team members to bolster our asset
generation efforts and, just as we do on the banking side of the business, we
are also reviewing acquisitions of potential asset management companies. As
always, we will be disciplined and keep shareholder value in mind when
evaluating any potential acquisitions.
SUMMARY
In summary, we are very pleased with the continued growth in earnings
and assets in the second quarter. We are working diligently to continue our
unique growth story while improving our earnings level. We remain comfortable
that we will be able to meet or exceed the analysts' consensus earnings estimate
for 2001 of $1.84 per share.
Yours truly,
/s/ John S. Lillard /s/ Edward J. Wehmer
------------------- --------------------
John S. Lillard Edward J. Wehmer
Chairman President and CEO
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
This letter contains forward-looking statements related to the Company's
financial performance that are based on estimates. 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. Actual results could differ materially from those addressed
in the forward-looking statements due to factors such as changes in economic
conditions, competition, or other factors that may influence the anticipated
growth rate of loans and deposits, the quality of the loan portfolio and loan
and deposit pricing, unanticipated changes in interest rates that negatively
impact net interest income, future events that may cause unforeseen loan or
lease losses, slower than anticipated development and growth of Tricom and the
new trust and investment business, unanticipated changes in the temporary
staffing industry, the ability to adapt successfully to technological changes to
compete effectively in the marketplace, the ability to attract and retain
experienced senior management, and the ability to recover on the loss resulting
from the fraudulent loan scheme perpetrated against the Company's premium
finance subsidiary. Therefore, there can be no assurances that future actual
results will correspond to these forward-looking statements.
- --------------------------------------------------------------------------------
Wintrust Financial Corporation
727 North Bank Lane, Lake Forest, Illinois 60045
NEWS RELEASE
FOR IMMEDIATE RELEASE July 18, 2001
- ---------------------
FOR MORE INFORMATION CONTACT:
Edward J. Wehmer, President & Chief Executive Officer
David A. Dykstra, Executive Vice President & Chief Financial Officer
(847) 615-4096
Website address: www.wintrust.com
WINTRUST FINANCIAL CORPORATION REPORTS RECORD SECOND
----------------------------------------------------
QUARTER EARNINGS AHEAD 31% OVER PRIOR YEAR QUARTER
--------------------------------------------------
LAKE FOREST, ILLINOIS -- Wintrust Financial Corporation ("Wintrust")
(Nasdaq: WTFC) announced net income of $4.4 million for the quarter ended June
30, 2001, an increase of $1.0 million, or 31%, compared to $3.3 million recorded
in the second quarter of 2000. On a per share basis, net income for the second
quarter of 2001 totaled $0.48 per diluted common share, an increase of $0.11 per
share, or 30%, as compared to the 2000 second quarter total of $0.37 per diluted
common share. Return on average equity for the second quarter of 2001 rose to
16.21% versus 13.86% in the second quarter of 2000.
For the first six months of 2001, net income totaled $8.3 million, or
$0.92 per diluted common share, an increase of $1.8 million, or 28%, when
compared to the same period in 2000. Return on average equity for the first six
months of 2001 rose to 15.81% versus 13.58% for the same period of 2000.
Total assets rose to $2.32 billion at June 30, 2001, an increase of
$459 million, or 25%, compared to $1.86 billion a year ago, and an increase of
$219 million, or 10%, from $2.10 billion as of December 31, 2000. Total deposits
as of June 30, 2001 were $2.06 billion, an increase of $426 million, or 26%, as
compared to $1.63 billion as of June 30, 2000, and an increase of $229 million,
or 13%, from the December 31, 2000 balance of $1.83 billion. Total loans grew to
$1.81 billion as of June 30, 2001, a $405 million, or 29%, increase over the
$1.40 billion balance a year earlier, and a $248 million, or 16%, increase over
the $1.56 billion balance as of December 31, 2000.
"We are pleased with our financial results for the first half of
2001," stated Edward J. Wehmer, President and Chief Executive Officer. "Loan
growth is strong, our net interest margin is relatively stable and our
efficiency ratio continues to improve. We raised $22.2 million in additional
common equity in June to support our growth. We are
- more -
enthusiastic about the future and continue to work diligently to implement our
business strategy. We remain comfortable that we will be able to meet or exceed
the analysts' consensus earnings estimate for 2001 of $1.84 per share."
For the first six months of the year, Wintrust's key operating measures
continue to show significant growth rates in 2001 as compared to the prior year
as evidenced by the table below:
Six months Six months
ended ended
Dollars in thousands, except per share data 6/30/01 6/30/00 Improvement
------------------------------------------- ------- ------- -----------
Net income $ 8,267 $ 6,441 28.4%
Net income per common share - Diluted $ 0.92 $ 0.72 27.8%
Net revenues $49,532 $ 37,499 32.1%
Net interest income 35,291 28,717 22.9%
Net interest margin 3.63% 3.69% (1.6%)
Core net interest margin 3.89% 3.89% --
Net overhead ratio 1.68% 1.87% 10.2%
Efficiency ratio 65.05% 66.16% 1.7%
Return on average assets 0.77% 0.74% 4.1%
Return on average equity 15.81% 13.58% 16.4%
Total assets $2,322,083 $1,863,469 24.6%
Total loans, net of unearned income $1,806,306 $1,400,824 28.9%
Total deposits $2,055,345 $1,629,192 26.2%
Book value per common share $ 13.80 $ 11.22 23.0%
Market price per common share $ 24.85 $ 15.44 60.9%
Wintrust Financial Corporation was added to the Russell 2000 Index in
July 2001. Membership is based on market capitalization (share price multiplied
by the number of shares outstanding.) The Russell 2000 Index is a small-cap
benchmark used by investors and money managers for both passive and active
investment strategies. Wintrust's inclusion in the index increases the Company's
visibility to a broad range of new institutional investors.
Wintrust is a multi-bank holding company whose common stock is traded
on the Nasdaq Stock Market(R). Its seven suburban Chicago community bank
subsidiaries, each of which was founded as a de novo bank since December 1991,
are located in high income retail markets -- Lake Forest Bank and Trust Company,
Hinsdale Bank and Trust Company, North Shore Community Bank and Trust Company in
Wilmette, Libertyville Bank and Trust Company, Barrington Bank and Trust
Company, Crystal Lake Bank and Trust Company and Northbrook Bank and Trust
Company. The banks also operate facilities in Lake Bluff, Highwood, Glencoe,
Winnetka, Clarendon Hills, Western Springs, Skokie, Wauconda and McHenry,
Illinois. Additionally, the Company operates three non-bank subsidiaries. First
Insurance Funding Corporation, one of the largest commercial insurance premium
finance companies operating in the
- more -
United States, serves commercial loan customers throughout the country. Wintrust
Asset Management Company, N.A., a trust subsidiary, allows Wintrust to service
customers' trust and investment needs at each banking location. Tricom, Inc. of
Milwaukee, provides short-term accounts receivable financing and value-added
out-sourced administrative services, such as data processing of payrolls,
billing and cash management services, to temporary staffing service clients
located throughout the United States. Currently, Wintrust operates a total of 29
banking offices and is in the process of constructing several additional banking
facilities. All of the Company's banking subsidiaries are locally managed with
large local boards of directors. Wintrust Financial Corporation has been one of
the fastest growing de novo bank groups in Illinois.
# # #
WINTRUST FINANCIAL CORPORATION
SELECTED FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA
(AT END OF PERIOD):
Total assets $ 2,322,083 $ 1,863,469
Total deposits 2,055,345 1,629,192
Total loans, net of unearned income 1,806,306 1,400,824
Notes payable 25,000 4,850
Long-term debt - trust preferred securities 51,050 51,050
Total shareholders' equity 132,969 98,358
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED STATEMENTS OF INCOME DATA:
Net interest income $ 18,015 $ 14,849 $ 35,291 $ 28,717
Net revenues 25,406 19,353 49,532 37,499
Income before taxes and cumulative effect of accounting change 6,860 5,241 13,377 10,137
Net income before cumulative effect of accounting change 4,363 3,319 8,521 6,441
Net income 4,363 3,319 8,267 6,441
Net income per common share - Basic 0.50 0.38 0.96 0.73
Net income per common share - Diluted 0.48 0.37 0.92 0.72
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin 3.59% 3.73% 3.63% 3.69%
Core net interest margin (1) 3.84% 3.94% 3.89% 3.89%
Non-interest income to average assets 1.34% 1.01% 1.33% 1.01%
Non-interest expense to average assets 2.95% 2.90% 3.01% 2.88%
Net overhead ratio 1.61% 1.89% 1.68% 1.87%
Efficiency ratio 63.77% 66.01% 65.05% 66.16%
Return on average assets 0.79% 0.75% 0.77% 0.74%
Return on average equity 16.21% 13.86% 15.81% 13.58%
Average total assets $ 2,214,280 $ 1,786,976 $ 2,162,430 $ 1,745,635
Average shareholders' equity 107,981 96,310 105,428 95,363
Average loan-to-average deposit ratio 88.2% 87.6% 87.7% 88.2%
Common Share Data at end of period:
Market price per common share $ 24.85 $ 15.44
Book value per common share $ 13.80 $ 11.22
Common shares outstanding 9,637,410 8,763,880
Other Data at end of period:
Number of:
Bank subsidiaries 7 6
Non-bank subsidiaries 3 3
Banking offices 29 26
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The core net interest margin excludes the interest expense associated
with the Company's Trust Preferred Securities.
</FN>
- 1 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(In thousands)
JUNE 30, December 31, June 30,
2001 2000 2000
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 46,282 $ 65,413 $ 56,552
Federal funds sold and securities purchased under resale agreements 162,845 164,641 67,658
Interest-bearing deposits with banks 60 182 189
Available-for-Sale securities, at fair value 179,858 193,105 219,361
Loans, net of unearned income 1,806,306 1,558,020 1,400,824
Less: Allowance for possible loan losses 12,111 10,433 9,792
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 1,794,195 1,547,587 1,391,032
Premises and equipment, net 91,202 86,386 80,771
Accrued interest receivable and other assets 37,218 34,722 36,780
Goodwill and other intangible assets, net 10,423 10,770 11,126
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,322,083 $ 2,102,806 $ 1,863,469
==============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 205,414 $ 198,319 $ 173,967
Interest bearing 1,849,931 1,628,257 1,455,225
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 2,055,345 1,826,576 1,629,192
Short-term borrowings 15,217 43,639 46,783
Notes payable 25,000 27,575 4,850
Long-term debt - trust preferred securities 51,050 51,050 51,050
Accrued interest payable and other liabilities 42,502 51,690 33,236
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,189,114 2,000,530 1,765,111
- ------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock - - -
Common stock 9,637 8,857 8,850
Surplus 101,805 83,710 83,603
Common stock warrants 99 100 100
Treasury stock, at cost - (3,863) (1,314)
Retained earnings 21,500 13,835 9,554
Accumulated other comprehensive loss (72) (363) (2,435)
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 132,969 102,276 98,358
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,322,083 $ 2,102,806 $ 1,863,469
==============================================================================================================================
- 2 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 37,542 $ 31,064 $ 74,405 $ 59,802
Interest bearing deposits with banks 1 4 3 20
Federal funds sold and securities purchased under resale agreements 1,196 489 2,318 736
Securities 2,651 3,517 6,446 6,825
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest income 41,390 35,074 83,172 67,383
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 21,423 18,299 43,595 34,898
Interest on short-term borrowings and notes payable 664 1,093 1,710 2,200
Interest on long-term debt - trust preferred securities 1,288 833 2,576 1,568
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 23,375 20,225 47,881 38,666
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 18,015 14,849 35,291 28,717
Provision for possible loan losses 2,264 1,223 3,902 2,364
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 15,751 13,626 31,389 26,353
- ----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Fees on mortgage loans sold 1,948 742 3,472 1,225
Service charges on deposit accounts 606 479 1,153 948
Trust fees 523 494 973 966
Gain on sale of premium finance receivables 1,449 996 2,391 2,237
Administrative services revenue 1,121 1,141 2,142 2,154
Net securities gains (losses) 86 (28) 372 (25)
Other 1,658 680 3,738 1,277
- ----------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 7,391 4,504 14,241 8,782
- ----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 8,735 6,793 17,213 13,128
Occupancy, net 1,178 1,140 2,422 2,150
Equipment expense 1,582 1,137 3,066 2,286
Data processing 822 699 1,652 1,379
Advertising and marketing 426 322 733 571
Professional fees 534 357 1,065 652
Amortization of intangibles 169 179 347 357
Other 2,836 2,262 5,755 4,475
- ----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 16,282 12,889 32,253 24,998
- ----------------------------------------------------------------------------------------------------------------------------------
Income before taxes and cumulative effect of accounting change 6,860 5,241 13,377 10,137
Income tax expense 2,497 1,922 4,856 3,696
- ----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 4,363 3,319 8,521 6,441
Cumulative effect of change in accounting for derivatives, net of tax - - 254 -
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 4,363 $ 3,319 $ 8,267 $ 6,441
==================================================================================================================================
BASIC EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.50 $ 0.38 $ 0.99 $ 0.73
Cumulative effect of accounting change, net of tax - - 0.03 -
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ 0.50 $ 0.38 $ 0.96 $ 0.73
==================================================================================================================================
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.48 $ 0.37 $ 0.94 $ 0.72
Cumulative effect of accounting change, net of tax - - 0.03 -
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - DILUTED $ 0.48 $ 0.37 $ 0.92 $ 0.72
==================================================================================================================================
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.00 $ 0.00 $ 0.07 $ 0.05
==================================================================================================================================
Weighted average common shares outstanding 8,661 8,760 8,638 8,779
Dilutive potential common shares 462 211 391 212
- ----------------------------------------------------------------------------------------------------------------------------------
Average common shares and dilutive common shares 9,123 8,971 9,029 8,991
==================================================================================================================================
- 3 -
NET INTEREST INCOME
The following table presents a summary of the Company's net interest income and
related net interest margin, calculated on a fully taxable equivalent basis for
the quarters ended June 30, 2001 and 2000:
FOR THE QUARTER ENDED For the Quarter Ended
JUNE 30, 2001 June 30, 2000
------------------------------------------ ---------------------------------------
(dollars in thousands) AVERAGE INTEREST RATE Average Interest Rate
- ---------------------- ---------------- ------------- ----------- --------------- ------------- ---------
Liquidity management assets (1) (2) $ 302,848 $ 3,863 5.12% $ 249,621 $ 4,038 6.51%
Loans, net of unearned income (2) 1,735,696 37,741 8.72 1,367,470 31,181 9.17
---------------- ------------- ----------- --------------- ------------- ---------
Total earning assets 2,038,544 41,604 8.19% 1,617,091 35,219 8.76%
---------------- ------------- ----------- --------------- ------------- ---------
Interest-bearing deposits 1,769,910 21,423 4.85% 1,399,332 18,299 5.26%
Short-term borrowings and notes payable 46,915 664 5.68 70,450 1,093 6.24
Long-term debt - trust preferred securities 51,050 1,288 10.09 34,610 833 9.63
---------------- ------------- ----------- --------------- ------------- ---------
Total interest-bearing liabilities 1,867,875 23,375 5.02% 1,504,392 20,225 5.41%
---------------- ------------- ----------- --------------- ------------- ---------
Tax equivalent net interest income $ 18,229 $ 14,994
============= =============
Net interest margin 3.59% 3.73%
=========== =========
Core net interest margin(3) 3.84% 3.94%
=========== =========
- -------------------------------
<FN>
(1) Liquidity management assets include 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%. This total adjustment is $214,000 and $145,000 for the
quarters ended June 30, 2001 and 2000, respectively.
(3) The core net interest margin excludes the interest expense associated
with the Company's Trust Preferred Securities.
</FN>
The following table presents a summary of the Company's net interest income and
related net interest margin, calculated on a fully taxable equivalent basis for
the six-month periods ended June 30, 2001 and 2000:
FOR THE SIX MONTHS ENDED For the Six Months Ended
JUNE 30, 2001 June 30, 2000
------------------------------------------ ---------------------------------------
(dollars in thousands) AVERAGE INTEREST RATE Average Interest Rate
- ---------------------- ---------------- ------------- ----------- --------------- ------------- ---------
Liquidity management assets (1) (2) $ 310,887 $ 8,796 5.71% $ 239,279 $ 7,619 6.40%
Loans, net of unearned income (2) 1,674,309 74,795 9.01 1,340,473 60,025 9.01
---------------- ------------- ----------- --------------- ------------- ---------
Total earning assets 1,985,196 83,591 8.49% 1,579,752 67,644 8.61%
---------------- ------------- ----------- --------------- ------------- ---------
Interest-bearing deposits 1,720,246 43,595 5.11% 1,366,164 34,898 5.14%
Short-term borrowings and notes payable 57,348 1,710 6.01 72,472 2,200 6.10
Long-term debt - trust preferred securities 51,050 2,576 10.09 32,830 1,568 9.55
---------------- ------------- ----------- --------------- ------------- ---------
Total interest-bearing liabilities 1,828,644 47,881 5.28% 1,471,466 38,666 5.28%
---------------- ------------- ----------- --------------- ------------- ---------
Tax equivalent net interest income $ 35,710 $ 28,978
============= =============
Net interest margin 3.63% 3.69%
=========== =========
Core net interest margin(3) 3.89% 3.89%
=========== =========
- -------------------------------
<FN>
(1) Liquidity management assets include 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%. This total adjustment is $419,000 and $261,000 for the
six-month periods ended June 30, 2001 and 2000, respectively.
(3) The core net interest margin excludes the interest expense associated
with the Company's Trust Preferred Securities.
</FN>
- 4 -
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 the Company. Tax-equivalent net interest income for the
quarter ended June 30, 2001 totaled $18.2 million, an increase of $3.2 million,
or 22%, as compared to the $15.0 million recorded in the same quarter of 2000.
This increase mainly resulted from loan growth. Tax-equivalent interest and fees
on loans for the quarter ended June 30, 2001 totaled $37.7 million, an increase
of $6.6 million, or 21%, over the prior year quarterly total of $31.2 million.
This growth was predominantly due to a $368 million, or 27%, increase in average
total loans.
Net interest margin represents net interest income as a percentage of the
average earning assets during the period. For the second quarter of 2001, the
net interest margin was 3.59%, a decrease of 14 basis points when compared to
the margin of 3.73% in the prior year quarter. This decrease resulted primarily
from the effects of continued decreases in short-term rates causing some
compression in the spread between the rates on interest bearing liabilities and
interest earning assets. Compression results when deposit rates cannot be
reduced commensurate with changes in market rates due to the rates paid on
certain deposit accounts being lower than the change in the market rates. The
core net interest margin, which excludes the interest expense on the Company's
trust preferred securities, was 3.84% for the second quarter of 2001, and
decreased ten basis points when compared to the prior year quarterly core margin
of 3.94%.
The rate paid on interest-bearing deposits averaged 4.85% for the second quarter
of 2001 versus 5.26% for the same quarter of 2000, a decrease of 41 basis
points. This decrease was caused primarily by continued decreases in market
rates. The rate paid on short-term borrowings and notes payable decreased 56
basis points to 5.68% in the second quarter of 2001 as compared to 6.24% in the
same quarter of 2000. The rate on the trust preferred securities in the second
quarter of 2001 was 10.09%, compared to 9.63% in the same period of 2000. The
increase was due to the issuance of $20.0 million of 10.5% trust preferred
securities in June 2000.
The yield on total earning assets for the second quarter of 2001 was 8.19% as
compared to 8.76% in 2000, a decrease of 57 basis points resulting primarily
from decreases in the prime lending rate and general market rate decreases on
liquidity management assets. The second quarter 2001 loan yield of 8.72%
decreased 45 basis points when compared to the prior year quarterly yield of
9.17% and was due primarily to lower market rates. The average prime lending
rate during the second quarter of 2001 was 7.34% reflecting a decrease of 190
basis points compared to the average prime lending rate of 9.24% for the second
quarter of 2000. The Company's loan portfolio does not re-price in a parallel
fashion to changes in the prime rate due to a portion of the portfolio being
longer-term fixed rate loans.
For the first six months of 2001, tax equivalent net interest income totaled
$35.7 million and increased $6.7 million, or 23%, over the $29.0 million
recorded in the same period of 2000. This increase was mainly due to the growth
in the Company's earning asset base. Interest and fees on loans, on a tax
equivalent basis, totaled $74.8 million for the first six months of 2001, and
increased $14.8 million, or 25%, over the same period of 2000. Average loans for
the first six months of 2001 grew $334 million, or 25%, over the average for the
first six months of 2000. The net interest margin for the first six months of
2001 was 3.63%, a decrease of six basis points when compared to the same period
in 2000. The core net interest margin for the first six months of 2001 was
3.89%, unchanged from the same period of 2000. Consistent with the second
quarter margin, the year-to-date margin decrease was mainly the result of
sustained decreases in short-term interest rates.
- 5 -
NON-INTEREST INCOME
For the second quarter of 2001, non-interest income totaled $7.4 million and
increased $2.9 million, or 64%, over the prior year quarter. Significant
increases were realized in fees from the origination and sale of mortgage loans
into the secondary market and income from certain covered call option
transactions.
Fees on mortgage loans sold include income from originating and selling
residential real estate loans into the secondary market. For the quarter ended
June 30, 2001, these fees totaled $1.9 million, an increase of $1.2 million, or
163%, from the prior year quarter. This increase was due to significantly higher
levels of mortgage origination volumes, particularly refinancing activity,
caused by the recent decreases in mortgage interest rates. Management
anticipates that the high levels of refinance activity have peaked and may taper
off to more normalized levels during the second half of 2001 barring any further
reductions in mortgage interest rates.
The administrative services revenue contributed by Tricom added $1.1 million to
total non-interest income in the second quarter of 2001 and was relatively
consistent with the level of revenue in the prior year quarter. This revenue
comprises income from administrative services, such as data processing of
payrolls, billing and cash management services, to temporary staffing service
clients located throughout the United States. The revenue growth at Tricom has
stagnated in recent quarters due to the general slowdown in the economy and the
reduction in the placement of temporary staffing individuals by Tricom's
customers. 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.
As a result of continued strong loan originations during the second quarter of
2001, the Company sold approximately $72 million of premium finance receivables
to an unrelated third party and recognized gains of $1.4 million related to this
activity, compared to the sale of $62 million of premium finance receivables in
the second quarter of 2000 that resulted in gains of $996,000. The Company
currently has a philosophy of maintaining its average loan-to-deposit ratio in
the range of 85-90%. During the second quarter of 2001, the ratio was
approximately 88%. Accordingly, the Company sold excess premium finance
receivables volume to an unrelated third party financial institution. 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.
Service charges on deposit accounts totaled $606,000 for the second quarter of
2001, an increase of $127,000, or 27%, when compared to the same quarter of
2000. This increase was due to a higher deposit base and a larger 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.
Trust fees totaled $523,000 for the second quarter of 2001, a $29,000, or 6%,
increase over the same quarter of 2000. The down-turn in the stock market over
the past year has had a slight negative impact on the valuation of the equity
securities under management and the fees earned thereon. Wintrust is committed
to growing the trust and investment business in order to better service its
customers and create a more diversified revenue stream. However, as the
introduction of expanded trust and investment services continues to unfold, it
is expected that overhead levels will be high when compared to the fee income
that is generated. It is anticipated that trust fees will eventually increase to
a level sufficient to absorb this overhead within the next few years.
- 6 -
Other non-interest income for the second quarter of 2001 totaled $1.7 million
and increased $978,000, or 144%, over the prior year quarterly total of
$680,000. This increase was due primarily to a $794,000 increase in premium
income from certain covered call option transactions. The Company routinely
enters into these transactions with the goal of enhancing its overall return on
its investment portfolio. The Company generally writes the call options against
certain U.S. Treasury and agency issues held in its portfolio for liquidity and
other purposes. Also contributing to the increase in other non-interest income
was a $140,000 increase in rental income from equipment leases.
For the first six months of 2001, total non-interest income was $14.2 million
and increased $5.5 million, or 62%, when compared to the same period in 2000.
This increase was primarily the result of a $2.2 million increase in fees from
the sale of mortgage loans and a $2.0 million increase in premium income from
covered call option transactions. Also contributing to the increase in other
non-interest income were increases of $397,000 in securities gains, $290,000 in
rental income from equipment leases, $205,000 in deposit service charges, and
$154,000 in gains on the sale of premium finance receivables.
NON-INTEREST EXPENSE
Non-interest expense for the second quarter of 2001 totaled $16.3 million and
increased $3.4 million, or 26%, from the second quarter 2000 total of $12.9
million. The continued growth and expansion of the de novo banks with additional
branches, the opening of the Company's seventh de novo bank (Northbrook Bank &
Trust) in November 2000 and the growth in the premium finance business were the
primary causes for this increase. Since June 30, 2000, total deposits have grown
26% and total loan balances have risen 29%, requiring higher levels of staffing
and other costs to both attract and service the larger customer base.
Salaries and employee benefits expense totaled $8.7 million for the second
quarter of 2001, an increase of $1.9 million, or 29%, as compared to the prior
year quarter total of $6.8 million. This increase was primarily due to increases
in commissions paid related to fees on mortgage loans sold, the opening of
Northbrook Bank & Trust and three additional banking offices and increased
staffing at the Company's premium finance subsidiary.
Other categories of non-interest expense, such as occupancy costs, equipment
expense and data processing, also increased over the prior year quarter due to
the general growth of the Company and the opening of several new banking
facilities. Other non-interest expense, which includes loan expenses,
correspondent bank service charges, postage, insurance, stationary and supplies
and other sundry expenses, also increased when compared to the prior year
quarter due mainly to the factors mentioned earlier.
On a year-to-date basis, non-interest expense totaled $32.3 million and
increased $7.3 million, or 29%, over the first six months of 2000. This increase
was predominantly due to the continued growth of loan and deposit accounts, the
opening of additional banking offices, increases in commissions paid to mortgage
loan originators and increased staffing at the Company's premium finance
subsidiary. Despite this growth and the related increases in many of the
non-interest expense categories, Wintrust's ratio of non-interest expense to
total average assets of 3.01% for the first six months of 2001 is favorable to
the Company's most recent peer group ratio.
- 7 -
ASSET QUALITY
Allowance for Possible Loan Losses
A reconciliation of the activity in the balance of the allowance for possible
loan losses for the three and six months ended June 30, 2001 and 2000 is shown
as follows (dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
------------------- ---------------- ----------------- -----------------
Balance at beginning of period $ 11,067 $ 9,359 $ 10,433 $8,783
Provision for possible loan losses 2,264 1,223 3,902 2,364
Charge-offs
-----------
Core banking loans 301 316 408 446
Indirect automobile loans 203 320 490 631
Tricom receivables -- 73 -- 73
Premium finance receivables 836 158 1,548 359
------------------- ---------------- ----------------- -----------------
Total charge-offs 1,340 867 2,446 1,509
Recoveries
----------
Core banking loans 2 3 4 11
Indirect automobile loans 35 30 89 73
Tricom receivables -- -- -- --
Premium finance receivables 83 44 129 70
------------------- ---------------- ----------------- -----------------
Total recoveries 120 77 222 154
------------------- ---------------- ----------------- -----------------
Net charge-offs (1,220) (790) (2,224) (1,355)
------------------- ---------------- ----------------- -----------------
Balance at June 30 $ 12,111 $ 9,792 $12,111 $9,792
=================== ================ ================= =================
Loans at June 30 $1,806,306 $1,400,824
================= =================
Allowance as a percentage of loans 0.67% 0.70%
================= =================
Annualized net charge-offs as a percentage of average:
Core banking loans 0.07% 0.11%
Indirect automobile loans 0.42% 0.45%
Tricom receivables -- 0.78%
Premium finance receivables 0.81% 0.23%
----------------- -----------------
Total loans 0.27% 0.20%
================= =================
Annualized provision for
possible loan losses 57.00% 57.32%
================= =================
The provision for possible loan losses totaled $2.3 million for the second
quarter of 2001, an increase of $1.0 million, compared to the second quarter of
2000. For the first six months of 2001, the provision totaled $3.9 million and
increased $1.5 million from the prior year total. The higher provisions in 2001
were the result of overall growth in the loan portfolio of 29% compared to June
30, 2000 and a higher level of net charge-offs for the first six months of 2001
compared to 2000 in the premium finance receivables portfolio.
- 8 -
Management believes the allowance for possible loan losses is adequate to
provide for losses inherent in the portfolio. There can be no assurances,
however, that future losses will not exceed the amounts provided for, thereby
affecting future results of operations. The amount of future additions to the
allowance for possible 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.
Past Due Loans and Non-performing Assets
- ----------------------------------------
The following table sets forth the Company's non-performing assets at the dates
indicated. The information in the table should be read in conjunction with the
detailed discussion following the table (dollars in thousands).
JUNE 30, March 31, December 31, June 30,
2001 2001 2000 2000
---- ---- ---- ----
Past Due greater than 90 days
and still accruing:
Core banking loans $ 1,255 $ 1,778 $ 651 $ 438
Indirect automobile loans 372 350 397 362
Tricom receivables -- -- -- --
Premium finance receivables 2,982 4,881 4,306 1,817
----------------- ------------------ ----------------- ----------------
Total 4,609 7,009 5,354 2,617
----------------- ------------------ ----------------- ----------------
Non-accrual loans:
Core banking loans 1,389 720 770 626
Indirect automobile loans 274 234 221 391
Tricom receivables 112 112 -- --
Premium finance receivables 6,392 5,872 3,338 2,548
----------------- ------------------ ----------------- ----------------
Total non-accrual loans 8,167 6,938 4,329 3,565
----------------- ------------------ ----------------- ----------------
Total non-performing loans:
Core banking loans 2,644 2,498 1,421 1,064
Indirect automobile loans 646 584 618 753
Tricom receivables 112 112 -- --
Premium finance receivables 9,374 10,753 7,644 4,365
----------------- ------------------ ----------------- ----------------
Total non-performing loans 12,776 13,947 9,683 6,182
----------------- ------------------ ----------------- ----------------
Other real estate owned 100 -- -- --
----------------- ------------------ ----------------- ----------------
Total non-performing assets $ 12,876 $ 13,947 $ 9,683 $ 6,182
================= ================== ================= ================
Total non-performing loans by category
as a percent of its own respective category:
Core banking loans 0.21% 0.22% 0.14% 0.12%
Indirect automobile loans 0.34% 0.31% 0.30% 0.32%
Tricom receivables 0.67% 0.60% -- --
Premium finance receivables 2.71% 3.22% 2.44% 1.74%
----------------- ------------------ ----------------- ------------------
Total non-performing loans 0.71% 0.84% 0.62% 0.44%
----------------- ------------------ ----------------- ------------------
Total non-performing assets as a
percentage of total assets 0.55% 0.64% 0.46% 0.33%
Allowance for possible loan losses as a
percentage of non-performing loans 94.79% 79.35% 107.75% 158.40%
- 9 -
Non-performing Core Banking Loans
Total non-performing loans for the Company's core banking business were $2.6
million, or 0.21%, of the Company's core banking loans as of June 30, 2001,
compared to 0.14% as of December 31, 2000 and 0.12% as of June 30, 2000.
Non-performing core banking loans consist primarily of a small number of
commercial and real estate loans, of which management believes are well secured
and in the process of collection. The small number of such non-performing loans
allows management the opportunity to monitor closely 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, 2001 and 2000, and the amount of net charge-offs for the six
months then ended.
JUNE 30, June 30,
2001 2000
--------------------- ---------------------
Non-performing premium finance receivables $9,374,000 $4,365,000
- as a percent of premium finance receivables 2.71% 1.74%
Net charge-offs of premium finance receivables $1,419,000 $ 289,000
- annualized as a percent of premium finance receivables 0.81% 0.23%
The level of non-performing premium finance loans, although higher than levels
at December 31, 2000 and June 30, 2000, has declined to 2.71% of premium finance
loans outstanding from 3.22% at the end of the first quarter of 2001. As noted
in the Company's first quarter earnings release, the Company eliminated more
than 1,300 relationships with insurance agencies that were referring business to
our premium finance subsidiary that had relatively small balances and higher
than normal delinquency rates. The business associated with those accounts is
gradually becoming a less significant percent of the entire portfolio and should
be nearly extinguished by the end of the current fiscal year. Because of the
longer-term nature of converting collateral to cash in this industry (generally
60-150 days), we anticipated that delinquencies would decline in the second and
third quarters of 2001. In fact, during the second quarter of 2001, the
delinquencies did decline in percentage terms as previously noted and the
absolute dollars of non-performing loans declined by approximately $1.4 million.
We expect the non-performing ratios related to this portfolio to decline again
in the third quarter to more normalized 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, the Company 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.
- 10 -
Non-performing Indirect Automobile Loans
Total non-performing indirect automobile loans were $646,000 at June 30, 2001,
compared to $618,000 at December 31, 2000 and $753,000 at June 30, 2000. The
ratio of these non-performing loans has increased slightly to 0.34% of total
indirect automobile loans at June 30, 2001 from 0.30% at December 31, 2000 and
0.32% at June 30, 2000. As noted in the Allowance for Possible Loan Losses
table, net charge-offs as a percent of total indirect automobile loans decreased
to 0.42% in the first half of 2001 compared to 0.45% in the first half of 2000.
Despite the slight increase in the level of non-performing loans, these ratios
continue to be below standard industry ratios for this type of loan category.
However, based on the impact of the current economic and competitive environment
surrounding this portfolio, management has been reducing the level of new loans
originated and is dedicating additional resources to reduce the level of
delinquencies.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements related to the Company's
financial performance that are based on estimates. 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. Actual results could differ materially from those addressed
in the forward-looking statements due to factors such as changes in economic
conditions, competition, or other factors, that may influence the anticipated
growth rate of loans and deposits, the quality of the loan portfolio and loan
and deposit pricing, unanticipated changes in interest rates that negatively
impact net interest income, future events that may cause unforeseen loan or
lease losses, slower than anticipated development and growth of Tricom and the
new trust and investment business, unanticipated changes in the temporary
staffing industry, the ability to adapt successfully to technological changes to
compete effectively in the marketplace, the ability to pursue acquisition and
expansion strategies and the ability to attract and retain experienced senior
management. Therefore, there can be no assurances that future actual results
will correspond to these forward-looking statements.
- 11 -