November, 2002
Dear Shareholders,
This letter provides a brief update on our financial performance through the
third quarter of 2002 and other news of Wintrust Financial Corporation. We have
also attached the October 17, 2002 news release of our earnings for the quarter
ended September 30, 2002 for your information.
HIGHLIGHTS THROUGH THE THIRD QUARTER OF 2002
Despite the challenging economic environment, we again achieved record earnings
and assets for this quarter. Following is a summary of our financial results and
accomplishments for the period ended September 30, 2002:
o Net income reached an all-time high of $7.3 million for the third quarter,
an increase of 45% over the third quarter of 2001. For the first nine
months of the year, net income totaled $20.0 million, an increase of $6.7
million, or 50%, compared to the prior year;
o On a per share basis, net income for the third quarter of 2002 totaled
$0.40 per diluted common share, an $0.08 per share, or 25%, increase as
compared to the 2001 third quarter total of $0.32 per diluted common
share. For the first nine months of 2002, diluted earnings per share
equaled $1.16, a 25% increase over the $0.93 per share for the first nine
months of 2001. The lower growth rate in the earnings per share as
compared to net income was primarily due to the issuance of 762,742 shares
in conjunction with the February 2002 acquisition of the Wayne Hummer
Companies and the issuance of 1,362,750 additional shares of common stock
in June and July of 2002 through an underwritten offering. Prior year
per-share amounts are restated to reflect the three-for-two stock split
declared in January 2002;
o Return on average equity was 13.68% for the quarter and 14.98% for the
first nine months of 2002;
o Total assets rose to $3.58 billion as of September 30, 2002, an increase
of $1.06 billion, or 42%, compared to a year ago;
o Total deposits reached $2.97 billion at the end of the quarter, an
increase of $787 million, or 36%, compared to September 30, 2001;
o Total loans grew to $2.48 billion as of September 30, 2002, an increase of
$660 million, or 36%, compared to a year ago;
o Our asset quality remains very strong and manageable. The ratio of
non-performing assets to total assets was 0.35% at September 30, 2002, and
declined from the year ago level as well as the prior quarter level;
<page>
o Our net overhead ratio, a measure of operating efficiency, improved to
1.40% for the quarter from 1.52% in the prior year quarter;
o The integration of the Wayne Hummer Companies into the Wintrust
organization continues to proceed smoothly as discussed later in this
letter; and
o Construction is under way on three new banking locations--a temporary
facility for Cary Bank & Trust (a new branch of Crystal Lake Bank &
Trust), Libertyville Bank & Trust's South Libertyville facility and North
Shore Community Bank & Trust's new Skokie facility.
INCOME AND EARNINGS
Despite the third quarter's economic weaknesses and the current low interest
rate environment, net interest income in the quarter totaled $25.4 million, an
increase of 33% compared to the third quarter of 2001. The increase in net
interest income was fueled by consistent strong loan growth throughout the year.
Average loans in the third quarter of 2002 increased $604 million, or 33%, over
the same period of 2001. Partially offsetting the impact of this strong earning
asset growth was a 20 basis point decline in the net interest margin for the
third quarter of 2002 to 3.26%, compared with 3.46% in the third quarter of
2001. The Company has positioned its balance sheet to benefit from future rising
interest rates. The net interest margin contracted in the current year quarter
due to a flattening yield curve, our preference for variable rate commercial and
commercial real estate loans, and agency securities with call options written
against them being called with proceeds being reinvested in lower yielding
liquid assets. Mitigating the continued margin pressure caused by a lower rate
environment and a balance sheet positioned for rising rates, we realized a
significant increase in fees on mortgage loans sold and additional opportunities
for fees from covered call option transactions.
Non-interest income totaled $16.0 million in the third quarter of 2002,
increasing $8.9 million, or 125%, over the third quarter of 2001. The primary
contributor to this increase was the additional fee income realized from the
asset management and brokerage services of the recently acquired Wayne Hummer
Companies. Trust, asset management and brokerage fees increased $6.2 million in
the third quarter of 2002, compared to the same period of 2001. Fee income on
mortgage loans sold was the other major contributor to the increase in
non-interest income. For the current year quarter these fees totaled $3.8
million, an increase of $2.1 million, or 120%, from the 2001 third quarter.
Non-interest expense totaled $27.9 million in the third quarter of 2002,
increasing $11.6 million, or 71%, over the third quarter of 2001. Excluding the
impact of the Wayne Hummer Companies, non-interest expense for the third quarter
of 2002 increased $4.3 million, or 26%, compared to the third quarter of 2001.
The growth in non-interest expense, excluding the impact of the Wayne Hummer
Companies, is attributable to increases in salaries and benefits and operating
costs as a result of continued growth and expansion of the banking franchise
(including the commissions paid to mortgage originators described above and
other costs related to increased mortgage loan activities), normal annual
increases in salaries and increased costs of employee benefits.
PERFORMANCE VERSUS GOAL TRENDS
- 2 -
<page>
At Wintrust, we set aggressive goals and evaluate our performance versus those
goals. Reaching these financial goals will make our Company a high performing
bank relative to our 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, First Insurance Funding and Tricom--mature, and the
synergies with the Wayne Hummer Companies are realized. The following table
provides you with the recent history of our performance measures.
<table>
<caption>
Quarter Ended
-----------------------------------------------------------------
Sept. 30 June 30, Mar. 31, Dec.
31, Sept. 30, Goal 2002 2002 2002 2001 2001
---- ---- ---- ---- ---- ----
<s> <c> <c> <c> <c> <c> <c> <c>
Core Net Interest Margin (1) 4 - 4.5% 3.42% 3.74% 3.68% 3.50% 3.69%
Net Overhead Ratio 1.5 - 2% 1.40% 1.63% 1.43% (2) 1.50% 1.52%
Return on Average Equity 20 - 25% 13.68% 14.75% 17.12% (2) 14.74% 14.87%
Return on Average Assets 1.5% 0.85% 0.85% 0.92% (2) 0.80% 0.83%
Earnings per diluted
Common share $0.40 $0.37 $0.40 (2) $0.33 $0.32
Non-Performing Assets
as a percent of total assets 0.35% 0.37% 0.39% 0.48% 0.54%
- ----------------------------
<fn>
(1) By definition, our Core Net Interest Margin excludes the impact of
interest expense associated with the Company's Trust Preferred
Securities offerings.
(2) Performance statistics were favorably impacted by pre-tax income of
$1.25 million, or $754,000 after-tax, for a partial settlement
related to a non-recurring charge recorded in 2000. Diluted earnings
per share would have been $0.35 excluding this income.
</fn>
</table>
NON-PERFORMING ASSETS
In this slowing economic environment, we get many inquiries 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. Non-performing assets totaled $12.5 million, or 0.35% of total assets, at
September 30, 2002, reflecting a decrease from both the December 31, 2001 level
of $13.1 million, or 0.48% of total assets, and the September 30, 2001 level of
$13.6 million, or 0.54% of total assets. The level of non-performing loans in
the Company's loan portfolio remains low and very manageable. Maintaining good
asset quality requires relentless and constant diligence and continues to be one
of our highest priorities.
WAYNE HUMMER COMPANIES UPDATE
We continue to make good progress with the integration of the Wayne Hummer
Companies (WHC) into Wintrust Financial Corporation. Here is a summary of the
progress we've made to date:
- 3 -
<page>
o In May, we formally changed the name of our Wintrust Asset Management
Company to Wayne Hummer Trust Company (WHTC), thus unifying all of our
trust and investment services under the well-respected Wayne Hummer brand
name;
o In June, we kicked off our Insured Bank Deposits(TM) program and to date
have "migrated" over $180 million from the Wayne Hummer money market
mutual funds to low cost deposit accounts at our affiliated banks. Our
goal is to deploy these funds into loans, resulting in significantly
higher earnings potential at the affiliate banks than the fee income
otherwise generated by the mutual funds. The migration of additional funds
to the affiliate banks is dependent on the desire of the customers to make
the transition of their funds into FDIC insured bank accounts, the capital
capacity of the Company and the availability of suitable loans/investments
in which to deploy the funds. Wintrust estimates that approximately
$200-$300 million in total may be migrated to bank deposits by year-end;
o In August, we launched Wayne Hummer Banking Services(TM)(provided by our
North Shore Community Bank & Trust) to Wayne Hummer clients;
o In September, we introduced WHTC trust services to Wayne Hummer clients.
This represents a sizeable cross sell opportunity for us;
o Also in September, we began advertising the Wayne Hummer brand in our bank
marketing areas;
o In October we kicked off a new innovative business development marketing
program for Wayne Hummer's Focused Investments as we aggressively look to
expand our third-party-marketer investment services for community banks;
and
o In November, we placed the first Wayne Hummer broker into one of our bank
facilities. We continue to be approached by brokers from firms around
Chicago that would like to join our growing Wayne Hummer franchise. With
an aggressive recruiting program underway, we expect to have Wayne Hummer
brokers in our key bank locations by early 2003. This is a significant
growth opportunity for us--as these new brokers bring with them their
current book of business and begin to offer these new services to our bank
customer base.
MARKET CAPITALIZATION
As of the date of this writing (November 5), our stock price stood at $32.41,
reflecting a market capitalization of approximately $556 million. This
represents an increase of 88% since the beginning of the year. The increase in
market capitalization is due to a 59% increase in our stock price since the
beginning of the year as well as the issuance of additional shares during the
last nine months. In October 2002, Wintrust Financial Corporation was added to
the S&P SmallCap 600 Index. We are pleased to be included in this index as it
increases the Company's visibility to a broad range of new institutional
investors.
- 4 -
<page>
SUMMARY
In summary, we are very pleased with the continued growth in earnings, revenues
and assets in the third quarter. We are working diligently to continue our
unique growth story while improving our earnings level and your shareholder
value.
Yours truly,
John S. Lillard Edward J. Wehmer David A. Dykstra
Chairman President & CEO Sr. EVP & COO
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
This letter contains forward-looking statements related to the Company's
financial performance that are based on estimates. Wintrust intends such
forward-looking statements to be covered by the safe harbor provision 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
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, competition and the related pricing of brokerage
and asset management products, unforeseen difficulties in integrating the
acquisition of the Wayne Hummer Companies, 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.
- 5 -
<page>
WINTRUST FINANCIAL CORPORATION
727 North Bank Lane, Lake Forest, Illinois 60045
News Release
FOR IMMEDIATE RELEASE October 17, 2002
- ---------------------
FOR MORE INFORMATION CONTACT:
Edward J. Wehmer, President & Chief Executive Officer
David A. Dykstra, Senior Executive Vice President, Chief Operating Officer &
Chief Financial Officer
(847) 615-4096
Website address: www.wintrust.com
WINTRUST FINANCIAL CORPORATION REPORTS
--------------------------------------
THIRD QUARTER EARNINGS;
-----------------------
THIRD QUARTER NET EARNINGS UP 45%
---------------------------------
LAKE FOREST, ILLINOIS -- Wintrust Financial Corporation ("Wintrust")
(Nasdaq: WTFC) announced quarterly net income of $7.3 million for the quarter
ended September 30, 2002, an increase of $2.3 million, or 45%, over the $5.0
million recorded in the third quarter of 2001. On a per share basis, net income
for the third quarter of 2002 totaled $0.40 per diluted common share, an $0.08
per share, or 25%, increase as compared to the 2001 third quarter total of $0.32
per diluted common share. The lower growth rate in the earnings per share as
compared to net income was primarily due to the issuance of 762,742 shares in
conjunction with the February 2002 acquisition of the Wayne Hummer Companies and
the issuance of 1,362,750 additional shares of common stock in June and July of
2002. The return on average equity for the third quarter of 2002 stood at
13.68%.
For the first nine months of 2002, net income totaled $20.0 million, or
$1.16 per diluted common share, an increase of $6.7 million, or 50%, when
compared to $13.3 million, or $0.93 per diluted common share, for the same
period in 2001. Return on average equity for the first nine months of 2002 was
14.98% versus 15.44% for the same period of 2001.
"We remain pleased with our overall performance. Total assets have
increased by over $1 billion in the last 12 months. This 42% balance sheet
growth has not compromised our commitment to asset quality as evidenced by our
excellent non-performing asset ratios," commented Edward J. Wehmer, President
and Chief Executive Officer. "Positioning the balance sheet to take advantage of
future interest rate increases has caused some near-term net interest margin
compression. Continued earning asset growth, successful residential
- 1 -
<page>
mortgage lending activities and other opportunities that took advantage of the
flattening yield curve have offset this margin compression. These are
challenging times in the financial services industry and our employees have
always been able to effectively deal with the changing environment. Accordingly,
we remain comfortable that we will be able to meet or exceed the analysts'
consensus earnings estimate for 2002 of $1.53 per share."
Wintrust's key operating measures continue to show impressive growth
rates in 2002 as compared to the prior year as evidenced by the table below:
<table>
<caption>
Nine Months Nine Months
Ended Ended % or
September 30, September 30, basis point (bp)
(Dollars in thousands, except per share data) 2002 2001 change
- ---------------------------------------------------- ------------------- ------------------ -------------------
<s> <c> <c> <c>
Net income $ 19,953 $ 13,275 50.3 %
Net income per common share - Diluted $ 1.16 $ 0.93 24.7 %
Net revenues $ 114,480 $ 75,763 51.1 %
Net interest income $ 72,000 $ 54,421 32.3 %
Net interest margin 3.42 % 3.57 % (15)bp
Core net interest margin (1) 3.60 % 3.82 % (22)bp
Net overhead ratio (2) 1.48 % 1.62 % (14)bp
Return on average assets 0.87 % 0.79 % 8 bp
Return on average equity 14.98 % 15.44 % (46)bp
At end of period
Total assets $ 3,576,775 $ 2,515,396 42.2 %
Total loans, net of unearned income $ 2,483,892 $ 1,823,801 36.2 %
Total deposits $ 2,971,485 $ 2,184,309 36.0 %
Book value per common share $ 12.71 $ 9.51 33.6 %
Market price per common share $ 28.65 $ 20.70 38.4 %
Common shares outstanding (in thousands) 17,148 14,510 18.2 %
- ------------------------------------------------------------------------------------------------------------------------
<fn>
(1) Core net interest margin excludes interest expense associated with
Wintrust's Long-term Debt - Trust Preferred Securities.
(2) The net overhead ratio is calculated by netting total non-interest expense
and total non-interest income, annualizing this amount, and dividing by
that period's total average assets.
</fn>
</table>
Wintrust Financial Corporation was added to the S&P SmallCap 600 Index
in October 2002. Wintrust's inclusion in the index increases the Company's
visibility to a broad range of new institutional investors.
- 2 -
<page>
On January 24, 2002, Wintrust's Board of Directors declared a 3-for-2
stock split of its common stock, effected in the form of a 50% stock dividend,
paid on March 14, 2002 to shareholders of record as of March 4, 2002. All
historical share data and per share amounts have been restated to reflect this
split.
On February 20, 2002, Wintrust completed its acquisition of Wayne
Hummer Investments, LLC (including its wholly owned subsidiary, Focused
Investments LLC) and Wayne Hummer Asset Management Company (collectively, the
"Wayne Hummer Companies"). Accounted for as a purchase, the Wayne Hummer
Companies results of operations are included only since the effective date of
acquisition in Wintrust's first nine months of 2002 results. The integration of
the Wayne Hummer Companies into the Wintrust organization is proceeding
smoothly. As of September 30, 2002, we have migrated approximately $179.8
million of customers' funds from the money market mutual fund into insured bank
deposits of the Wintrust banks. The introduction of bank and trust products to
customers of the Wayne Hummer Companies has started, as well as the referral of
banking customers to Wayne Hummer's brokerage operation. We now are actively
pursuing the placement of brokerage representatives into the markets served by
Wintrust banks.
The results for the first nine months of 2002 include pre-tax income of
$1.25 million, or $754,000 after-tax, for a partial settlement received in the
first quarter of 2002 related to a non-recurring charge recorded in 2000.
Excluding this settlement income, net income in the first nine months of 2002
was $19.2 million, or $1.12 per diluted share. Included in the first nine months
of 2001, is a cumulative effect of a change in accounting for interest rate
caps, which resulted in an after-tax charge of $254,000, or $0.02 per diluted
share.
Total assets rose to $3.6 billion at September 30, 2002, an increase of
$1.1 billion, or 42%, compared to $2.5 billion a year ago, and an increase of
$871 million, or 43% on an annualized basis, since December 31, 2001. Total
deposits as of September 30, 2002 were $3.0 billion, an increase of $787
million, or 36%, as compared to $2.2 billion at September 30, 2001, and an
increase of $657 million, or 38% on an annualized basis, since year-end 2001.
Total loans grew to $2.5 billion as of September 30, 2002, a $660 million, or
36%, increase over the $1.8 billion balance as of a year ago, and a $465
million, or 31% on an annualized basis, increase since December 31, 2001.
- 3 -
<page>
For the third quarter of 2002, net interest income totaled $25.4
million, increasing $6.3 million, or 33%, compared to the third quarter of 2001.
Average earning assets grew $900 million over the third quarter of 2001, a 41%
increase. Despite the third quarter's economic weaknesses and the current
interest rate environment, net interest income in the quarter increased by $1.0
million, or 4%, over the second quarter of 2002. Strong loan growth in the third
quarter of 2002 continued to fuel earning asset growth as average loans
increased over the second quarter of 2002 by $233 million, or 42% on an
annualized basis. Offsetting the impact of this outstanding earning asset growth
in the quarter was a decline in the net interest margin for the third quarter of
2002 to 3.26%, compared with 3.56% in the second quarter of 2002. The Company
has positioned its balance sheet to benefit from future rising interest rates.
The net interest margin contracted in the third quarter due to a flattening
yield curve, our preference for variable rate commercial and commercial real
estate loans and agency securities with call options written against them being
called with proceeds being reinvested in lower yielding liquid assets.
Mitigating the continued margin pressure caused by a lower rate environment and
a balance sheet positioned for rising rates, we experienced a significant
increase in fees on mortgage loans sold and additional opportunities to realize
fees from covered call option transactions.
Non-interest income totaled $42.5 million for the first nine months of
2002, increasing $21.1 million, or 99%, over the same period in 2001 and totaled
$16.0 million in the third quarter of 2002, increasing $8.9 million, or 125%,
over the third quarter of 2001. The primary contributor to these increases was
the additional fees realized from the asset management and brokerage services of
the recently acquired Wayne Hummer Companies of $6.1 million in the third
quarter of 2002 and $17.1 million for the year-to-date period. Fees on mortgage
loans sold was the other major contributor to the increase in non-interest
income. For the quarter ended September 30, 2002 these fees totaled $3.8
million, an increase of $2.1 million, or 120%, from the prior year third quarter
and up from the $1.9 million recorded in the second quarter of 2002. For the
first nine months of 2002 fees on mortgage loans sold increased $2.5 million, or
49%, over 2001. Partially offsetting the increased fees on mortgage loans sold
were the commissions paid to the mortgage originators, increasing $738,000 from
the prior year third quarter, $605,000 from the second quarter of 2002 and $1.1
million over the first nine months of 2001. Fees from covered call option
transactions in the third quarter of 2002 totaled $1.3 million, compared to $1.1
million in the third quarter of 2001 and $789,000 in the second
- 4 -
<page>
quarter of 2002. On a year-to-date basis, we have recognized $3.7 million in
fees from covered call option transactions in 2002 compared to $3.4 million in
2001.
Non-interest expense totaled $76.5 million for the first nine months of
2002, increasing $27.9 million, or 57%, over the first nine months of 2001 and
totaled $27.9 million in the third quarter of 2002, increasing $11.6 million, or
71%, over the third quarter of 2001. Excluding the impact of the Wayne Hummer
Companies, non-interest expense for the first nine months of 2002 increased by
$8.7 million, or 18%, compared to the first nine months of 2001, while
non-interest expense for the third quarter of 2002 increased by $4.3 million, or
26%, compared to the third quarter of 2001. The growth in non-interest expense,
excluding the impact of the Wayne Hummer Companies, is attributable to increases
in salaries and benefits and operating costs as a result of continued growth and
expansion of the banking franchise (including the commissions paid to mortgage
originators described above and other costs related to increased mortgage loan
activities), normal annual increases in salaries and increased costs of employee
benefits. The net overhead ratio for the first nine months of 2002 declined to
1.48% from 1.62% in the same period last year.
Non-performing assets totaled $12.5 million, or 0.35% of total assets,
at September 30, 2002, reflecting a decrease from both the December 31, 2001
level of $13.1 million, or 0.48% of total assets, and the September 30, 2001
level of $13.6 million, or 0.54% of total assets. The level of non-performing
assets in the Company's loan portfolio remains low and very manageable.
Wintrust is a financial 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 & Trust Company,
Hinsdale Bank & Trust Company, North Shore Community Bank & Trust Company in
Wilmette, Libertyville Bank & Trust Company, Barrington Bank & Trust Company,
Crystal Lake Bank & Trust Company and Northbrook Bank & Trust Company. The banks
also operate facilities in Lake Bluff, Highland Park, Hoffman Estates, Highwood,
Glencoe, Winnetka, Clarendon Hills, Western Springs, Skokie, Wauconda, McHenry
and Riverside, Illinois. Additionally, the Company operates various 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. Wayne Hummer Trust Company, a
- 5 -
<page>
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. Wayne Hummer Investments, LLC is a broker-dealer providing a full range
of private client and brokerage services to clients located primarily in the
Midwest. Focused Investments LLC is a broker-dealer that provides a full range
of investment solutions to clients through a network of community-based
financial institutions throughout the Midwest. Wayne Hummer Asset Management
Company provides money management services and advisory services to individual
accounts as well as the Wayne Hummer Companies' four proprietary mutual funds.
Wintrust Information Technology Services Company provides information technology
support, item capture and statement preparation services to the Wintrust
subsidiaries.
Currently, Wintrust operates a total of 31 banking offices and is in
the process of constructing several additional branch 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.
# # #
- 6 -
<page>
<table>
<caption>
WINTRUST FINANCIAL CORPORATION
SELECTED FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- -----------------------------------
(Dollars in thousands, except per share data) 2002 2001 2002 2001
---------------------------------------------------------------------- ------------------ ------------------ ----------------
<s> <c> <c> <c> <c>
SELECTED FINANCIAL CONDITION DATA (AT END OF PERIOD):
Total assets $ 3,576,775 $ 2,515,396
Total deposits 2,971,485 2,184,309
Total loans, net of unearned income 2,483,892 1,823,801
Long-term debt - trust preferred securities 51,050 51,050
Total shareholders' equity 218,028 138,024
--------------------------------------------------------------------------------------
SELECTED STATEMENTS OF INCOME DATA:
Net interest income $ 25,415 $ 19,130 $ 72,000 $ 54,421
Net revenues 41,372 26,231 114,480 75,763
Income before taxes and cumulative effect of
accounting change 10,924 7,792 30,616 21,169
Net income before cumulative effect of
accounting change 7,284 5,008 19,953 13,529
Net income 7,284 5,008 19,953 13,275
Net income per common share - Basic 0.43 0.35 1.24 0.99
Net income per common share - Diluted 0.40 0.32 1.16 0.93
-----------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin 3.26 % 3.46 % 3.42 % 3.57 %
Core net interest margin (1) 3.42 3.69 3.60 3.82
Non-interest income to average assets 1.87 1.17 1.85 1.27
Non-interest expense to average assets 3.27 2.69 3.33 2.89
Net overhead ratio (2) 1.40 1.52 1.48 1.62
Efficiency ratio (3) 67.48 61.61 66.51 63.86
Return on average assets 0.85 0.83 0.87 0.79
Return on average equity 13.68 14.87 14.98 15.44
Average total assets $ 3,392,669 $ 2,405,547 $ 3,068,189 $ 2,245,797
Average shareholders' equity 211,181 133,635 178,093 114,934
Average loan-to-average deposit ratio 85.6 % 87.3 % 87.8 % 87.5 %
-----------------------------------------------------------------------------------------------------------------------------
Common Share Data at end of period:
Market price per common share $ 28.65 $ 20.70
Book value per common share $ 12.71 $ 9.51
Common shares outstanding (in thousands) 17,148 14,510
Other Data at end of period:
Allowance for loan losses $ 17,199 $ 13,094
Non-performing assets $ 12,451 $ 13,564
Allowance for loans losses to total loans 0.69 % 0.72 %
Non-performing assets to total assets 0.35 % 0.54 %
Number of:
Bank subsidiaries 7 7
Non-bank subsidiaries 7 3
Banking offices 31 29
=============================================================================================================================
<fn>
(1) The core net interest margin excludes the interest expense associated with
Wintrust's Long-term Debt - Trust Preferred Securities.
(2) The net overhead ratio is calculated by netting total non-interest expense
and total non-interest income, annualizing this amount, and dividing by
that period's total average assets.
(3) The efficiency ratio is calculated by dividing total non-interest expense
by tax-equivalent net revenues (less securities gains or losses).
</fn>
</table>
- 7 -
<page>
<table>
<caption>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED) (Unaudited)
SEPTEMBER 30, December 31, September 30,
(In thousands) 2002 2001 2001
--------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c>
ASSETS
Cash and due from banks $ 88,535 $ 71,575 $ 56,169
Federal funds sold and securities purchased
under resale agreements 303,560 51,955 184,632
Interest-bearing deposits with banks 1,591 692 156
Available-for-sale securities, at fair value 371,684 385,350 296,442
Trading account securities 5,964 -- --
Brokerage customer receivables 44,222 -- --
Mortgage loans held-for-sale 58,237 42,904 23,923
Loans, net of unearned income 2,483,892 2,018,479 1,823,801
Less: Allowance for loan losses 17,199 13,686 13,094
--------------------------------------------------------------------------------------------------------------------------
Net loans 2,466,693 2,004,793 1,810,707
Premises and equipment, net 117,299 99,132 94,958
Accrued interest receivable and other assets 92,518 38,936 38,155
Goodwill 25,220 9,976 10,128
Other intangibles 1,252 109 126
--------------------------------------------------------------------------------------------------------------------------
Total assets $ 3,576,775 $ 2,705,422 $ 2,515,396
==========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 281,204 $ 254,269 $ 209,276
Interest bearing 2,690,281 2,060,367 1,975,033
--------------------------------------------------------------------------------------------------------------------------
Total deposits 2,971,485 2,314,636 2,184,309
Notes payable 63,625 46,575 33,000
Federal Home Loan Bank advances 140,000 90,000 30,000
Other borrowings 49,245 28,074 38,358
Long-term debt - trust preferred securities 51,050 51,050 51,050
Accrued interest payable and other liabilities 83,342 33,809 40,655
--------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,358,747 2,564,144 2,377,372
--------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock -- -- --
Common stock 17,148 14,532 14,510
Surplus 152,557 97,956 97,699
Common stock warrants 96 99 99
Treasury stock, at cost -- -- --
Retained earnings 49,045 30,995 25,831
Accumulated other comprehensive loss (818) (2,304) (115)
--------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 218,028 141,278 138,024
--------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 3,576,775 $ 2,705,422 $ 2,515,396
==========================================================================================================================
</table>
- 8 -
<page>
<table>
<caption>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended NINE MONTHS ENDED
September 30, SEPTEMBER 30,
-----------------------------------------------------------------
(In thousands, except per share data) 2002 2001 2002 2001
-------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
INTEREST INCOME
Interest and fees on loans $ 41,398 $ 38,425 $ 116,425 $ 112,830
Interest bearing deposits with banks 9 1 17 4
Federal funds sold and securities purchased under resale
agreements 713 1,413 1,211 3,731
Securities 4,829 2,690 14,540 9,136
Trading account securities 42 -- 122 --
Brokerage customer receivables 554 -- 1,739 --
-------------------------------------------------------------------------------------------------------------------------------
Total interest income 47,545 42,529 134,054 125,701
-------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 18,449 21,290 51,709 64,885
Interest on Federal Home Loan Bank advances 1,490 265 3,465 265
Interest on notes payable and other borrowings 904 557 3,017 2,267
Interest on long-term debt - trust preferred securities 1,287 1,287 3,863 3,863
-------------------------------------------------------------------------------------------------------------------------------
Total interest expense 22,130 23,399 62,054 71,280
-------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 25,415 19,130 72,000 54,421
Provision for loan losses 2,504 2,100 7,335 6,002
-------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 22,911 17,030 64,665 48,419
-------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Trust, asset management and brokerage fees 6,725 486 18,726 1,459
Fees on mortgage loans sold 3,794 1,725 7,745 5,197
Service charges on deposit accounts 798 637 2,289 1,790
Gain on sale of premium finance receivables 656 1,265 2,250 3,656
Administrative services revenue 941 995 2,694 3,137
Net securities gains (losses) 196 (57) 43 315
Other 2,847 2,050 8,733 5,788
-------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 15,957 7,101 42,480 21,342
-------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 16,863 9,031 45,625 26,244
Occupancy, net 1,700 1,238 4,853 3,660
Equipment expense 1,760 1,561 5,286 4,627
Data processing 1,073 860 3,129 2,512
Advertising and marketing 596 411 1,653 1,144
Professional fees 737 459 2,033 1,524
Amortization of goodwill -- 152 -- 465
Amortization of other intangibles 120 17 237 51
Other 5,095 2,610 13,713 8,365
-------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 27,944 16,339 76,529 48,592
-------------------------------------------------------------------------------------------------------------------------------
Income before taxes and cumulative effect of accounting change 10,924 7,792 30,616 21,169
Income tax expense 3,640 2,784 10,663 7,640
-------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 7,284 5,008 19,953 13,529
Cumulative effect of change in accounting for derivatives,
net of tax -- -- -- (254)
-------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 7,284 $ 5,008 $ 19,953 $ 13,275
===============================================================================================================================
BASIC EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.43 $ 0.35 $ 1.24 $ 1.01
Cumulative effect of accounting change, net of tax -- -- -- (0.02)
-------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ 0.43 $ 0.35 $ 1.24 $ 0.99
===============================================================================================================================
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.40 $ 0.32 $ 1.16 $ 0.95
Cumulative effect of accounting change, net of tax -- -- -- (0.02)
-------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - DILUTED $ 0.40 $ 0.32 $ 1.16 $ 0.93
===============================================================================================================================
Cash dividends declared per common share $ 0.060 $ 0.047 $ 0.120 $ 0.093
===============================================================================================================================
Weighted average common shares outstanding 17,114 14,493 16,047 13,469
Dilutive potential common shares 1,198 957 1,089 744
-------------------------------------------------------------------------------------------------------------------------------
Average common shares and dilutive common shares 18,312 15,450 17,136 14,213
===============================================================================================================================
</table>
- 9 -
<page>
<table>
<caption>
LOANS, NET OF UNEARNED INCOME % Growth % Growth
from From
SEPTEMBER 30, December 31, September 30, December 31, September 30,
(Dollars in thousands) 2002 2001 2001 2001 (1) 2001
- --------------------------------------------------------- ----------------- ------------------ --------------- ----------------
<s> <c> <c> <c> <c> <c>
BALANCE:
--------
Commercial and commercial real estate $ 1,250,348 $ 1,007,580 $ 847,838 32.2 % 47.5 %
Home equity 350,422 261,049 236,446 45.8 48.2
Residential real estate 151,193 140,041 132,809 10.6 13.8
Premium finance receivables 470,470 348,163 335,742 47.0 40.1
Indirect auto loans 184,665 184,209 191,208 0.3 (3.4)
Tricom finance receivables 20,981 18,280 19,244 19.8 9.0
Consumer and other loans 55,813 59,157 60,514 (7.6) (7.8)
---------------- ----------------- ------------------ --------------- ----------------
Total loans, net of unearned income $ 2,483,892 $ 2,018,479 $ 1,823,801 30.8 % 36.2 %
---------------- ----------------- ------------------ --------------- ----------------
MIX:
----
Commercial and commercial real estate 50 % 50 % 47 %
Home equity 14 13 13
Residential real estate 6 7 7
Premium finance receivables 19 17 18
Indirect auto loans 8 9 11
Tricom finance receivables 1 1 1
Consumer and other loans 2 3 3
-------------------- ----------------- ----------------
Total loans, net of unearned income 100 % 100 % 100 %
-------------------- ----------------- ----------------
<fn>
(1) Annualized
</fn>
</table>
<table>
<caption>
DEPOSITS % Growth % Growth
From From
SEPTEMBER 30, December 31, September 30, December 31, September 30,
(Dollars in thousands) 2002 2001 2001 2001 (1) 2001
- ------------------------------------------------------ ------------------ ---------------- --------------- -----------------
<s> <c> <c> <c> <c> <c>
BALANCE:
--------
Non-interest bearing $ 281,204 $ 254,269 $ 209,276 14.2 % 34.4 %
NOW 360,583 286,860 246,319 34.4 46.4
Money market 381,593 335,881 311,336 18.2 22.6
Brokerage customer deposits 179,796 -- -- -- --
Savings 135,958 132,514 128,697 3.5 5.6
Time certificate of deposits 1,632,351 1,305,112 1,288,681 33.5 26.7
--------------- ------------------ ---------------- --------------- -----------------
Total deposits $ 2,971,485 $ 2,314,636 $ 2,184,309 37.9 % 36.0 %
--------------- ------------------ ---------------- --------------- -----------------
MIX:
----
Non-interest bearing 9 % 11 % 10 %
NOW 12 12 11
Money market 13 15 14
Brokerage customer deposits 6 -- --
Savings 5 6 6
Time certificate of deposits 55 56 59
------------------- ---------------- -----------------
Total deposits 100 % 100 % 100 %
------------------- ---------------- -----------------
<fn>
(1) Annualized
</fn>
</table>
Previously, Wintrust indicated its intentions to attempt to migrate funds from
the money market mutual fund balances managed by Wayne Hummer Asset Management
Company into deposit accounts of the Wintrust affiliate banks. Consistent with
reasonable interest rate risk parameters, the funds will generally be invested
in loan production of the affiliate banks as well as other investments suitable
for banks. As of September 30, 2002, approximately $180 million had migrated
into the insured bank deposit product at the affiliate banks. The migration of
additional funds to the affiliate banks is subject to the desire of the
customers to make the transition of their funds into FDIC insured bank accounts,
capital capacity of the Company and the availability of suitable investments in
which to deploy the funds. Wintrust estimates that approximately $200-$300
million in total may be migrated to bank deposits by year-end.
- 10 -
<page>
NET INTEREST INCOME
The following table presents a summary of Wintrust's net interest income and
related net interest margins, calculated on a fully tax-equivalent basis, for
the three-month periods ended September 30, 2002 and 2001:
<table>
<caption>
FOR THE QUARTER ENDED For the Quarter Ended
SEPTEMBER 30, 2002 September 30, 2001
----------------------------------------------------------------------------------
(Dollars in thousands) AVERAGE INTEREST RATE Average Interest Rate
- ---------------------- ----------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Liquidity management assets (1) (2) $ 611,355 $ 5,604 3.64 % $ 372,353 $ 4,123 4.39 %
Other earning assets (3) 56,836 596 4.16 -- -- --
Loans, net of unearned income (2) (4) 2,452,239 41,572 6.73 1,848,468 38,636 8.29
----------------------------------------------------------------------------------
Total earning assets $ 3,120,430 $ 47,772 6.07 % $ 2,220,821 $ 42,759 7.64 %
----------------------------------------------------------------------------------
Interest-bearing deposits $ 2,539,544 $ 18,449 2.88 % $ 1,905,097 $ 21,290 4.43 %
Federal Home Loan Bank advances 139,900 1,490 4.23 22,500 265 4.67
Notes payable and other borrowings 114,778 904 3.12 44,729 557 4.94
Long-term debt - trust preferred securities 51,050 1,287 10.09 51,050 1,287 10.09
----------------------------------------------------------------------------------
Total interest-bearing liabilities $ 2,845,272 $ 22,130 3.09 % $ 2,023,376 $ 23,399 4.59 %
----------------------------------------------------------------------------------
Interest rate spread (5) 2.98 % 3.05 %
Net free funds/contribution (6) $ 275,158 0.28 $ 197,445 0.41
---------------- ------------------------------ ------------
Net interest income/Net interest margin $ 25,642 3.26 % $ 19,360 3.46 %
-------------- --------------
------------- ------------
Core net interest margin (7) 3.42 % 3.69 %
------------- ------------
- -------------------------------------------------------------------------------------------------------------------
<fn>
(1) Liquidity management assets include available-for-sale securities, interest
earning deposits with banks and federal funds sold.
(2) Interest income on tax-advantaged loans and securities reflects a
tax-equivalent adjustment based on a marginal federal corporate tax rate of
35%. The total adjustments for the quarters ended September 30, 2002 and
2001 were $227,000 and $230,000, respectively.
(3) Other earning assets include brokerage customer receivables and trading
account securities. (4) Loans, net of unearned income includes mortgages
held for sale and non-accrual loans. (5) Interest rate spread is the
difference between the yield earned on earning assets and the rate paid on
interest-bearing liabilities.
(6) Net free funds are the difference between total average earning assets and
total average interest-bearing liabilities. The contribution is based on the
rate paid for total interest-bearing liabilities.
(7) The core net interest margin excludes the impact of Wintrust's Long-term
Debt - Trust Preferred Securities.
</fn>
</table>
Net interest income, which is the difference between interest income and fees on
earning assets and interest expense on deposits and borrowings, is the major
source of earnings for Wintrust. Tax-equivalent net interest income for the
quarter ended September 30, 2002 totaled $25.6 million, an increase of $6.2
million, or 32%, as compared to the $19.4 million recorded in the same quarter
of 2001. Average loans in the third quarter of 2002 increased $604 million, or
33%, over the third quarter of 2001.
Net interest margin represents tax-equivalent net interest income as a
percentage of the average earning assets during the period. For the third
quarter of 2002 the net interest margin was 3.26%, a decrease of 20 basis points
when compared to the net interest margin of 3.46% in the prior year third
quarter. The core net interest margin, which excludes the interest expense
related to Wintrust's Long-term Debt - Trust Preferred Securities, was 3.42% for
the third quarter of 2002, and decreased 27 basis points when compared to the
prior year third quarter's core margin of 3.69%. Wintrust's net interest margin
declined by 30 basis points when compared to the second quarter of 2002. The net
interest margin contracted due to a flattening yield curve, the Company's
preference for variable rate commercial and commercial real estate loans and
agency securities with call options written against them being called combined
with the asset sensitivity of the balance sheet.
The yield on total earning assets for the third quarter of 2002 was 6.07% as
compared to 7.64% in 2001, a decrease of 157 basis points resulting primarily
from the effect of decreases in general market rates on liquidity management
assets and loans. The other earning assets shown in the third quarter of 2002
reflect interest-bearing brokerage customer
- 11 -
<page>
receivables and trading account securities managed at the Wayne Hummer
Companies. The yield on earning assets is heavily dependent on the yield on
loans since average loans comprised approximately 79% of total average earning
assets. The third quarter 2002 yield on loans was 6.73%, a 156 basis point
decrease when compared to the prior year third quarter yield of 8.29%. The
average prime lending rate was 4.75% during the third quarter of 2002 versus
6.58% for the third quarter of 2001, reflecting a decrease of 183 basis points.
The rate paid on interest-bearing liabilities for the third quarter of 2002 was
3.09%, compared to 4.59% in the third quarter of 2001, a decline of 150 basis
points. Interest-bearing deposits accounted for 89% of total interest-bearing
funding in the third quarter of 2002, compared to 94% in the same period of
2001. The rate paid on interest-bearing deposits averaged 2.88% for the third
quarter of 2002 versus 4.43% for the same quarter of 2001, a decrease of 155
basis points. During 2001, Wintrust initiated borrowing from the Federal Home
Loan Bank ("FHLB"). The Company initially borrowed from the FHLB in the third
and fourth quarters of 2001 and borrowed an additional $50 million in the second
quarter of 2002. The increase in notes payable and other borrowings in the third
quarter of 2002 compared to the same quarter in 2001 was a result of the funding
at the Wayne Hummer Companies for the brokerage customer receivables, additional
funding required for the purchase of the Wayne Hummer Companies and borrowings
utilized to fund the additional capital requirements of the subsidiary banks.
The rate paid on Federal Home Loan Bank advances, notes payable and other
borrowings decreased 112 basis points to 3.73% in the third quarter of 2002 as
compared to 4.85% in the third quarter of 2001.
The following table presents a summary of Wintrust's net interest income and
related net interest margins, calculated on a fully tax-equivalent basis, for
the nine-month periods ended September 30, 2002 and 2001:
<table>
<caption>
FOR THE NINE MONTHS ENDED For the Nine Months Ended
SEPTEMBER 30, 2002 September 30, 2001
---------------------------------------------------------------------------------
(Dollars in thousands) Average Interest Rate Average Interest Rate
- ---------------------- ---------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Liquidity management assets (1) (2) $ 517,856 $ 15,865 4.10% $ 331,602 $ 12,918 5.21 %
Other earning assets (3) 57,663 1,861 4.31 -- -- --
Loans, net of unearned income (2) (4) 2,262,057 116,955 6.91 1,732,973 113,431 8.75
---------------------------------------------------------------------------------
Total earning assets $ 2,837,576 $ 134,681 6.35% $ 2,064,575 $ 126,349 8.18 %
---------------------------------------------------------------------------------
Interest-bearing deposits $ 2,286,074 $ 51,709 3.02% $ 1,782,386 $ 64,885 4.87 %
Federal Home Loan Bank advances 112,062 3,465 4.13 7,582 265 4.67
Notes payable and other borrowings 130,714 3,017 3.09 53,095 2,267 5.71
Long-term debt - trust preferred securities 51,050 3,863 10.09 51,050 3,863 10.09
---------------------------------------------------------------------------------
Total interest-bearing liabilities $ 2,579,900 $ 62,054 3.22% $ 1,894,113 $ 71,280 5.03 %
---------------------------------------------------------------------------------
Interest rate spread (5) 3.13 % 3.15 %
Net free funds/contribution (6) $ 257,676 0.29 $ 170,462 0.42
--------------- ----------------------------- ------------
Net interest income/Net interest margin $ 72,627 3.42 % $ 55,069 3.57 %
--------------- --------------
------------ ------------
Core net interest margin (7) 3.60 % 3.82 %
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------------------
<fn>
(1)Liquidity management assets include available-for-sale securities, interest
earning deposits with banks and federal funds sold.
(2)Interest income on tax-advantaged loans and securities reflects a
tax-equivalent adjustment based on a marginal federal corporate tax rate of
35%. The total adjustments for the nine-months ended September 30, 2002 and
2001 were $627,000 and $648,000, respectively.
(3)Other earning assets include brokerage customer receivables and trading
account securities. (6) Loans, net of unearned income includes mortgages held
for sale and non-accrual loans. (7) Interest rate spread is the difference
between the yield earned on earning assets and the rate paid on
interest-bearing liabilities.
(6)Net free funds are the difference between total average earning assets and
total average interest-bearing liabilities. The contribution is based on the
rate paid for total interest-bearing liabilities.
(7)The core net interest margin excludes the impact of Wintrust's Long-term Debt
- Trust Preferred Securities.
</fn>
</table>
- 12 -
<page>
NON-INTEREST INCOME
For the third quarter of 2002, non-interest income totaled $16.0 million and
increased $8.9 million over the prior year quarter. Significant increases were
realized in trust, asset management and brokerage fees as a result of the Wayne
Hummer Companies acquisition during the first quarter of 2002. Trust, asset
management and brokerage fees is comprised of the trust and asset management
revenue of Wayne Hummer Trust Company (name changed from Wintrust Asset
Management Company in May 2002) and the asset management fees, brokerage
commissions, trading commissions and insurance product commissions at the Wayne
Hummer Companies. The increase in this category, up $6.2 million over the third
quarter of 2001, is primarily attributable to the revenues from the Wayne Hummer
Companies. Wintrust is committed to growing the trust and investment business in
order to better service its customers and create a more diversified revenue
stream. Non-interest income comprised approximately 27% of total net revenues in
the third quarter of 2001. Primarily as a result of the Wayne Hummer Companies
acquisition, this has increased to approximately 39% for the third quarter of
2002.
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, 2002, these fees totaled $3.8 million, an increase of $2.1
million, or 120%, from the prior year third quarter and up from the $1.9 million
recorded in the second quarter of 2002. Although these fees are a continuous
source of revenue, these fees continue to be benefited by higher levels of
mortgage origination volumes, particularly refinancing activity caused by the
low level of mortgage interest rates. Management anticipates that the levels of
refinancing activity may taper off slightly for the remainder of 2002, barring
any further reductions in mortgage interest rates.
Service charges on deposit accounts totaled $798,000 for the third quarter of
2002, an increase of $161,000, or 25%, when compared to the same quarter of
2001. This increase was mainly 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.
As a result of continued strong loan originations of premium finance
receivables, Wintrust sold premium finance receivables to an unrelated third
party in the third quarter of 2002 and recognized gains of $656,000 related to
this activity, compared with $1.3 million of recognized gains in the third
quarter of 2001. Wintrust has a philosophy of maintaining its average
loan-to-deposit ratio in the range of 85-90%. During the third quarter of 2002,
the ratio was approximately 86%. Accordingly, Wintrust 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.
The administrative services revenue contributed by Tricom added $941,000 to
total non-interest income in the third quarter of 2002, a decrease of $54,000
from the third quarter of 2001 and an increase of $10,000 from the second
quarter of 2002. 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 had stagnated in previous quarters due to the general
slowdown in the United States economy and the reduction in the placement of
temporary staffing individuals by Tricom's customers. This business segment
appears to be rebounding as exhibited by the slightly higher levels of revenue
recorded by Tricom when compared to the first and second quarters of 2002.
Tricom also earns interest and fee income from providing short-term accounts
receivable financing to this same client base, which is included in the net
interest income category.
For the first nine months of 2002, total non-interest income was $42.5 million
and increased $21.1 million, or 99%, when compared to the same period in 2001.
Excluding the impact of the Wayne Hummer Companies, contributing $17.7 million
of non-interest revenue, and the $1.25 million partial settlement related to the
premium finance defalcation that was recovered in the first quarter of 2002,
non-interest income for the first nine months of 2002 increased by $2.2 million,
or 10%, compared to the first nine months of 2001. This increase was comprised
of
- 13 -
<page>
increased fees on mortgage loans sold from originating and selling residential
real estate loans into the secondary market of $2.5 million, higher service
charges on deposit accounts of $499,000 due to a higher deposit base and a
larger number of accounts at the banking subsidiaries and higher other
miscellaneous sources of revenue totaling $1.1 million offset by decreases in
recognized gains related to the sale of premium finance receivables to an
unrelated third party of $1.4 million, lower administrative services revenue
contributed by Tricom of $443,000 and lower net securities gains of $272,000.
NON-INTEREST EXPENSE
Non-interest expense for the third quarter of 2002 totaled $27.9 million and
increased $11.6 million, or 71%, from the third quarter 2001 total of $16.3
million. Operating expenses of the Wayne Hummer Companies, the continued growth
and expansion of the banks with additional branches and the growth in the
premium finance business are the major causes for this increase. Since September
30, 2001 total deposits and total loans have both increased 36% requiring higher
levels of staffing and other costs to both attract and service the larger
customer base. Excluding the impact of the Wayne Hummer Companies, total
non-interest expense increased $4.3 million, or 26%, when compared to the third
quarter of 2001, below the pace of the balance sheet growth.
Salaries and employee benefits totaled $16.9 million for the third quarter of
2002, an increase of $7.8 million, or 87%, as compared to the prior year's third
quarter total of $9.0 million. This increase was primarily due to the employee
costs associated with the Wayne Hummer Companies, increases in salaries and
employee benefit costs as a result of continued growth and expansion of the
banking franchise, commissions associated with increased mortgage loan
origination activity and normal annual increases in salaries and the employee
benefit costs. Excluding the impact of the Wayne Hummer Companies, total
salaries and employee benefits expense increased $2.6 million, or 29%, when
compared to the third quarter of 2001 and increased by $1.6 million, or 16%,
when compared to the second quarter of 2002.
Other categories of non-interest expense, such as occupancy costs, equipment
expense and data processing, also increased over the prior year third quarter
due to the acquisition of the Wayne Hummer Companies and the general growth and
expansion of the banks. Other non-interest expense, which includes loan
expenses, correspondent bank service charges, postage, insurance, stationery and
supplies, telephone, directors fees, and other sundry expenses, also increased
when compared to the prior year third quarter due mainly to the factors
mentioned earlier.
On a year-to-date basis non-interest expense totaled $76.5 million and increased
$27.9 million, or 57%, over the first nine months of 2001. The Wayne Hummer
Companies contributed $19.3 million of this increase. The $8.6 million increase,
excluding the Wayne Hummer Companies, is predominantly due to a $5.5 million
increase in salaries and employee benefits costs and the higher general
operating costs associated with operating additional and larger banking offices.
Despite balance sheet growth in loans and deposits of 36%, Wintrust's net
overhead ratio, excluding the impact of the Wayne Hummer Companies, decreased
from 1.62% for the first nine months of 2001 to 1.47% for the comparable period
in 2002.
- 14 -
<page>
ASSET QUALITY
Allowance for Loan Losses
- -------------------------
A reconciliation of the activity in the balance of the allowance for loan losses
for the three and nine months ended September 30, 2002 and 2001 is shown as
follows:
<table>
<caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------------------------------------
(Dollars in thousands) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
BALANCE AT BEGINNING OF PERIOD $ 16,009 $ 12,111 $ 13,686 $ 10,433
PROVISION FOR LOAN LOSSES 2,504 2,100 7,335 6,002
CHARGE-OFFS:
- ------------
Commercial and commercial real estate loans 379 359 782 734
Home equity loans -- 25 -- 25
Residential real estate loans 3 11 3 24
Consumer and other loans 24 7 172 27
Premium finance receivables 1,034 751 2,878 2,299
Indirect automobile loans 165 251 640 741
Tricom finance receivables 1 -- 10 --
-------------- ------------- --------------- ---------------
Total charge-offs 1,606 1,404 4,485 3,850
-------------- ------------- --------------- ---------------
RECOVERIES:
- -----------
Commercial and commercial real estate loans 144 152 279 156
Home equity loans -- -- -- --
Residential real estate loans -- -- -- --
Consumer and other loans 3 -- 15 --
Premium finance receivables 111 73 240 202
Indirect automobile loans 33 62 103 151
Tricom finance receivables 1 -- 26 --
-------------- ------------- --------------- ---------------
Total recoveries 292 287 663 509
-------------- ------------- --------------- ---------------
NET CHARGE-OFFS (1,314) (1,117) (3,822) (3,341)
-------------- ------------- --------------- ---------------
BALANCE AT SEPTEMBER 30 $ 17,199 $ 13,094 $ 17,199 $ 13,094
-------------- ------------- --------------- ---------------
ANNUALIZED NET CHARGE-OFFS (RECOVERIES) AS A PERCENTAGE
OF AVERAGE:
Commercial and commercial real estate loans 0.08 % 0.10 % 0.06 % 0.10 %
Home equity loans -- 0.04 -- 0.02
Residential real estate loans 0.01 0.03 -- 0.02
Consumer and other loans 0.14 0.04 0.34 0.05
Premium finance receivables 0.75 0.74 0.79 0.79
Indirect automobile loans 0.28 0.39 0.39 0.41
Tricom finance receivables -- -- (0.11) --
---------------------------------- -------------------------------------
Total loans, net of unearned income 0.21 % 0.24 % 0.23 % 0.26 %
---------------------------------- -------------------------------------
Net charge-offs as a percentage of the
provision for loan losses 52.48 % 53.19 % 52.11 % 55.66 %
---------------------------------- -------------------------------------
Loans at September 30 $ 2,483,892 $ 1,823,801
-------------------------------------
Allowance as a percentage of loans at period-end 0.69 % 0.72 %
-------------------------------------
</table>
- 15 -
<page>
Past Due Loans and Non-performing Assets
- ----------------------------------------
The following table sets forth Wintrust'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.
<table>
<caption>
SEPTEMBER 30, June 30, December 31, September 30,
(Dollars in thousands) 2002 2002 2001 2001
- ---------------------------------------------------------------- ------------------ -------------- ----------------- ---------------
<s> <c> <c> <c> <c>
PAST DUE GREATER THAN 90 DAYS AND STILL ACCRUING:
Residential real estate and home equity $ 306 $ 16 $ 168 $ 928
Commercial, consumer and other 2,247 1,055 1,059 495
Premium finance receivables 2,170 2,141 2,402 3,131
Indirect automobile loans 384 340 361 384
Tricom finance receivables -- -- -- --
------------------ -------------- ----------------- ---------------
Total past due greater than 90 days and still accruing 5,107 3,552 3,990 4,938
------------------ -------------- ----------------- ---------------
NON-ACCRUAL LOANS:
Residential real estate and home equity 346 401 1,385 869
Commercial, consumer and other 1,430 1,528 1,180 900
Premium finance receivables 4,731 5,417 5,802 6,042
Indirect automobile loans 409 163 496 364
Tricom finance receivables 75 104 104 207
------------------ -------------- ----------------- ---------------
Total non-accrual 6,991 7,613 8,967 8,382
------------------ -------------- ----------------- ---------------
TOTAL NON-PERFORMING LOANS:
Residential real estate and home equity 652 417 1,553 1,797
Commercial, consumer and other 3,677 2,583 2,239 1,395
Premium finance receivables 6,901 7,558 8,204 9,173
Indirect automobile loans 793 503 857 748
Tricom finance receivables 75 104 104 207
------------------ -------------- ----------------- ---------------
Total non-performing loans 12,098 11,165 12,957 13,320
------------------ -------------- ----------------- ---------------
Other real estate owned 353 756 100 244
------------------ -------------- ----------------- ---------------
TOTAL NON-PERFORMING ASSETS $ 12,451 $ 11,921 $ 13,057 $ 13,564
================== ============== ================= ===============
TOTAL NON-PERFORMING LOANS BY CATEGORY AS A PERCENT
OF ITS OWN RESPECTIVE CATEGORY:
Residential real estate and home equity 0.13% 0.09% 0.39% 0.46%
Commercial, consumer and other 0.28 0.22 0.21 0.15
Premium finance receivables 1.47 1.64 2.36 2.73
Indirect automobile loans 0.43 0.27 0.47 0.39
Tricom finance receivables 0.36 0.54 0.57 1.08
------------------ -------------- ----------------- ---------------
Total non-performing loans 0.49% 0.48% 0.64% 0.73%
================== ============== ================= ===============
Total non=performing assets as a
percentage of total assets 0.35% 0.37% 0.48% 0.54%
================== ============== ================= ===============
Allowance for loan losses as a
percentage of non=performing loans 142.16% 143.39% 105.63% 98.30%
================== ============== ================= ===============
</table>
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The provision for loan losses totaled $2.5 million for the third quarter of
2002, an increase of $404,000 from a year earlier. For the quarter ended
September 30, 2002 net charge-offs totaled $1.3 million, up from the $1.1
million of net charge-offs recorded in the same period of 2001. On a ratio basis
annualized net charge-offs as a percentage of average loans decreased to 0.21%
in the third quarter of 2002 from 0.24% in the same period in 2001.
On a year-to-date basis the provision for loan losses totaled $7.3 million for
the first nine months of 2002, an increase of $1.3 million over the same period
last year. Net charge-offs for the first nine months of 2002 increased to $3.8
million, a $481,000 or 14% increase over the $3.3 million recorded in the same
period last year. On a ratio basis, annualized net charge-offs as a percentage
of average loans decreased to 0.23% for the first nine months of 2002 from 0.26%
in the first nine months of 2001.
Management has actively monitored and pursued methods to reduce the level of
delinquencies in the indirect auto and premium finance portfolios (See "Past Due
Loans and Non-performing Assets"). Management believes the allowance for loan
losses is adequate to provide for inherent 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 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.
Non-performing Residential Real Estate, Commercial, Consumer and Other Loans
Total non-performing loans for Wintrust's residential real estate, commercial,
consumer and other loans were $4.3 million, up from the $3.0 million reported at
June 30, 2002, and the $3.8 million reported at December 31, 2001. These loans
consist primarily of a small number of commercial, residential real estate and
home equity loans, which management believes are well secured and in the process
of collection. The small number of such non-performing loans allows management
to monitor the status of these credits and work with the borrowers to resolve
these problems effectively.
Non-performing Premium Finance Receivables
The table below presents the level of non-performing premium finance receivables
as of September 30, 2002 and 2001, and the amount of net charge-offs for the
nine months then ended.
<table>
<caption>
(Dollars in thousands) SEPTEMBER 30, September 30,
2002 2001
- ------------------------------------------------------------------------- ------------------------- -----------------------
<s> <c> <c>
Non-performing premium finance receivables $ 6,901 $ 9,173
- as a percent of premium finance receivables 1.47% 2.73%
Net charge-offs of premium finance receivables $ 2,638 $ 2,097
- annualized as a percent of premium finance receivables 0.79% 0.79%
- ------------------------------------------------------------------------- ------------------------- -----------------------
</table>
The improvement in the level of non-performing premium finance receivables since
September 30, 2001 is indicative of actions taken by management. As noted in
Wintrust's prior quarterly earnings releases in 2001 Wintrust has eliminated
more than 1,300 relationships with insurance agents that were referring new
business to our premium finance subsidiary that had relatively small balances
and higher than normal delinquency rates. The business associated with those
accounts has become a less significant percent of the entire portfolio and is
nearly extinguished. Management continues to see progress in this portfolio and
continues to expect the level of non-performing loans related to this portfolio
to remain at relatively low levels.
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The ratio of non-performing premium finance receivables fluctuates throughout
the year due to the nature and timing of canceled account collections from
insurance carriers. Due to the nature of collateral for premium finance
receivables it customarily takes 60-150 days to convert the collateral into cash
collections. Accordingly, the level of non-performing premium finance
receivables is not necessarily indicative of the loss inherent in the portfolio.
In the event of default, Wintrust has the power to cancel the insurance policy
and collect the unearned portion of the premium from the insurance carrier. In
the event of cancellation, the cash returned in payment of the unearned premium
by the insurer should generally be sufficient to cover the receivable balance,
the interest and other charges due. Due to notification requirements and
processing time by most insurance carriers, many receivables will become
delinquent beyond 90 days while the insurer is processing the return of the
unearned premium. Management continues to accrue interest until maturity as the
unearned premium is ordinarily sufficient to pay-off the outstanding balance and
contractual interest due.
Non-performing Indirect Automobile Loans
Total non-performing indirect automobile loans were $793,000 at September 30,
2002, decreasing from $857,000 at December 31, 2001 and up from $748,000 at
September 30, 2001. The ratio of these non-performing loans to total indirect
automobile loans stood at 0.43% of total indirect automobile loans at September
30, 2002, 0.47% at December 31, 2001 and 0.39% at September 30, 2001. As noted
in the Allowance for Loan Losses table net charge-offs as a percent of total
indirect automobile loans has decreased from 0.39% in the third quarter of 2001
to 0.28% in the third quarter of 2002. The level of non-performing and net
charge-offs of indirect automobile loans continues to be below standard industry
ratios for this type of lending. Due to the impact of the current economic and
competitive environment surrounding this type of lending, management continues
to de-emphasize, in relation to other loan categories, growth in the indirect
automobile loan portfolio. Indirect automobile loans at September 30, 2002 were
$184 million, unchanged from December 31, 2001 but down $7 million, or 3% from
September 30, 2001.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements related to Wintrust's
financial performance that are based on estimates. Wintrust intends such
forward-looking statements to be covered by the safe harbor provision 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
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, competition and the related pricing of brokerage
and asset management products, unforeseen difficulties in integrating the
acquisition of the Wayne Hummer Companies, 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.
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