Wintrust Financial Corporation
727 North Bank Lane, Lake Forest, Illinois 60045
November, 2001
Dear Shareholders,
This letter provides a brief update on our financial performance
through the third quarter of 2001 and other news of Wintrust Financial
Corporation. We have also attached the October 16, 2001 news release of our
earnings for the quarter ended September 30, 2001 for your information.
PERSONAL COMMENT
We are all devastated by the events of September 11th. Our prayers go
out to all of the folks and families who were affected by this tragedy. And our
sincerest thanks go out to those heroes out there who risked their lives for
their fellow citizens and who continue to serve our country during these trying
times.
Our executives were personally touched by the loss of business
associates at the firm of Keefe, Bruyette and Woods. Keefe, Bruyette and Woods
supports Wintrust Financial Corporation with research, trading and investment
advice. Our heartfelt wishes go out to their firm as they rebuild both their
business and their personal lives.
You should be aware that Wintrust remains strong. We operate a
diversified company in communities that have been reasonably well insulated in
the slowing economy. We think we are positioned well to deal with the uncertain
economy and world events.
FINANCIAL HIGHLIGHTS
In the face of a challenging economic environment, we again achieved
record growth in earnings and assets for this quarter. Below is a summary of our
financial results and accomplishments for the period ended September 30, 2001
(earnings and performance ratio comparisons to the prior year exclude the impact
of the non-recurring charge recorded in the third quarter of 2000):
o Net income reached $5.0 million for the quarter ended September 30,
2001, an increase of 38% over the third quarter of 2000;
o On a per share basis, net income totaled $0.49 per diluted common share
for the third quarter of 2001, a 20% increase as compared to the year
ago quarter; and, on a year-to-date basis, net income per common share
totaled $1.40 compared to $1.12 in 2000, a 25% increase;
o For the first nine months of 2001, return on average equity increased
to 15.44%, an increase from 13.94% recorded for the first nine months
of 2000;
o The increases in earnings and return on equity include the impact of
the additional 992,500 shares issued near the end of the second quarter
of 2001. The shares were issued in a secondary common stock offering
conducted to raise additional capital to support the growth of our
Company as noted below;
o Total assets rose to $2.52 billion as of September 30, 2001, an
increase of $519 million, or 26%, compared to a year ago;
o Total deposits reached $2.18 billion for the quarter, an increase of
$458 million, or 27%, compared to September 30, 2000;
o Total loans grew to $1.85 billion as of September 30, 2001, an increase
of $361 million, or 24%, compared to a year ago; and
o Our net overhead ratio, a measure of operating efficiency, improved to
1.52% from 1.90% in the prior year quarter.
INCOME AND EARNINGS
While the interest rate environment continued to be volatile with nine
rate cuts by the Federal Reserve Bank so far this year including two during the
third quarter, our net interest margin declined just slightly. However, our net
interest income increased 23% as compared to the prior year due to strong growth
in our earning asset base. The likelihood of additional rate cuts by the Federal
Reserve Bank will apply slight pressure to our net interest margin in the near
term. We think we are well positioned to deal with this unprecedented rate
environment and our net interest margin should benefit in the event that rates
begin to rise in 2002.
Non-interest income continued to grow and totaled $7.1 million in the
third quarter, an increase of 58% 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, an increase in
income from premium finance receivables which were sold to an unrelated third
party, and enhanced fee income received from active management of our investment
portfolio. Our non-interest revenues comprised 27% of our net revenues in the
third quarter of 2001 compared to 22% in the third quarter of 2000. We continue
to strive to diversify our revenue streams so we can weather any adverse
economic conditions that may impact a section of our operating earnings.
Non-interest expenses totaled $16.3 million for the third quarter of
2001, representing a 10% decline over a year ago. The prior year results reflect
a non-recurring charge of $4.5 million attributable to the fraud perpetrated
against the Company's premium finance subsidiary. Excluding this non-recurring
charge, non-interest expense increased $2.7 million, or 20%, from prior year
quarter. This increase in total non-interest expenses supported the 30% increase
in net revenues from the prior year quarter.
The following graph illustrates our earnings per share growth on a
quarterly basis over the last three years, excluding the non-recurring charge in
the third quarter of 2000. We are proud of this consistent growth in quarterly
earnings per share.
- 2 -
*** EARNINGS PER SHARE GROWTH ON QUARTERLY BASIS GRAPH OMITTED ***
YEAR-TO-DATE PERFORMANCE VERSUS GOAL
At Wintrust, we set aggressive goals and evaluate our performance
versus those goals. Reaching these financial goals over the next few years will
make our Company a high performing bank relative to its peers. 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. Although our Core Net Interest Margin has declined slightly this
year due to the precipitous cuts in interest rates by the Federal Reserve Bank
(see detailed discussion on pages 4 & 5 of our attached earnings release), the
following performance statistics indicate that we are making overall improvement
in these areas.
QUARTER ENDED
-----------------------------------------------------------------------
SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30,
GOAL 2001 2001 2001 2000 2000(1) 2000
---- ---- ---- ---- ---- ---- ----
Core Net Interest Margin (2) 4 - 4.5% 3.69% 3.84% 3.94% 3.93% 3.92% 3.94%
Net Overhead Ratio 1.5 - 2% 1.52% 1.61% 1.75% 1.90% 1.90% 1.89%
Return on Average Equity 20 - 25% 14.87% 16.21% 15.39% 15.44% 14.74% 13.86%
Return on Average Assets 1.5% 0.83% 0.79% 0.75% 0.75% 0.75% 0.75%
Earnings per diluted
Common share $0.49 $0.48 $0.44 $0.43 $0.41 $0.37
Non-Performing Assets
as a percent of total assets 0.54% 0.55% 0.64% 0.46% 0.35% 0.33%
- ----------------------------
<FN>
(1) Excludes the impact of a one-time charge of $4.5 million ($2.7 million
after tax).
(2) By definition, our Core Net Interest Margin excludes the impact of
interest expense associated with the Company's Trust Preferred
Securities offerings.
</FN>
- 3 -
NON-PERFORMING ASSETS
In this slowing economic environment, many people inquire about the
quality of our loan portfolio and whether we are experiencing any difficulties
with our borrowers. We are pleased to report that the status of credit quality
remains good. Although we have seen a handful of delinquencies on residential
real estate and home equity loans, each of these loans is very well secured by
the borrowers' principal residence. The delinquencies related to our commercial
and commercial real estate loan portfolios remain low and are quite manageable.
We spend considerable time monitoring the quality of our loan portfolio and will
continue to apply high standards when originating new loans.
DE NOVO EXPANSION ACTIVITIES
We continue to make good progress on a number of new facilities of our
existing banks. The investment we make in these new facilities will add to our
de novo growth and profitability in the future.
o NorthShore Community Bank & Trust's newly renovated Winnetka facility,
which was opened in August, is off to a great start. Customers really
like the convenience of having an ATM and safe deposit boxes in their
new, more conveniently located facility.
o Hoffman Estates Community Bank, a branch of Barrington Bank & Trust,
opened in September 2001. At the writing of this letter, they have
already reached $10 million in assets. This full service facility, with
drive-through banking lanes, has been well received by the community.
o Northbrook Bank & Trust is on track to be the fastest growing Wintrust
bank, with assets of $68 million at the time of this writing.
Construction on Northbrook Bank & Trust's new full service main
facility is scheduled to be completed and opened in early 2002.
o Wauconda Community Bank, a branch of Libertyville Bank & Trust, is well
along in the construction of a new permanent main bank and
drive-through facility on our property centrally located across the
street from the big bank competitor in town. We should be able to move
into this new facility late in the first quarter 2002.
o Construction has begun on Riverside Bank, a branch of Hinsdale Bank &
Trust. Riverside, Illinois is an affluent community northeast of
Hinsdale Bank & Trust's current marketing area.
o McHenry Bank & Trust, a branch of Crystal Lake Bank & Trust, continues
to grow rapidly, with assets over $37 million. Construction will be
starting soon on their permanent location with drive-through banking
lanes.
o Libertyville Bank & Trust is also moving ahead with design of a new
full service facility to attract and accommodate residents and
businesses in the southern portion of Libertyville.
- 4 -
EARNINGS POTENTIAL OF OUR ORGANIZATION
One of the reasons our earnings and balance sheet show consistent
growth is the de novo growth strategy we have employed thus far in our history.
Our de novo banks have generally produced approximately $50 million of asset
growth per year. The chart below demonstrates that growth and shows that all
banks contribute to our growth in a similar fashion.
*** BANK CONTRIBUTIONS TO GROWTH CHART OMITTED ***
With growth comes continued improvement in overall profitability because we more
effectively utilize the infrastructure established for each de novo bank. For
example, for the nine months ended September 30, 2001 and 2000, the return on
average assets of each of our subsidiary banks was as follows:
Bank Year Est. 2001 2000
---- --------- ---- ----
Lake Forest Bank & Trust * 1991 1.6% 1.3%
Hinsdale Bank & Trust 1993 1.2% 1.3%
North Shore Community Bank & Trust 1994 1.0% 0.8%
Libertyville Bank & Trust 1995 0.9% 0.7%
Barrington Bank & Trust 1996 0.7% 0.6%
Crystal Lake Bank & Trust 1997 0.3% 0.1%
Northbrook Bank & Trust 2000 (1.2%) N/A
<FN>
* - exclusive of non-recurring charge at its premium finance subsidiary in the
third quarter of 2000
</FN>
As can be seen above, the profitability of our banks increases with maturity.
Because we use the same general "recipe" for starting and growing each of our
banks, we think that the younger banks should achieve increased profitability as
they mature. If we can achieve the increased performance as assets grow, the
organization will experience significant increases in earnings.
- 5 -
SELLERS OF WINTRUST STOCK
With the substantial rise in our stock price this year, we have
experienced occasional volatility when a shareholder has sold stock in a manner
that we believe is not beneficial to either the shareholder or the Company.
Occasionally, a shareholder has entered a sales order to a broker and has not
given the broker a minimum sales price per share (a "limit order") and the
broker has impatiently "dumped" the shares at a time when there has not been
sufficient demand. The occasional supply and demand imbalance coupled with sales
orders at the market price rather than with a limit order has caused unusual
stock price volatility on these days. Accordingly, if you must sell, we strongly
encourage you to consider using a limit order and, if possible, use one of
Wintrust's primary market makers as your broker. Our primary market makers
generally have demands in place for our stock and can handle your supply in a
more orderly manner.
Our primary market makers currently are:
o Advest, Inc. o First Union Securities, Inc.
o Howe Barnes Investments, Inc. o Stifel, Nicolaus & Company, Inc.
o U.S. Bancorp Piper Jaffray o William Blair & Company
SUMMARY
In summary, we are very pleased with the continued growth in earnings
and assets thus far in 2001. We are working diligently to continue our unique
growth story while improving our earnings level.
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.
- --------------------------------------------------------------------------------
- 6 -
Wintrust Financial Corporation
727 North Bank Lane, Lake Forest, Illinois 60045
NEWS RELEASE
FOR IMMEDIATE RELEASE October 16, 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 38% INCREASE
---------------------------------------------------
IN THIRD QUARTER EARNINGS OVER PRIOR YEAR QUARTER,
--------------------------------------------------
EXCLUDING PRIOR YEAR'S NON-RECURRING CHARGE
-------------------------------------------
LAKE FOREST, ILLINOIS -- Wintrust Financial Corporation ("Wintrust")
(Nasdaq: WTFC) announced net income of $5.0 million for the quarter ended
September 30, 2001, an increase of $1.4 million, or 38%, compared to $3.6
million (excluding a non-recurring charge) recorded in the third quarter of
2000. On a per share basis, net income for the third quarter of 2001 totaled
$0.49 per diluted common share, an increase of $0.08 per share, or 20%, as
compared to the 2000 third quarter total of $0.41 (excluding a non-recurring
charge) per diluted common share. The lower growth rate in the earnings per
share as compared to net income was due to the issuance of 992,500 additional
shares of common stock in June 2001. Return on average equity for the third
quarter of 2001 was 14.87%, reflecting a slight decrease from the 16.21%
reported for the second quarter of 2001 due to the issuance of the additional
common equity in June 2001.
For the first nine months of 2001, net income totaled $13.3 million, or
$1.40 per diluted common share, an increase of $3.2 million, or 32%, when
compared to the same period of 2000, excluding the non-recurring charge reported
in 2000. Return on average equity for the first nine months of 2001 was 15.44%.
"We are pleased with the continued growth in earnings and assets,"
said Edward J. Wehmer, President and Chief Executive Officer. "We have increased
our earnings per share from the previous quarter despite increasing our average
outstanding shares from the previous quarter by 11%. We are comfortable that we
will be able to meet or exceed the analysts' consensus earnings estimate for
2001 of $1.86 per share."
Total assets increased to $2.5 billion at September 30, 2001, an
increase of $519 million, or 26%, compared to $2.0 billion a year ago, and an
increase of $413 million, or 20%, from $2.1 billion as of December 31, 2000.
Total loans grew to $1.8 billion as of September 30, 2001, a $361 million, or
24%, increase over the $1.5 billion balance a year
- more -
earlier, and a $290 million, or 19%, increase over the $1.6 billion balance as
of December 31, 2000. Total deposits as of September 30, 2001 were $2.2 billion,
an increase of $458 million, or 27%, as compared to $1.7 billion as of September
30, 2000, and an increase of $358 million, or 20%, from the December 31, 2000
balance of $1.8 billion.
For the first nine months of the year, Wintrust's key operating
measures continue to show significant strength and growth rates in 2001 as
compared to the prior year, as evidenced by the table below:
Nine months Nine months
ended ended
Dollars in thousands, except per share data 9/30/01 9/30/00 Improvement
------------------------------------------- ------- ------- -----------
Net income* $ 13,275 $ 10,067 31.9%
Net income per common share - Diluted* $ 1.40 $ 1.12 25.0%
Net revenues $ 75,763 $ 57,632 31.5%
Net interest income $ 54,421 $ 44,357 22.7%
Net interest margin 3.57% 3.67% (2.7%)
Core net interest margin 3.82% 3.90% (2.1%)
Net overhead ratio* 1.62% 1.88% 13.8%
Efficiency ratio* 63.86% 66.40% 3.8%
Return on average assets* 0.79% 0.75% 5.3%
Return on average equity* 15.44% 13.94% 10.8%
At end of period
----------------
Total assets $ 2,515,396 $ 1,996,306 26.0%
Total loans, net of unearned income $ 1,847,724 $ 1,486,929 24.3%
Total deposits $ 2,184,309 $ 1,725,892 26.6%
Book value per common share $ 14.27 $ 11.31 26.2%
Market price per common share $ 31.05 $ 17.00 82.6%
<FN>
* Excludes non-recurring charge of $4.520 million ($2.727 million after tax)
reported in the third quarter of 2000.
</FN>
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, McHenry and
Hoffman Estates, 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 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
- more -
location. Tricom, Inc. 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA
(AT END OF PERIOD):
Total assets $ 2,515,396 $ 1,996,306
Total deposits 2,184,309 1,725,892
Total loans, net of unearned income 1,847,724 1,486,929
Notes payable 33,000 33,250
Long-term debt - trust preferred securities 51,050 51,050
Total shareholders' equity 138,024 97,370
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED STATEMENTS OF INCOME DATA:
Net interest income $ 19,130 $ 15,640 $ 54,421 $ 44,357
Net revenues 26,231 20,133 75,763 57,632
Income before taxes and cumulative effect of accounting change 7,792 700 21,169 10,837
Net income before cumulative effect of accounting change 5,008 899 13,529 7,340
Net income 5,008 899 13,275 7,340
Net income per common share - Basic 0.52 0.10 1.48 0.84
Net income per common share - Diluted 0.49 0.10 1.40 0.82
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin 3.46% 3.62% 3.57% 3.67%
Core net interest margin (1) 3.69% 3.92% 3.82% 3.90%
Non-interest income to average assets 1.17% 0.93% 1.27% 0.98%
Non-interest expense to average assets 2.69% 3.77% 2.89% 3.20%
Net overhead ratio 1.52% 2.84% 1.62% 2.21%
Net overhead ratio - excluding fraud charge, net (2) 1.52% 1.90% 1.62% 1.88%
Efficiency ratio 61.61% 89.06% 63.86% 74.18%
Return on average assets 0.83% 0.19% 0.79% 0.54%
Return on average equity 14.87% 3.66% 15.44% 10.16%
Average total assets $ 2,405,547 $ 1,912,403 $ 2,245,797 $ 1,801,905
Average shareholders' equity 133,635 97,843 114,934 96,459
Average loan-to-average deposit ratio 87.3% 87.0% 87.5% 87.8%
Common Share Data at end of period:
Market price per common share $ 31.05 $ 17.00
Book value per common share $ 14.27 $ 11.31
Common shares outstanding 9,673,275 8,607,899
Other Data at end of period:
Number of:
Bank subsidiaries 7 6
Non-bank subsidiaries 3 3
Banking offices 29 27
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The core net interest margin excludes the interest expense associated
with the Company's Trust Preferred Securities.
(2) Excludes non-recurring charge of $4.52 million reported in the third
quarter of 2000.
</FN>
- 1 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(In thousands)
SEPTEMBER 30, December 31, September 30,
2001 2000 2000
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 56,169 $ 65,413 $ 52,097
Federal funds sold and securities purchased under resale agreements 184,632 164,641 16,624
Interest-bearing deposits with banks 156 182 180
Available-for-Sale securities, at fair value 296,442 193,105 318,585
Loans, net of unearned income 1,847,724 1,558,020 1,486,929
Less: Allowance for possible loan losses 13,094 10,433 10,231
- ------------------------------------------------------------------------------------------------------------------------------
Net loans 1,834,630 1,547,587 1,476,698
Premises and equipment, net 94,958 86,386 83,843
Accrued interest receivable and other assets 38,155 34,722 37,331
Goodwill and other intangible assets, net 10,254 10,770 10,948
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,515,396 $2,102,806 $1,996,306
==============================================================================================================================
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing $ 209,276 $ 198,319 $ 184,821
Interest bearing 1,975,033 1,628,257 1,541,071
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 2,184,309 1,826,576 1,725,892
Short-term borrowings 38,358 43,639 41,910
Federal Home Loan Bank advances 30,000 - -
Notes payable 33,000 27,575 33,250
Long-term debt - trust preferred securities 51,050 51,050 51,050
Accrued interest payable and other liabilities 40,655 51,690 46,834
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,377,372 2,000,530 1,898,936
- ------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock - - -
Common stock 9,673 8,857 8,850
Surplus 102,536 83,710 83,612
Common stock warrants 99 100 100
Treasury stock, at cost - (3,863) (3,863)
Retained earnings 25,831 13,835 10,020
Accumulated other comprehensive loss (115) (363) (1,349)
- ------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 138,024 102,276 97,370
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,515,396 $2,102,806 $1,996,306
==============================================================================================================================
- 2 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 38,425 $34,160 $ 112,830 $ 93,962
Interest bearing deposits with banks 1 4 4 24
Federal funds sold and securities purchased under resale agreements 1,413 320 3,731 1,056
Securities 2,690 4,424 9,136 11,249
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 42,529 38,908 125,701 106,291
- -----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 21,290 20,949 64,885 55,847
Interest on Federal Home Loan Bank advances 265 - 265 -
Interest on short-term borrowings and notes payable 557 1,032 2,267 3,232
Interest on long-term debt - trust preferred securities 1,287 1,287 3,863 2,855
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 23,399 23,268 71,280 61,934
- -----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 19,130 15,640 54,421 44,357
Provision for possible loan losses 2,100 1,307 6,002 3,671
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 17,030 14,333 48,419 40,686
- -----------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Fees on mortgage loans sold 1,725 792 5,197 2,017
Service charges on deposit accounts 637 478 1,790 1,426
Trust and asset management fees 486 508 1,459 1,474
Gain on sale of premium finance receivables 1,265 640 3,656 2,877
Administrative services revenue 995 1,184 3,137 3,338
Net securities gains (losses) (57) (69) 315 (94)
Other 2,050 960 5,788 2,237
- -----------------------------------------------------------------------------------------------------------------------
Total non-interest income 7,101 4,493 21,342 13,275
- -----------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 9,031 7,139 26,244 20,267
Occupancy, net 1,238 961 3,660 3,111
Equipment expense 1,561 1,360 4,627 3,646
Data processing 860 735 2,512 2,114
Advertising and marketing 411 327 1,144 898
Professional fees 459 478 1,524 1,130
Amortization of intangibles 169 178 516 535
Premium finance defalcation - 4,520 - 4,520
Other 2,610 2,428 8,365 6,903
- -----------------------------------------------------------------------------------------------------------------------
Total non-interest expense 16,339 18,126 48,592 43,124
- -----------------------------------------------------------------------------------------------------------------------
Income before taxes and cumulative effect of accounting change 7,792 700 21,169 10,837
Income tax expense (benefit) 2,784 (199) 7,640 3,497
- -----------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 5,008 899 13,529 7,340
Cumulative effect of change in accounting for derivatives, net of tax - - 254 -
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5,008 $ 899 $ 13,275 $ 7,340
=======================================================================================================================
BASIC EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.52 $ 0.10 $ 1.51 $ 0.84
Cumulative effect of accounting change, net of tax - - 0.03 -
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ 0.52 $ 0.10 $ 1.48 $ 0.84
=======================================================================================================================
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.49 $ 0.10 $ 1.43 $ 0.82
Cumulative effect of accounting change, net of tax - - 0.03 -
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - DILUTED $ 0.49 $ 0.10 $ 1.40 $ 0.82
=======================================================================================================================
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.07 $ 0.05 $ 0.14 $ 0.10
=======================================================================================================================
Weighted average common shares outstanding 9,662 8,671 8,980 8,743
Dilutive potential common shares 638 252 496 226
- -----------------------------------------------------------------------------------------------------------------------
Average common shares and dilutive common shares 10,300 8,923 9,476 8,969
- -----------------------------------------------------------------------------------------------------------------------
- 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 September 30, 2001 and 2000:
FOR THE QUARTER ENDED For the Quarter Ended
SEPTEMBER 30, 2001 September 30, 2000
----------------------------------------- ----------------------------------------
(dollars in thousands) AVERAGE INTEREST RATE Average Interest Rate
- ---------------------- ---------------- ------------- ---------- --------------- ------------- ----------
Liquidity management assets (1) (2) $372,353 $ 4,123 4.39% $ 280,801 $ 4,766 6.75%
Loans, net of unearned income (2) 1,848,468 38,636 8.29 1,452,769 34,292 9.39
---------------- ------------- ---------- --------------- ------------- ----------
Total earning assets 2,220,821 42,759 7.64% 1,733,570 39,058 8.96%
---------------- ------------- ---------- --------------- ------------- ----------
Interest-bearing deposits 1,905,097 21,290 4.43% 1,494,168 20,949 5.58%
Federal Home Loan Bank advances 22,500 265 4.66 -- -- --
Short-term borrowings and notes payable 44,729 557 4.94 63,774 1,032 6.44
Long-term debt - trust preferred securities 51,050 1,287 10.09 51,050 1,287 10.08
---------------- ------------- ---------- --------------- ------------- ----------
Total interest-bearing liabilities 2,023,376 23,399 4.59% 1,608,992 23,268 5.75%
---------------- ------------- ---------- --------------- ------------- ----------
Tax equivalent net interest income $ 19,360 $ 15,790
============= =============
Net interest margin 3.46% 3.62%
========== ==========
Core net interest margin(3) 3.69% 3.92%
========== ==========
- -------------------------------
<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 $230,000 and $150,000 for the
quarters ended September 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 nine-month periods ended September 30, 2001 and 2000:
FOR THE NINE MONTHS ENDED For the Nine Months Ended
SEPTEMBER 30, 2001 September 30, 2000
----------------------------------------- ---------------------------------------
(dollars in thousands) AVERAGE INTEREST RATE Average Interest Rate
- ---------------------- ---------------- ------------- ---------- --------------- ------------- ----------
Liquidity management assets (1) (2) $331,602 $ 12,918 5.21% $ 253,279 $ 12,386 6.53%
Loans, net of unearned income (2) 1,732,973 113,431 8.75 1,378,206 94,317 9.14
---------------- ------------- ---------- --------------- ------------- ---------
Total earning assets 2,064,575 126,349 8.18% 1,631,485 106,703 8.74%
---------------- ------------- ---------- --------------- ------------- ---------
Interest-bearing deposits 1,782,386 64,885 4.87% 1,409,148 55,847 5.29%
Federal Home Loan Bank advances 7,582 265 4.66 -- -- --
Short-term borrowings and notes payable 53,095 2,267 5.71 69,273 3,232 6.23
Long-term debt - trust preferred securities 51,050 3,863 10.09 38,948 2,855 9.77
---------------- ------------- ---------- --------------- ------------- ---------
Total interest-bearing liabilities 1,894,113 71,280 5.03% 1,517,369 61,934 5.45%
---------------- ------------- ---------- --------------- ------------- ---------
Tax equivalent net interest income $ 55,069 $ 44,769
============= =============
Net interest margin 3.57% 3.67%
========== =========
Core net interest margin(3) 3.82% 3.90%
========== =========
- -------------------------------
<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 $648,000 and $412,000 for the
nine-month periods ended September 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 September 30, 2001 totaled $19.4 million, an increase of $3.6
million, or 23%, as compared to the $15.8 million recorded in the same quarter
of 2000. This increase mainly resulted from loan growth and the issuance of
$22.2 million of common equity in June 2001, and was offset in part by lower
yields. Tax-equivalent interest and fees on loans for the quarter ended
September 30, 2001 totaled $38.6 million, an increase of $4.3 million, or 13%,
over the prior year quarterly total of $34.3 million. This growth was
predominantly due to a $396 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 third quarter of 2001, the net
interest margin was 3.46%, a decrease of 16 basis points when compared to the
margin of 3.62% 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 3.69% for the third quarter of 2001, and decreased 23
basis points when compared to the prior year quarterly core margin of 3.92%.
The yield on total earning assets for the third quarter of 2001 was 7.64% as
compared to 8.96% in 2000, a decrease of 132 basis points resulting primarily
from the effect of decreases in general market rates on liquidity management
assets and loans. The third quarter 2001 loan yield of 8.29% decreased 110 basis
points when compared to the prior year quarterly yield of 9.39% and was due
primarily to lower market rates. The average prime lending rate for the third
quarter of 2001 was 6.57%, reflecting a decrease of 293 basis points compared to
the average prime lending rate of 9.50% for the third 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.
The rate paid on interest-bearing deposits averaged 4.43% for the third quarter
of 2001 versus 5.58% for the same quarter of 2000, a decrease of 115 basis
points. This decrease was caused primarily by continued decreases in market
rates. During the third quarter of 2001 the Banks borrowed $30 million in
Federal Home Loan Bank advances at a fixed rate of 4.66%. The Banks will
continue to evaluate further advances from the Federal Home Loan Bank as a
funding source in the future. The rate paid on short-term borrowings and notes
payable decreased 150 basis points to 4.94% in the third quarter of 2001 as
compared to 6.44% in the same quarter of 2000. The trust preferred securities
have fixed rates of interest averaging 10.09%
For the first nine months of 2001, tax-equivalent net interest income totaled
$55.1 million and increased $10.3 million, or 23%, over the $44.8 million
recorded in the same period of 2000. This increase was also mainly due to the
growth in the Company's earning asset base. Interest and fees on loans, on a tax
equivalent basis, totaled $113.4 million for the first nine months of 2001, and
increased $19.1 million, or 20%, over the same period of 2000. Average loans for
the first nine months of 2001 grew $355 million, or 26%, over the average for
the first nine months of 2000. The net interest margin for the first nine months
of 2001 was 3.57%, a decrease of 10 basis points when compared to the same
period in 2000. The core net interest margin for the first nine months of 2001
was 3.82%, a decrease of eight basis points from the same period of 2000.
Consistent with the third 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 third quarter of 2001, non-interest income totaled $7.1 million and
increased $2.6 million, or 58%, over the prior year quarter. Significant
increases were realized in fees from the origination and sale of mortgage loans
into the secondary market, gains from the sale of premium finance receivables
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
September 30, 2001, these fees totaled $1.7 million, an increase of $933,000, or
118%, 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 will continue though the
end of the year, and may taper off to more normalized levels in 2002 barring any
further reductions in mortgage interest rates.
The administrative services revenue contributed by Tricom added $995,000 to
total non-interest income in the third quarter of 2001, a decrease of $189,000
from 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 third quarter of
2001, the Company sold approximately $64 million of premium finance receivables
to an unrelated third party and recognized gains of $1.3 million related to this
activity, compared to the sale of $39 million of premium finance receivables in
the third quarter of 2000 that resulted in gains of $640,000. The Company
currently has a philosophy of maintaining its average loan-to-deposit ratio in
the range of 85-90%. During the third quarter of 2001, the ratio was
approximately 87%. 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 $637,000 for the third quarter of
2001, an increase of $159,000, or 33%, 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 $486,000 for the third quarter of 2001, reflecting a decrease
of $22,000, over the same quarter of 2000. The down-turn in the stock market
over the past year has had a negative impact on the valuation of the equity
securities under management, similar to that of the broader market, 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 third quarter of 2001 totaled $2.1 million and
increased $1.1 million, or 114%, over the prior year quarterly total of
$960,000. This increase was due primarily to a $782,000 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. The premium income from these covered call option transactions
totaled $1.1 million in the third quarter of 2001 and $349,000 in the same
period of 2000. Rental income from equipment leases totaled $378,000 in the
third quarter of 2001 and $348,000 in the third quarter of 2000.
For the first nine months of 2001, total non-interest income was $21.3 million
and increased $8.1 million, or 61%, when compared to the same period in 2000.
This increase was primarily the result of a $3.2 million increase in fees from
the sale of mortgage loans, a $2.8 million increase in premium income from
covered call option transactions and a $779,000 increase in gains on the sale of
premium finance receivables. Also contributing to the increase in other
non-interest income were increases of $409,000 in securities gains and $364,000
in deposit service charges. These increases were partially offset by a decrease
of $201,000 in administrative services revenue generated by Tricom.
NON-INTEREST EXPENSE
Non-interest expense for the third quarter of 2001 totaled $16.3 million and
decreased $1.8 million from the third quarter 2000 total of $18.1 million. The
prior year third quarter results reflect a non-recurring charge of $4.5 million
attributable to a fraud perpetrated against the Company's premium finance
subsidiary. Excluding this non-recurring charge, non-interest expense increased
$2.7 million, or 20%, from the prior year quarter. The continued growth and
expansion of the de novo banks with two 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 September 30, 2000, total deposits have grown 27% and total loan
balances have risen 24%, requiring higher levels of staffing and other costs to
both attract and service the larger customer base.
Salaries and employee benefits expense totaled $9.0 million for the third
quarter of 2001, an increase of $1.9 million, or 27%, as compared to the prior
year quarter total of $7.1 million. This increase was primarily due to the
opening of the Northbrook Bank & Trust and two additional banking offices,
increased staffing at the premium finance subsidiary, increases in commissions
paid related to fees on mortgage loans sold and normal salary increases.
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, stationery 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 $48.6 million compared to
$43.1 million for the first nine months of 2000. Excluding the non-recurring
charge of $4.5 million recorded in the third quarter of 2000, non-interest
expense increased $10.0 million, or 26%, from the same period in 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.
- 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 nine months ended September 30, 2001 and 2000 is
shown as follows (dollars in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
------------------- ---------------- ----------------- -----------------
Balance at beginning of period $ 12,111 $ 9,792 $ 10,433 $ 8,783
Provision for possible loan losses 2,100 1,307 6,002 3,671
Charge-offs
Core banking loans 402 312 810 758
Indirect automobile loans 251 348 741 979
Tricom finance receivables -- -- -- 73
Premium finance receivables 751 288 2,299 647
------------------- ---------------- ----------------- -----------------
Total charge-offs 1,404 948 3,850 2,457
------------------- ---------------- ----------------- -----------------
Recoveries
Core banking loans 152 10 156 21
Indirect automobile loans 62 47 151 120
Tricom finance receivables -- -- -- --
Premium finance receivables 73 23 202 93
------------------- ---------------- ----------------- -----------------
Total recoveries 287 80 509 234
------------------- ---------------- ----------------- -----------------
Net charge-offs (1,117) (868) (3,341) (2,223)
------------------- ---------------- ----------------- -----------------
Balance at September 30 $ 13,094 $ 10,231 $ 13,094 $ 10,231
=================== ================ ================= =================
Loans at September 30 $ 1,847,724 $ 1,486,929
================= ==================
Allowance as a percentage of loans 0.71% 0.69%
================= =================
Annualized net charge-offs
as a percentage of average:
Core banking loans 0.07% 0.12%
Indirect automobile loans 0.41% 0.48%
Tricom finance receivables -- 0.48%
Premium finance receivables 0.79% 0.28%
Total loans 0.26% 0.22%
================= =================
Annualized provision for
possible loan losses 55.66% 60.55%
================= =================
The provision for possible loan losses totaled $2.1 million for the third
quarter of 2001, an increase of $793,000 from the $1.3 million recorded a year
earlier. For the first nine months of 2001, the provision totaled $6.0 million
and increased $2.3 million from the prior year total. The higher provisions in
2001 were the result of overall growth in the loan portfolio of 24% compared to
September 30, 2000 and a higher level of net charge-offs for the first nine
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 probable losses 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).
SEPTEMBER 30, June 30, December 31, September 30,
2001 2001 2000 2000
---- ---- ---- ----
Past Due greater than 90 days
and still accruing:
Core banking loans:
Residential real estate and home equity $ 928 $ 389 $ -- $ 182
Commercial, consumer and other 495 866 651 357
Indirect automobile loans 384 372 397 323
Tricom receivables -- -- -- --
Premium finance receivables 3,131 2,982 4,306 2,107
------------------ ------------------ ------------------ ------------------
Total 4,938 4,609 5,354 2,969
------------------ ------------------ ------------------ ------------------
Non-accrual loans:
Core banking loans:
Residential real estate and home equity 869 411 153 97
Commercial, consumer and other 900 978 617 503
Indirect automobile loans 364 274 221 271
Tricom receivables 207 112 -- --
Premium finance receivables 6,042 6,392 3,338 3,232
------------------ ------------------ ------------------ ------------------
Total non-accrual loans 8,382 8,167 4,329 4,103
------------------ ------------------ ------------------ ------------------
Total non-performing loans:
Core banking loans:
Residential real estate and home equity 1,797 800 153 279
Commercial, consumer and other 1,395 1,844 1,268 860
Indirect automobile loans 748 646 618 594
Tricom receivables 207 112 -- --
Premium finance receivables 9,173 9,374 7,644 5,339
------------------ ------------------ ------------------ ------------------
Total non-performing loans 13,320 12,776 9,683 7,072
------------------ ------------------ ------------------ ------------------
Other real estate owned 244 100 -- -
------------------ ------------------ ------------------ ------------------
Total non-performing assets $ 13,564 $ 12,876 $ 9,683 $ 7,072
================== ================== ================== ==================
Total non-performing loans by category
as a percent of its own respective category:
Core banking loans:
Residential real estate and home equity 0.46% 0.22% 0.05% 0.09%
Commercial, consumer and other 0.15% 0.21% 0.18% 0.13%
Indirect automobile loans 0.39% 0.34% 0.30% 0.27%
Tricom receivables 1.08% 0.67% -- --
Premium finance receivables 2.73% 2.71% 2.44% 1.85%
Total non-performing loans 0.72% 0.71% 0.62% 0.48%
================== ================== ================== ==================
Total non-performing assets as a
percent of total assets 0.54% 0.55% 0.46% 0.35%
================== ================== ================== ==================
Allowance for possible loan losses as a
percent of non-performing loans 98.30% 94.79% 107.75% 144.67%
================== ================== ================== ==================
- 9 -
Non-performing Core Banking Loans
Total non-performing loans for the Company's core banking business were $3.2
million as of September 30, 2001 and were comprised of $1.8 million of
residential real estate and home equity loans and $1.4 million of commercial,
commercial real estate and consumer loans. The non-performing residential real
estate and home equity loans increased $1.6 million from the December 31, 2000
balance and represented 0.46% of such outstanding loans at September 30, 2001.
The non-performing commercial, commercial real estate and consumer loans
increased $127,000 from the December 31, 2000 balance and represented 0.15% of
such outstanding loans at September 30, 2001. Non-performing core banking loans
consist primarily of a small number of commercial and real estate 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 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 September 30, 2001 and 2000, and the amount of net charge-offs for the
nine months then ended.
SEPTEMBER 30, September 30,
2001 2000
--------------------- ---------------------
Non-performing premium finance receivables $9,173,000 $5,339,000
- as a percent of premium finance receivables 2.73% 1.85%
Net charge-offs of premium finance receivables $2,097,000 $ 554,000
- annualized as a percent of premium finance receivables 0.79% 0.28%
The level of non-performing premium finance receivables, although higher than
levels at December 31, 2000 and September 30, 2000, has declined since the
levels at March 31, 2001 and June 30, 2001. Non-performing premium finance
receivables were 2.73% of total premium finance receivables outstanding at
September 30, 2001, compared to 2.71% at June 30, 2001 and 3.22% at March 31,
2001. As noted in the Company's first and second quarter earnings releases, 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. Approximately
two-thirds of the premium finance receivables that were written off during the
year were from cancelled agency relationships. 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. The effect of curtailing the
business from these insurance agencies has taken slightly longer than expected.
We do continue to see progress in this portfolio and we continue to expect the
level of non-performing loans related to this portfolio to decline again in the
next quarter.
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
- 10 -
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 $748,000 at September 30,
2001, compared to $618,000 at December 31, 2000 and $594,000 at September 30,
2000. The ratio of these non-performing loans to total indirect automobile loans
was 0.39% at September 30, 2001, 0.30% at December 31, 2000 and 0.27% at
September 30, 2000. As noted in the Allowance for Possible Loan Losses table,
net charge-offs as a percent of total indirect automobile loans decreased from
0.48% in the first nine months of 2000 to 0.41% in the first nine months of
2001. Despite the increase in the level of non-performing loans, these ratios
continue to be below standard industry ratios for this type of loan category.
Due to the impact of the current economic and competitive environment
surrounding this portfolio, management has been reducing the level of new
indirect automobile loans originated. Indirect automobile loans at September 30,
2001 were $191 million, a decrease of $27 million, or 13%, from a year ago.
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 -