UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
Commission File Number 0-21923
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Illinois 36-3873352
- ---------------------------------------- ------------------------------------
(State of incorporation or organization) (I.R.S. Employer Identification No.)
727 North Bank Lane
Lake Forest, Illinois 60045
-------------------------------------------------------
(Address of principal executive offices)
(847) 615-4096
------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of issuer's class of common
stock, as of the last practicable date.
Common Stock - no par value, 17,179,145 shares, as of November 4, 2002.
TABLE OF CONTENTS
PART I. -- FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements.________________________________________ 1-15
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. _________________________________ 16-39
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks. 40-42
ITEM 4. Controls and Procedures. ____________________________________ 42
PART II. -- OTHER INFORMATION
ITEM 1. Legal Proceedings. __________________________________________ 43
ITEM 2. Changes in Securities and Use of Proceeds.___________________ 43
ITEM 3. Defaults Upon Senior Securities. ____________________________ 43
ITEM 4. Submission of Matters to a Vote of Security Holders. ________ 43
ITEM 5. Other Information. __________________________________________ 43
ITEM 6. Exhibits and Reports on Form 8-K. ___________________________ 43-44
Signatures __________________________________________________ 45
Certifications_______________________________________________ 46-48
Exhibit Index _______________________________________________ 49
PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED) (Unaudited)
SEPTEMBER 30, December 31, September30,
(In thousands) 2002 2001 2001
- ----------------------------------------------------------------------------------------------------------------------------------
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 intangible assets 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
==================================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 1 -
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
- --------------------------------------------------------------------------------------------------------------------------------
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 13,470
Dilutive potential common shares 1,198 957 1,089 744
- --------------------------------------------------------------------------------------------------------------------------------
Average common shares and dilutive common shares 18,312 15,450 17,136 14,214
================================================================================================================================
See accompanying notes to unaudited consolidated financial statements.
- 2 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
ACCUMULATED
OTHER
COMPRE-
COMPRE- COMMON HENSIVE TOTAL
HENSIVE COMMON STOCK TREASURY RETAINED INCOME SHAREHOLDERS'
(In thousands) INCOME STOCK SURPLUS WARRANTS STOCK EARNINGS (LOSS) EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 13,285 $79,282 $ 100 $ (3,863) $ 13,835 $ (363) $ 102,276
Comprehensive income:
Net income $13,275 -- -- -- -- 13,275 -- 13,275
Other comprehensive income, net of tax:
Unrealized gains on securities, net 748 748
of reclassification adjustment 748 -- -- -- -- --
Unrealized losses on derivative
instruments (500) -- -- -- -- -- (500) (500)
-----------
Comprehensive income $13,523
Cash dividends declared on
common stock -- -- -- -- (1,279) -- (1,279)
Common stock issued for:
New issuance, net of costs 1,125 17,244 -- 3,863 -- -- 22,232
Employee stock purchase plan 7 148 -- -- -- -- 155
Exercise of common stock warrants 1 11 (1) -- -- -- 11
Exercise of stock options 92 1,014 -- -- -- -- 1,106
- --------------------------------------- ---------------------------------------------------------------------------------
Balance at September 30, 2001 $ 14,510 $97,699 $ 99 $ -- $ 25,831 $ (115) $ 138,024
======================================= =================================================================================
BALANCE AT DECEMBER 31, 2001 $ 14,532 $97,956 $ 99 $ -- $ 30,995 $(2,304) $ 141,278
COMPREHENSIVE INCOME:
NET INCOME $ 19,953 -- -- -- -- 19,953 -- 19,953
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
UNREALIZED GAINS ON SECURITIES, NET
OF RECLASSIFICATION ADJUSTMENT 1,810 -- -- -- -- -- 1,810 1,810
UNREALIZED LOSSES ON DERIVATIVE
INSTRUMENTS (324) -- -- -- -- -- (324) (324)
-----------
COMPREHENSIVE INCOME $ 21,439
CASH DIVIDENDS DECLARED ON (1,903) (1,903)
COMMON STOCK -- -- -- -- --
PURCHASE OF FRACTIONAL SHARES (10)
RESULTING FROM STOCK SPLIT -- (10) -- -- -- --
COMMON STOCK ISSUED FOR:
NEW ISSUANCE, NET OF COSTS 1,363 35,149 -- -- -- -- 36,512
ACQUISITION OF THE WAYNE HUMMER
COMPANIES 763 14,237 -- -- -- -- 15,000
DIRECTOR COMPENSATION PLAN 3 64 -- -- -- -- 67
EMPLOYEE STOCK PURCHASE PLAN 7 357 -- -- -- -- 364
EXERCISE OF COMMON STOCK WARRANTS 3 27 (3) -- -- -- 27
EXERCISE OF STOCK OPTIONS 477 4,777 -- -- -- -- 5,254
- --------------------------------------- ---------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2002 $17,148 $ 152,557 $ 96 $ -- $49,045 $(818) $218,028
======================================= =================================================================================
Nine Months Ended September 30,
-----------------------------------
2002 2001
------------------ --------------
Disclosure of reclassification amount and income tax impact:
Unrealized holding gains on available for sale securities during the period, net $ 2,822 $ 1,496
Unrealized holding losses on derivative instruments arising during the period (499) (769)
Less: Reclassification adjustment for gains included in net income, net 43 315
Less: Income tax expense 794 164
------------------ ----------------
Net unrealized gains on available-for-sale securities and derivative instruments $ 1,486 $ 248
================== ================
See accompanying notes to unaudited consolidated financial statements.
- 3 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended
September 30,
----------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2002 2001
----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 19,953 $ 13,275
Adjustments to reconcile net income to net cash provided by, or used for,
operating activities:
Cumulative effect of accounting change -- 254
Provision for loan losses 7,335 6,002
Depreciation and amortization 6,402 5,921
Net decrease in deferred income taxes 319 604
Tax benefit from exercises of stock options 2,684 275
Net amortization (accretion) of securities 2,585 (974)
Originations of mortgage loans held for sale (645,300) (357,716)
Proceeds from sales of mortgage loans held for sale 629,967 344,217
Net (increase) decrease in trading securities (1,153) 16
Net decrease in brokerage customer receivables 18,760 --
Gain on sale of premium finance receivables (2,250) (3,656)
Gain on sale of available-for-sale securities, net (43) (315)
Loss (gain) on sale of premises and equipment, net 4 (198)
Increase in accrued interest receivable and other assets, net (6,860) (5,060)
Increase (decrease) in accrued interest payable and other liabilities, net 28,235 (10,873)
----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES $ 60,638 $ (8,228)
----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale securities $ 397,919 $ 222,181
Proceeds from sales of available-for-sale securities 2,535,853 1,174,424
Purchases of available-for-sale securities (2,919,618) (1,497,514)
Proceeds from sales of premium finance receivables 222,410 186,558
Cash paid for the Wayne Hummer Companies, net of cash received (8,225) --
Net (increase) decrease in interest-bearing deposits with banks (607) 26
Net increase in loans (690,151) (462,692)
Purchase of Bank Owned Life Insurance (41,144) --
Purchase of premises and equipment, net (23,491) (13,835)
----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES $ (527,054) $ (390,852)
----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts $ 656,849 $ 357,733
Decrease in other borrowings, net (26,478) (5,281)
Increase in notes payable, net 17,050 5,425
Proceeds from Federal Home Loan Bank advances 50,000 30,000
Issuance of common shares, net of issuance costs 36,512 22,232
Issuance of common shares from stock options, employee stock purchase plan, common
stock warrants and cash for stock split fractional shares, net 2,951 997
Dividends paid (1,903) (1,279)
----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 734,981 $ 409,827
----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 268,565 $ 10,747
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 123,530 $ 230,054
----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 392,095 $ 240,801
==================================================================================================================================
Supplemental disclosure of cash flow information:
Acquisition of the Wayne Hummer Companies:
Fair value of assets acquired, including cash and cash equivalents $ 76,055 $ --
Value ascribed to intangibles 16,624 --
Liabilities assumed 63,577 --
See accompanying notes to unaudited consolidated financial statements.
- 4 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
---------------------
The consolidated financial statements of Wintrust Financial Corporation and
Subsidiaries ("Wintrust" or "Company") presented herein are unaudited, but in
the opinion of management reflect all necessary adjustments of a normal or
recurring nature for a fair presentation of results as of the dates and for the
periods covered by the consolidated financial statements.
Wintrust is a financial holding company currently engaged in the business of
providing traditional community banking services to customers in the Chicago
metropolitan area. Additionally, the Company operates various non-bank
subsidiaries.
As of September 30, 2002, Wintrust had seven wholly-owned bank subsidiaries
(collectively, "Banks"), all of which started as de novo institutions, including
Lake Forest Bank & Trust Company ("Lake Forest Bank"), Hinsdale Bank & Trust
Company ("Hinsdale Bank"), North Shore Community Bank & Trust Company ("North
Shore Bank"), Libertyville Bank & Trust Company ("Libertyville Bank"),
Barrington Bank & Trust Company, N.A. ("Barrington Bank"), Crystal Lake Bank &
Trust Company, N.A. ("Crystal Lake Bank") and Northbrook Bank & Trust Company
("Northbrook Bank").
The Company provides loans to businesses to finance the insurance premiums they
pay on their commercial insurance policies ("premium finance receivables") on a
national basis, through First Insurance Funding Corporation ("FIFC"). FIFC is a
wholly-owned subsidiary of Crabtree Capital Corporation ("Crabtree") which is a
wholly-owned subsidiary of Lake Forest Bank. Wintrust, through Tricom, Inc. of
Milwaukee ("Tricom"), also provides short-term accounts receivable financing
("Tricom finance receivables") and value-added out-sourced administrative
services, such as data processing of payrolls, billing and cash management
services, to the temporary staffing industry, with clients located throughout
the United States. Tricom is a wholly-owned subsidiary of Hinsdale Bank. The
Company provides trust and investment services at each of its Banks through its
wholly-owned subsidiary, Wayne Hummer Trust Company, N.A. ("WHTC"), formerly
known as Wintrust Asset Management Company. Wayne Hummer Investments, LLC
("WHI") is a broker-dealer providing a full range of private client and
securities brokerage services to clients located primarily in the Midwest and is
a wholly-owned subsidiary of North Shore Bank. Focused Investments LLC
("Focused") is a broker-dealer that provides a full range of investment services
to clients through a network of relationships with community-based financial
institutions primarily in Illinois. Focused is a wholly-owned subsidiary of WHI.
Wayne Hummer Asset Management Company ("WHAMC") provides money management
services and advisory services to individuals and institutions, municipal and
tax-exempt organizations, as well as four proprietary mutual funds in addition
to portfolio management and financial supervision for a wide range of pension
and profit-sharing plans. WHAMC is a wholly-owned subsidiary of Wintrust.
Collectively WHI, WHAMC and Focused are referred to as the "Wayne Hummer
Companies" or "WHC". Wintrust Information Technology Services Company provides
information technology support, item capture and statement preparation services
to the Wintrust subsidiaries and is a wholly-owned subsidiary of Wintrust.
The accompanying consolidated financial statements are unaudited and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations or cash flows in accordance with
generally accepted accounting principles. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes included in the Company's Annual Report and Form 10-K for the year ended
December 31, 2001. Operating results for the three-month and year-to-date
periods presented are not necessarily indicative of the results which may be
expected for the entire year. Reclassifications of certain prior period amounts
have been made to conform to the current period presentation.
- 5 -
(2) CASH AND CASH EQUIVALENTS
-------------------------
For the purposes of the Consolidated Statements of Cash Flows, the Company
considers cash and cash equivalents to include cash and due from banks, federal
funds sold and securities purchased under resale agreements which have an
original maturity of 90 days or less.
(3) AVAILABLE-FOR-SALE SECURITIES
-----------------------------
The following table is a summary of the available-for-sale securities portfolio
as of the dates shown:
SEPTEMBER 30, 2002 December 31, 2001 September 30, 2001
------------------------------------------------------------ -----------------------------
AMORTIZED FAIR Amortized Fair Amortized Fair
(In thousands) COST VALUE Cost Value Cost Value
------------------------------------------------------- -------------------------------------------- -----------------------------
U.S. Treasury $ 2,563 $ 2,573 $ 3,045 $ 3,048 $ 26,043 $ 26,043
U.S. Government agencies 202,812 203,647 151,911 152,185 80,881 81,030
Municipal 8,045 8,228 6,507 6,686 5,638 5,872
Corporate notes and other 76,278 74,565 26,691 25,895 56,590 56,657
Mortgage-backed 62,830 63,497 184,483 181,425 110,483 111,163
Federal Reserve/FHLB Stock
and other equity securities 19,048 19,174 15,384 16,111 15,109 15,677
--------------- -------------------------------------------- -----------------------------
Total available-for-sale securities $ 371,576 $ 371,684 $ 388,021 $ 385,350 $ 294,744 $ 296,442
--------------- -------------------------------------------- -----------------------------
(4) LOANS
-----
The following table is a summary of the loan portfolio as of the dates shown:
SEPTEMBER 30, December 31, September 30,
(Dollars in thousands) 2002 2001 2001
- ------------------------------------------------------------- --------------------- --------------------- ---------------------
BALANCE:
Commercial and commercial real estate $ 1,250,348 $ 1,007,580 $ 847,838
Home equity 350,422 261,049 236,446
Residential real estate 151,193 140,041 132,809
Premium finance receivables 470,470 348,163 335,742
Indirect auto loans 184,665 184,209 191,208
Tricom finance receivables 20,981 18,280 19,244
Consumer and other loans 55,813 59,157 60,514
--------------------- --------------------- ---------------------
Total loans, net of unearned income $ 2,483,892 $ 2,018,479 $ 1,823,801
===================== ===================== =====================
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
Other loans 2 3 3
--------------------- --------------------- ---------------------
Total loans, net of unearned income 100 % 100 % 100 %
===================== ===================== =====================
Included in loans as of September 30, 2002 is an aggregate of $1.7 million of
loans to the Company's Chief Executive Officer and Chief Operating Officer
secured by 172,500 shares of the Company's common stock. The total maximum
available to be borrowed under these loan arrangements is $1.7 million. The
loans are full recourse to the borrowers.
- 6 -
(5) DEPOSITS
--------
The following is a summary of deposits as of the dates shown:
SEPTEMBER 30, December 31, September 30,
(Dollars in thousands) 2002 2001 2001
- ------------------------------------------------------------- --------------------- -------------------- --------------------
BALANCE:
Non-interest bearing $ 281,204 $ 254,269 $ 209,276
NOW 360,583 286,860 246,319
Brokerage customer deposits 179,796 -- --
Money market 381,593 335,881 311,336
Savings 135,958 132,514 128,697
Time certificate of deposits 1,632,351 1,305,112 1,288,681
--------------------- -------------------- --------------------
Total deposits $ 2,971,485 $ 2,314,636 $ 2,184,309
--------------------- -------------------- --------------------
MIX:
Non-interest bearing 9 % 11 % 10 %
NOW 12 12 11
Brokerage customer deposits 6 -- --
Money market 13 15 14
Savings 5 6 6
Time certificate of deposits 55 56 59
--------------------- -------------------- --------------------
Total deposits 100 % 100 % 100 %
===================== ==================== ====================
As previously disclosed, following its acquisition of the Wayne Hummer Companies
in February 2002, Wintrust has undertaken an effort to migrate funds from the
money market mutual fund balances managed by WHAMC into deposit accounts of the
Wintrust Banks. Consistent with reasonable interest rate risk parameters, the
funds will generally be invested in excess loan production of the Banks as well
as other investments suitable for banks. As of September 30, 2002, $180 million
had migrated into an insured bank deposit product at the various Banks. The
migration of additional funds to the Banks is subject to the desire of the
customers to make the transition of their funds into FDIC-insured bank accounts,
capital capacity of the Company and the availability of suitable investments in
which to deploy the funds. As of October 31, 2002, a total of approximately $195
million was resident in this account and Wintrust estimates that approximately
$200 to $300 million will migrate to the Banks by the end of 2002.
(6) NOTES PAYABLE, FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS:
-------------------------------------------------------------------
The following is a summary of notes payable, Federal Home Loan Bank advances and
other borrowings as of the dates shown:
SEPTEMBER 30, December 31, September 30,
(In thousands) 2002 2001 2001
----------------------------------------------------------------------- --------------------------------------- ------------------
Notes payable $ 63,625 $ 46,575 $ 33,000
Federal Home Loan Bank advances 140,000 90,000 30,000
Other borrowings:
Federal funds purchased -- 11,800 22,500
Securities sold under repurchase agreements 19,064 16,274 15,858
Wayne Hummer Companies borrowings 25,181 -- --
Other 5,000 -- --
--------------------------------------- ------------------
Total other borrowings $ 49,245 $ 28,074 $ 38,358
--------------------------------------- ------------------
Total notes payable, Federal Home Loan Bank advances and
other borrowings $ 252,870 $ 164,649 $ 101,358
======================================= ==================
The Wayne Hummer Companies borrowings consists of collateralized demand
obligations to third party banks at interest rates approximating the fed funds
rate that are used to finance securities purchased by customers on margin and
securities owned by WHI and demand obligations to brokers and clearing
organizations at rates approximating fed funds. Other represents the Company's
interest-bearing deferred portion of the purchase price of the Wayne Hummer
Companies. Please see Note 11 - Business Combinations for further discussion.
- 7 -
(7) LONG-TERM DEBT - TRUST PREFERRED SECURITIES
-------------------------------------------
The Company issued a total of $51.1 million of Trust Preferred Securities
through two separate issuances by Wintrust Capital Trust I and Wintrust Capital
Trust II ("Trusts"). The Trusts issued a total of $1,579,000 of common
securities, all of which are owned by the Company. The Trust Preferred
Securities represent preferred undivided beneficial interests in the assets of
the Trusts. The Trusts invested the proceeds from the issuances of the Trust
Preferred Securities and the common securities in Subordinated Debentures
("Debentures") issued by the Company, with the same maturities and fixed
interest rates as the Trust Preferred Securities. The Debentures are the sole
assets of the Trusts and are eliminated, along with the related income statement
effects, in the consolidated financial statements.
The composition of the Trust Preferred Securities as of September 30, 2002
(Dollars in thousands):
Earliest
Issuance Rate Maturity Redemption
Issuance Trust Amount Date Type Rate Date Date
------------------------------ --------------- ----------------- --------------- --------------- ---------------- ----------------
Wintrust Capital Trust I $ 31,050 10/98 Fixed 9.00% 09/30/28 09/30/03
Wintrust Capital Trust II 20,000 06/00 Fixed 10.50% 06/30/30 06/30/05
---------------
Total $ 51,050
===============
The Company has guaranteed the payment of distributions on and payments upon
liquidation or redemption of the Trust Preferred Securities, in each case to the
extent of funds held by the Trusts. The Company and the Trusts believe that,
taken together, the obligations of the Company under the guarantees, the
subordinated debentures, and other related agreements provide, in the aggregate,
a full, irrevocable and unconditional guarantee, on a subordinated basis, of all
of the obligations of the Trusts under the Trust Preferred Securities. Subject
to certain limitations, the Company has the right to defer payment of interest
on the Debentures at any time, or from time to time, for a period not to exceed
20 consecutive quarters. The Trust Preferred Securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Debentures at maturity or
their earlier redemption. The Debentures of the Trusts are redeemable in whole
or in part prior to maturity at any time after the date shown above, and earlier
at the discretion of the Company if certain conditions are met, and, in any
event, only after the Company has obtained Federal Reserve approval, if then
required under applicable guidelines or regulations.
The Trust Preferred Securities, subject to certain limitations, qualify as Tier
1 capital of the Company for regulatory purposes. Interest expense on the Trust
Preferred Securities is deductible for tax purposes.
(8) EARNINGS PER SHARE
------------------
The following table shows the computation of basic and diluted earnings per
share for the periods shown:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------------- ---------------------------------
(In thousands, except per share data) 2002 2001 2002 2001
- -------------------------------------------------------------- --------------- --------------- ---------------- ---------------
Net Income $ 7,284 $ 5,008 $ 19,953 $ 13,275
=============== =============== ================ ===============
Average common shares outstanding 17,114 14,493 16,047 13,470
Effect of dilutive common shares 1,198 957 1,089 744
--------------- --------------- ---------------- ---------------
Weighted average common shares and
effect of dilutive common shares 18,312 15,450 17,136 14,214
--------------- --------------- ---------------- ---------------
Net income per average common share:
Basic $ 0.43 $ 0.35 $ 1.24 $ 0.99
--------------- --------------- ---------------- ---------------
Diluted $ 0.40 $ 0.32 $ 1.16 $ 0.93
=============== =============== ================ ===============
The effect of dilutive common shares outstanding results from stock options,
stock warrants and shares issuable under the Employee Stock Purchase Plan and
the Directors Deferred Fee and Stock Plan, all being treated as if they had been
either exercised or issued, computed by application of the treasury stock
method.
- 8 -
(9) SEGMENT INFORMATION
-------------------
The segment financial information provided in the following tables has been
derived from the internal profitability reporting system used by management to
monitor and manage the financial performance of the Company. The Company
evaluates segment performance based on after-tax profit or loss and other
appropriate profitability measures common to each segment. Certain indirect
expenses have been allocated based on actual volume measurements and other
criteria, as appropriate. Inter-segment revenue and transfers are generally
accounted for at current market prices. The other category, as shown in the
following table, reflects parent company information. The net interest income
and segment profit of the banking segment includes income and related interest
costs from portfolio loans that were purchased from the premium finance and
indirect auto segments. For purposes of internal segment profitability analysis,
management reviews the results of its premium finance and indirect auto segments
as if all loans originated and sold to the banking segment were retained within
that segment's operations, thereby causing the inter-segment elimination amounts
shown in the following table. The following table presents a summary of certain
operating information for each reportable segment for three months ended for the
periods shown:
Three Months Ended
September 30,
--------------------------------------- $ Change in % Change in
(Dollars in thousands) 2002 2001 Contribution Contribution
----------------------------------------------- ------------------ ------------------ ------------------- ----------------------
NET INTEREST INCOME:
Banking $ 22,620 $ 17,936 $ 4,684 26.1 %
Premium finance 8,614 6,909 1,705 24.7
Indirect auto 2,025 1,807 218 12.1
Tricom 1,193 976 217 22.2
Trust, asset management and brokerage 1,249 188 1,061 N/M
Inter-segment eliminations (8,433) (7,019) (1,414) (20.2)
Other (1,853) (1,667) (186) (11.2)
------------------ ------------------ ------------------- ----------------------
Total net interest income $ 25,415 $ 19,130 $ 6,285 32.9 %
------------------ ------------------ ------------------- ----------------------
NON-INTEREST INCOME:
Banking $ 7,387 $ 4,495 $ 2,892 64.3 %
Premium finance 656 1,265 (609) (48.1)
Indirect auto 17 1 16 N/M
Tricom 940 995 (55) (5.5)
Trust, asset management and brokerage 7,092 486 6,606 N/M
Inter-segment eliminations (135) (141) 6 4.3
Other -- -- -- --
------------------ ------------------ ------------------- ----------------------
Total non-interest income $ 15,957 $ 7,101 $ 8,856 124.7 %
------------------ ------------------ ------------------- ----------------------
SEGMENT PROFIT (LOSS):
Banking $ 7,849 $ 5,427 $ 2,422 44.6 %
Premium finance 3,415 2,860 555 19.4
Indirect auto 916 626 290 46.3
Tricom 466 317 149 47.0
Trust, asset management and brokerage 35 (114) 149 130.7
Inter-segment eliminations (3,522) (2,610) (912) (34.9)
Other (1,875) (1,498) (377) (25.2)
------------------ ------------------ ------------------- ----------------------
Total segment profit $ 7,284 $ 5,008 $ 2,276 45.4 %
------------------ ------------------ ------------------- ----------------------
SEGMENT ASSETS:
Banking $ 3,476,454 $ 2,496,020 $ 980,434 39.3 %
Premium finance 513,770 375,397 138,373 36.9
Indirect auto 190,680 198,676 (7,996) (4.0)
Tricom 32,714 29,954 2,760 9.2
Trust, asset management and brokerage 81,604 5,423 76,181 N/M
Inter-segment eliminations (727,812) (598,457) (129,355) (21.6)
Other 9,365 8,383 982 11.7
------------------ ------------------ ------------------- ----------------------
Total segment assets $ 3,576,775 $ 2,515,396 $ 1,061,379 42.2 %
------------------ ------------------ ------------------- ----------------------
<FN>
N/M = not meaningful
</FN>
- 9 -
The following table presents a summary of certain operating information for each
reportable segment for nine months ended for the periods shown:
Nine Months Ended
September 30,
$ Change in % Change in
---------------------------------------
(Dollars in thousands) 2002 2001 Contribution Contribution
----------------------------------------------- ------------------ ------------------ ------------------- ----------------------
NET INTEREST INCOME:
Banking $ 66,158 $ 51,490 $ 14,668 28.4 %
Premium finance 24,791 19,392 5,399 27.8
Indirect auto 6,055 4,798 1,257 26.2
Tricom 3,191 2,825 366 13.0
Trust, asset management and brokerage 2,559 540 2,019 373.9
Inter-segment eliminations (24,955) (19,388) (5,567) (28.7)
Other (5,799) (5,236) (563) (10.8)
------------------ ------------------ ------------------- ----------------------
Total net interest income $ 72,000 $ 54,421 $ 17,579 32.3 %
------------------ ------------------ ------------------- ----------------------
NON-INTEREST INCOME:
Banking $ 16,785 $ 13,352 $ 3,433 25.7 %
Premium finance 3,499 3,613 (114) (3.2)
Indirect auto 35 3 32 N/M
Tricom 2,694 3,137 (443) (14.1)
Trust, asset management and brokerage 19,388 1,459 17,929 N/M
Inter-segment eliminations (421) (363) (58) (16.0)
Other 500 141 359 254.6
------------------ ------------------ ------------------- ----------------------
Total non-interest income $ 42,480 $ 21,342 $ 21,138 99.0 %
------------------ ------------------ ------------------- ----------------------
SEGMENT PROFIT (LOSS):
Banking $ 21,063 $ 15,175 $ 5,888 38.8 %
Premium finance 10,829 7,632 3,197 41.9
Indirect auto 2,454 1,558 896 57.5
Tricom 1,223 919 304 33.1
Trust, asset management and brokerage (194) (418) 224 53.6
Inter-segment eliminations (10,433) (7,196) (3,237) (45.0)
Other (4,989) (4,395) (594) (13.5)
------------------ ------------------ ------------------- ----------------------
Total segment profit $ 19,953 $ 13,275 $ 6,678 50.3 %
------------------ ------------------ ------------------- ----------------------
<FN>
N/M = not meaningful
</FN>
- 10 -
(10) DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------
The Company enters into certain derivative financial instruments as part of its
strategy to manage its exposure to market risk. Market risk is the possibility
that, due to changes in interest rates or other economic conditions, the
Company's net interest income will be adversely affected. The derivative
financial instruments that are currently being utilized by the Company to manage
this risk include interest rate cap and interest rate swap contracts. The
amounts potentially subject to market and credit risks are the streams of
interest payments under the contracts and not the notional principal amounts
used to express the volume of the transactions. On January 1, 2001, the Company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS
137 and SFAS 138 (collectively referred to as SFAS 133).
As a result of the adoption of SFAS 133, the Company recognizes all derivative
financial instruments, such as interest rate cap and interest rate swap
agreements, in the consolidated financial statements at fair value regardless of
the purpose or intent for holding the instrument. Derivative financial
instruments are included in other assets or other liabilities, as appropriate,
on the Consolidated Statement of Condition. Changes in the fair value of
derivative financial instruments are either recognized periodically in income or
in shareholders' equity as a component of comprehensive income depending on
whether the derivative financial instrument qualifies for hedge accounting, and
if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair value hedges are
recorded in income along with the portions of the changes in the fair values of
the hedged items that relate to the hedged risk(s). Changes in fair values of
derivative financial instruments accounted for as cash flow hedges, to the
extent they are effective hedges, are recorded in other comprehensive income net
of deferred taxes. Changes in fair values of derivative financial instruments
not qualifying as hedges are reported in income.
Derivative financial instruments owned by the Company on January 1, 2001 were
not designated as hedges in accordance with SFAS 133. As a result, the effect of
recording the derivative financial instruments at fair value upon adoption
resulted in a charge of $254,000 (net of tax) in the Consolidated Statement of
Income to reflect the cumulative effect of a change in accounting principle.
During the first nine months of 2002, $180 million notional principal amount of
interest rate cap contracts matured. At September 30, 2002, the Company had $75
million of notional principal amounts of interest rate caps with maturities
ranging from January 2003 to February 2003. These contracts were purchased to
mitigate the effect of rising rates on certain floating rate deposit products
and provide for the receipt of payments when the 91-day Treasury bill rate
exceeds the predetermined strike rates that range from 3.75% to 6.50%. The
payment amounts, if any, are determined and received on a monthly basis and are
recorded as an adjustment to net interest income.
At September 30, 2002, the Company had $25 million notional principal amount of
an interest rate swap contract maturing in February 2004. This contract
effectively converts a portion of the Company's floating-rate notes payable to a
fixed-rate basis, thus reducing the impact of interest rate changes on future
interest expense.
The following table presents a summary of derivative instruments that were
outstanding as of the dates shown and whether the changes in fair values are
accounted for in the income statement (IS) or as other comprehensive income
(OCI):
SEPTEMBER 30, 2002 December 31, 2001
--------------------------------------- -------------------------------------
(In thousands) Change NOTIONAL FAIR Notional Fair
in market value AMOUNT VALUE Amount Value
- ----------------------------- --------------------- ------------------- ------------------ -------------------- ---------------
Interest rate caps IS $25,000 $ -- $ 185,000 $ --
Interest rate caps OCI 50,000 -- 70,000 54
Interest rate swap OCI 25,000 (1,230) 25,000 (681)
Periodically, the Company will sell options to a bank or dealer for the right to
purchase certain securities held within the Banks' investment portfolios. These
covered call option transactions are designed primarily to increase the total
return associated with holding these securities as earning assets. These
transactions do not qualify as hedges pursuant to SFAS 133 and, accordingly,
changes in fair values of these contracts are reported in other non-interest
income. The option premium income generated by these transactions is also
recognized as other non-interest income. There were no call options outstanding
as of September 30, 2002, December 31, 2001 or September 30, 2001, respectively.
- 11 -
(11) BUSINESS COMBINATIONS
---------------------
In February, 2002, Wintrust completed its acquisition of Wayne Hummer
Investments, LLC ("WHI" - including its wholly owned subsidiary, Focused
Investments LLC) and Wayne Hummer Management Company (subsequently renamed Wayne
Hummer Asset Management Company "WHAMC"). The results of the Wayne Hummer
Companies have been included in Wintrust's consolidated financial statements
only since the effective date (February 1, 2002) of the acquisition.
The acquisition of the Wayne Hummer Companies will augment fee-based revenue and
diversify Wintrust's revenue stream by adding brokerage services as well as
offering traditional banking products to the customers of the Wayne Hummer
Companies, thereby providing a more comprehensive menu of financial products and
services to the customers of the Banks and the Wayne Hummer Companies.
The aggregate purchase price was $28 million consisting of $8 million in cash,
762,742 shares of Wintrust's common stock (then valued at $15 million) and $5
million of deferred cash payments to be made over a three-year period subsequent
to the closing date. Wintrust is obligated to pay additional consideration
contingent upon the attainment of certain performance measures over the next
five years. The additional consideration, if paid, will be recorded as
additional goodwill at its fair value when paid, or when the additional
consideration is deemed, beyond a reasonable doubt, to have been earned. The
value of Wintrust's common stock issued was determined based on the unweighted
average of the high and low sales prices of Wintrust's common stock on the
Nasdaq National Market for the 10 trading days ending on the second trading day
preceding the effective date of the acquisition. The Company recorded $15.2
million of goodwill and $1.4 million of finite-lived intangible assets related
to the customer list of WHAMC.
The following pro forma information reflects the Company's results of operations
for the periods shown as if the Wayne Hummer Companies would have been included
from the beginning of the periods shown. The Wintrust as reported results
include the results of the Wayne Hummer Companies since the effective date of
the acquisition:
Three Months Ended
September 30,
-----------------------------------------
(Dollars in thousands, except per share data) 2002 2001
-------------------------------------------------------------------------------------- -------------------- --------------------
NET REVENUE:
Wintrust as reported (includes WHC from February 1, 2002) $ 41,372 $ 26,231
WHC (results prior to February 1, 2002) -- 7,850
-------------------- --------------------
Pro forma net revenue $ 41,372 $ 34,081
-------------------- --------------------
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
Wintrust as reported (includes WHC from February 1, 2002) $ 10,924 $ 7,792
WHC (results prior to February 1, 2002) -- 486
-------------------- --------------------
Pro forma income before taxes and cumulative effect of accounting change $ 10,924 $ 8,278
-------------------- --------------------
NET INCOME:
Wintrust as reported (includes WHC from February 1, 2002) $ 7,284 $ 5,008
WHC (results prior to February 1, 2002) -- 316
-------------------- --------------------
Pro forma net income $ 7,284 $ 5,324
-------------------- --------------------
BASIC EPS:
Wintrust as reported (includes WHC from February 1, 2002) $ 0.43 $ 0.35
WHC (results prior to February 1, 2002) -- --
-------------------- --------------------
Pro forma basic EPS $ 0.43 $ 0.35
-------------------- --------------------
DILUTED EPS:
Wintrust as reported (includes WHC from February 1, 2002) $ 0.40 $ 0.32
WHC (results prior to February 1, 2002) -- 0.01
-------------------- --------------------
Pro forma diluted EPS $ 0.40 $ 0.33
-------------------- --------------------
- 12 -
The following pro forma information reflects the Company's results of operations
for the periods shown as if the Wayne Hummer Companies would have been included
from the beginning of the periods shown. The Wintrust as reported results
include the results of the Wayne Hummer Companies since the effective date of
the acquisition:
Nine Months Ended
September 30,
-----------------------------------------
(Dollars in thousands, except per share data) 2002 2001
-------------------------------------------------------------------------------------- -------------------- --------------------
NET REVENUE:
Wintrust as reported (includes WHC from February 1, 2002) $ 114,480 $ 75,763
WHC (results prior to February 1, 2002) 2,919 24,539
-------------------- --------------------
Pro forma net revenue $ 117,399 $ 100,302
-------------------- --------------------
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
Wintrust as reported (includes WHC from February 1, 2002) $ 30,616 $ 21,169
WHC (results prior to February 1, 2002) 108 1,684
-------------------- --------------------
Pro forma income before taxes and cumulative effect of accounting change $ 30,724 $ 22,853
-------------------- --------------------
NET INCOME:
Wintrust as reported (includes WHC from February 1, 2002) $ 19,953 $ 13,275
WHC (results prior to February 1, 2002) 70 1,095
-------------------- --------------------
Pro forma net income $ 20,023 $ 14,370
-------------------- --------------------
BASIC EPS:
Wintrust as reported (includes WHC from February 1, 2002) $ 1.24 $ 0.99
WHC (results prior to February 1, 2002) -- 0.02
-------------------- --------------------
Pro forma basic EPS $ 1.24 $ 1.01
-------------------- --------------------
DILUTED EPS:
Wintrust as reported (includes WHC from February 1, 2002) $ 1.16 $ 0.93
WHC (results prior to February 1, 2002) -- 0.03
-------------------- --------------------
Pro forma diluted EPS $ 1.16 $ 0.96
-------------------- --------------------
(12) GOODWILL AND OTHER INTANGIBLE ASSETS
------------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"),
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS 141 also specifies the criteria for intangible assets acquired in a
purchase method business combination to be recognized and reported apart from
goodwill. SFAS 142 requires companies to no longer amortize goodwill and
intangible assets with indefinite useful lives, but instead test these assets
for impairment at least annually in accordance with the provisions of SFAS 142.
Under SFAS 142, intangible assets with definite useful lives continue to be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with the FASB's
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144").
Wintrust adopted the provisions of SFAS 142 effective January 1, 2002. As of the
date of adoption, Wintrust had unamortized goodwill in the amount of $10.0
million, and unamortized identifiable intangible assets in the amount of
$109,000, all of which were subject to the transition provisions of SFAS 141 and
SFAS 142. As part of its adoption of SFAS 142, the Company has performed a
transitional impairment test on its goodwill assets, which indicated that no
impairment charge was required. In addition, no material reclassifications or
adjustments to the useful lives of finite-lived intangible assets were made as a
result of adopting the new guidance. The full impact of adopting SFAS 142 is
expected to result in an increase in net income of approximately $413,000, or
approximately $0.02 per diluted share, in 2002 as a result of Wintrust no longer
having to amortize goodwill against earnings.
- 13 -
Assuming retroactive adoption of SFAS 142, net income for the nine months ended
September 30, 2001 would have increased as a result of ceasing amortization of
goodwill. The following table sets forth the reconcilement of net income and
earnings per share excluding goodwill amortization for the periods shown. The
2001 period is presented on a pro forma basis excluding goodwill amortization:
Nine Months Ended
-----------------------------------------------------------------
September 30, September 30,
2002 2001
---------------------------------- ---------------------------------
NET EARNINGS Net Earnings
(Dollars in thousands, except per share data) INCOME PER SHARE Income Per Share
- --------------------------------------------------- ----------------- --------------- --------------- ---------------
Earnings per share - Basic:
Net income/Basic EPS as reported $ 19,953 $ 1.24 $ 13,275 $ 0.99
Add back: Goodwill amortization -- -- 465 0.03
Less: Tax on deductible goodwill -- -- (149) (0.01)
----------------- --------------- --------------- ---------------
Adjusted net income/Basic EPS $ 19,953 $ 1.24 $ 13,591 $ 1.01
================= =============== =============== ===============
Earnings per share - Diluted:
Net income/Diluted EPS as reported $ 19,953 $ 1.16 $ 13,275 $ 0.93
Add back: Goodwill amortization -- -- 465 0.03
Less: Tax on deductible goodwill -- -- (149) (0.01)
----------------- --------------- --------------- ---------------
Adjusted net income/Diluted EPS $ 19,953 $ 1.16 $ 13,591 $ 0.95
================= =============== =============== ===============
A summary of goodwill assets by business segment is presented in the following
table:
January 1, Goodwill Impairment SEPTEMBER 30,
(In thousands) 2002 Acquired Losses 2002
------------------------------------------ ------------------ ------------------ --------------------- -------------------
Banking $ 1,018 $ -- $ -- $ 1,018
Premium finance -- -- -- --
Indirect auto -- -- -- --
Tricom 8,958 -- -- 8,958
Trust, asset management and brokerage -- 15,244 -- 15,244
Parent and other -- -- -- --
------------------ ------------------ --------------------- -------------------
Total $ 9,976 $ 15,244 $ -- $ 25,220
================== ================== ===================== ===================
At September 30, 2002 and 2001, Wintrust had $1.3 million and $126,000,
respectively, in unamortized finite-lived intangible assets. As a result of the
acquisition of WHAMC, $1.38 million was assigned to the customer list of WHAMC
and is being amortized over a 7-year period on an accelerated basis. Total
amortization expense associated with these intangible assets in the first nine
months of 2002 and 2001 was approximately $237,000 and $51,000, respectively.
Estimated amortization expense on finite-lived intangible assets for the years
ended 2002 through 2006 is as follows:
(In thousands)
--------------------------------------
2002 $ 324
2003 310
2004 229
2005 202
2006 168
- 14 -
(13) RECENT ACCOUNTING PRONOUNCEMENT
-------------------------------
On January 1, 2002, Wintrust adopted SFAS 144, which superseded SFAS 121 and
provides a single accounting model for long-lived assets to be disposed of.
Although retaining many of the fundamental recognition and measurement
provisions of SFAS 121, the new rules significantly change the criteria that
would have to be met to classify an asset as held-for-sale. SFAS 144 also
supersedes the provisions of Accounting Principles Board (APB) Opinion 30 with
regard to reporting the effects of a disposal of a segment of a business and
requires expected future operating losses from discontinued operations to be
displayed in discontinued operations in the period(s) in which the losses are
incurred (rather than as of the measurement date as presently required by APB
Opinion 30). In addition, more dispositions will qualify for discontinued
operations treatment in the income statement. The adoption of SFAS 144 did not
have a material impact on Wintrust's financial condition or results of
operations.
- 15 -
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition as of September 30,
2002, compared with December 31, 2001, and September 30, 2001, and the results
of operations for the three and nine-month periods ended September 30, 2002 and
2001 should be read in conjunction with the Company's unaudited consolidated
financial statements and notes contained in this report. This discussion
contains forward-looking statements that involve risks and uncertainties and, as
such, future results could differ significantly from management's current
expectations. See the last section of this discussion for further information on
forward-looking statements.
On January 24, 2002, Wintrust's Board of Directors declared a 3-for-2 stock
split of its common stock, effected in the form of a 50% stock dividend, paid on
March 14, 2002 to shareholders of record as of March 4, 2002. All historical
share data and per share amounts have been restated to reflect this split.
OVERVIEW AND STRATEGY
Wintrust's operating subsidiaries were organized within approximately the last
eleven years. We have grown from $2.52 billion in total assets at September 30,
2001 to $3.58 billion in total assets at September 30, 2002, an increase of 42%.
The historical financial performance of the Company has been affected by costs
associated with growing market share in deposits and loans, opening new banks
and branch facilities, and building an experienced management team. The
Company's recent financial performance generally reflects the improved
profitability of our operating subsidiaries as they mature, offset by the costs
of opening new banks and branch facilities. The Company's experience has been
that it generally takes 13 to 24 months for new banks to first achieve
operational profitability depending on the number and timing of branch
facilities added.
The Banks began operations during the period indicated in the table below:
Operations began in:
----------------------------------
Month Year
---------------- --------------
Lake Forest Bank______________________________________________________________________________ December 1991
Hinsdale Bank_________________________________________________________________________________ October 1993
North Shore Bank______________________________________________________________________________ September 1994
Libertyville Bank_____________________________________________________________________________ October 1995
Barrington Bank_______________________________________________________________________________ December 1996
Crystal Lake Bank_____________________________________________________________________________ December 1997
Northbrook Bank_______________________________________________________________________________ November 2000
Subsequent to these initial dates of operations, each of the Banks, except
Northbrook Bank, has established additional full-service banking facilities. As
of September 30, 2002, the Banks had 31 banking facilities. Since September 30,
2001, Northbrook Bank opened its new permanent facility in December 2001 and
Hinsdale Bank opened a branch facility in Riverside in January 2002. In May 2002
Lake Forest Bank opened a new branch in Highland Park. In June 2002 and July
2002, respectively, we opened a new permanent facility for our Wauconda branch
of Libertyville Bank and our McHenry branch of Crystal Lake Bank. Construction
is currently underway on a new larger facility in South Libertyville (a branch
of Libertyville Bank), an additional Skokie branch of North Shore Bank and a new
temporary facility in Cary (a branch of Crystal Lake Bank). Additionally, the
Company has purchased property for a permanent facility in Highland Park and has
purchased property for a new facility in Deerfield.
While committed to a continuing growth strategy, management's ongoing focus is
also to balance further asset growth with earnings growth by seeking to more
fully leverage the existing capacity within each of the operating subsidiaries.
One aspect of this strategy is to continue to pursue specialized earning asset
niches in order to maintain the mix of earning assets in higher-yielding loans
as well as diversify the loan portfolio. Another aspect of this strategy is a
continued focus
- 16 -
on less aggressive deposit pricing at the Banks with significant market share
and more established customer bases.
On February 20, 2002, the Company completed its acquisition of the Wayne Hummer
Companies, comprising Wayne Hummer Investments LLC ("WHI"), Wayne Hummer
Management Company (subsequently renamed Wayne Hummer Asset Management Company
"WHAMC") and Focused Investments LLC ("FI"), each based in the Chicago area.
WHI, established in 1931, has been providing a full-range of investment products
and services tailored to meet the specific needs of individual investors
throughout the country, primarily in the Midwest. WHI also operates an office in
Appleton, Wisconsin that opened in 1936 that serves the greater Appleton area.
WHI is a member of the New York Stock Exchange, the American Stock Exchange and
the National Association of Securities Dealers, and has over $3.6 billion in
customer assets in custody at September 30, 2002.
WHAMC, established in 1981, is the investment advisory affiliate of WHI and is
advisor to the Wayne Hummer family of mutual funds. The Wayne Hummer family of
funds includes the Wayne Hummer Growth Fund, the Wayne Hummer CorePortfolio
Fund, the Wayne Hummer Income Fund, and the Wayne Hummer Money Market Fund. With
assets under management in excess of $780 million, the investment management
group provides advisory services to individuals and institutions, municipal and
tax-exempt organizations, including approximately $382 million in the Wayne
Hummer Mutual Funds. Additionally, WHAMC also provides portfolio management and
continuous financial supervision for a wide-range of pension and profit sharing
plans. These defined portfolios are managed for public and private clients, bank
portfolios and trusts, endowments and foundations, and both taxable and
tax-deferred portfolios for individual investors. WHAMC manages approximately
$400 million in these portfolios.
FI, a NASD member broker/dealer, is a wholly-owned subsidiary of WHI and
provides a full range of investment services to clients through a network of
relationships with community-based financial institutions primarily in Illinois.
FIFC is the Company's most significant specialized earning asset niche,
originating approximately $1.3 billion in loan volume for the full year of 2001
and $1.3 billion in the first nine months of 2002. FIFC makes loans to
businesses to finance the insurance premiums they pay on their commercial
insurance policies. The loans are originated by FIFC working through independent
medium and large insurance agents and brokers located throughout the United
States. The insurance premiums financed are primarily for commercial customers'
purchases of liability, property and casualty and other commercial insurance.
The majority of these loans are purchased by the Banks in order to more fully
utilize their lending capacity. The Company began selling the excess of FIFC's
originations over the capacity to retain such loans within the Banks' loan
portfolios during the second quarter of 1999 to an unrelated third party with
servicing retained. In addition to recognizing gains on the sale of these
receivables, the proceeds provide the Company with additional liquidity.
Consistent with the Company's strategy to be asset-driven, it is probable that
similar sales of these receivables will occur in the future; however, future
sales of these receivables depends on the level of new volume growth in relation
to the capacity to retain such loans within the Banks' loan portfolios.
In October 1999, the Company acquired Tricom as part of its continuing strategy
to pursue specialized earning asset niches. Tricom is a Milwaukee-based company
that has been in business for more than ten years and specializes in providing
high yielding, short-term accounts receivable financing and value-added,
out-sourced administrative services, such as data processing of payrolls,
billing and cash management services, to the temporary staffing industry, with
clients throughout the United States. These receivables may involve greater
credit risks than generally associated with the loan portfolios of more
traditional community banks depending on the marketability of the collateral.
The principal sources of repayments on the receivables are payments to borrowers
from their customers who are located throughout the United States. The Company
mitigates this risk by employing lockboxes and other cash management techniques
to protect their interests. By virtue of the Company's funding resources, this
acquisition has provided Tricom with additional capital necessary to expand its
financing services in a national market. Tricom's revenue principally consists
of interest income from financing activities and fee-based revenues from
administrative services. In addition to expanding the Company's earning asset
niches, this acquisition has added to the level of fee-based income.
In addition to the earning asset niches provided by the Company's non-bank
subsidiaries, several earning asset niches operate within the Banks, including
our indirect auto lending which is conducted through a division of Hinsdale
Bank, Lake Forest Bank's MMF Leasing Services equipment leasing division and
Barrington Bank's Community Advantage
- 17 -
program that provides lending, deposit and cash management services to
condominium, homeowner and community associations. In addition, Hinsdale Bank's
mortgage warehouse lending program provides loan and deposit services to
mortgage brokerage companies located predominantly in the Chicago metropolitan
area, and Crystal Lake Bank has recently developed a specialty in small aircraft
lending. The Company plans to continue pursuing the development or acquisition
of other specialty lending businesses that generate assets suitable for bank
investment and/or secondary market sales. The Company is not pursuing growth in
the indirect auto segment, however, and anticipates that the indirect auto loan
portfolio will comprise a smaller portion of the net loan portfolio in the
future.
In September 1998, the Company formed a trust subsidiary originally named
Wintrust Asset Management Company, which was renamed in May 2002 to Wayne Hummer
Trust Company ("WHTC") to expand the trust and investment management services
that were previously provided through the trust department of Lake Forest Bank.
With a separately chartered trust subsidiary, the Company is better able to
offer trust and investment management services to all communities served by the
Banks. In addition to offering these services to existing bank customers at each
of the Banks, the Company believes WHTC can successfully compete for trust
business by targeting small to mid-size businesses and affluent individuals
whose needs command the personalized attention offered by WHTC's experienced
trust professionals. Services offered by WHTC typically include traditional
trust products and services, as well as investment management services.
- 18 -
RESULTS OF OPERATIONS
EARNINGS SUMMARY
The Company's key operating measures, as compared to the same period last year,
are shown below:
NINE MONTHS ENDED
-------------------------------------------- Percentage (%)/
SEPTEMBER 30, September 30, Basis Point (bp)
(Dollars in thousands, except per share data) 2002 2001 Change
- ------------------------------------------------------------ --------------------- --------------------- -------------------
Net income before cumulative effect of accounting change $ 19,953 $ 13,529 47.5 %
Net income 19,953 13,275 50.3
Net income per common share - Basic 1.24 0.99 25.3
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)
Net overhead ratio (2) 1.48 1.62 (14)
Efficiency ratio (3) 66.51 63.86 265
Return on average assets 0.87 0.79 8
Return on average equity 14.98 15.44 (46)
THREE MONTHS ENDED
-------------------------------------------- Percentage (%)/
SEPTEMBER 30, September 30, Basis Point (bp)
2002 2001 Change
--------------------- --------------------- ------------------
Net income before cumulative effect of accounting change $ 7,284 $ 5,008 45.4 %
Net income 7,284 5,008 45.4
Net income per common share - Basic 0.43 0.35 22.9
Net income per common share - Diluted 0.40 0.32 25.0
Net revenues 41,372 26,231 57.7
Net interest income 25,415 19,130 32.9
Net interest margin 3.26 % 3.46 % (20) bp
Core net interest margin(1) 3.42 3.69 (27)
Net overhead ratio (2) 1.40 1.52 (12)
Efficiency ratio (3) 67.48 61.61 587
Return on average assets 0.85 0.83 2
Return on average equity 13.68 14.87 (119)
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
Total shareholders' equity 218,028 138,024 58.0
Book value per common share 12.71 9.51 33.6
Market price per common share 28.65 20.70 38.4
Allowance for loan losses to total loans 0.69 % 0.72 % (3) bp
Non-performing assets to total assets 0.35 0.54 (19)
- ------------------------------------------------------------------------------------------------------------------------------
<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. A lower ratio indicates a higher
degree of efficiency.
(3) The efficiency ratio is calculated by dividing total non-interest expense
by tax-equivalent net revenues (less securities gains or losses). A lower
ratio indicates more efficient revenue generation.
</FN>
- 19 -
The Company analyzes its performance on a net income basis in accordance with
accounting principles generally accepted in the United States, as well as other
ratios such as the net overhead ratio, efficiency ratio and core net interest
margin. These performance measures are presented as supplemental information to
enhance the readers' understanding of, and highlight trends in, the Company's
financial results. These measures should not be viewed as a substitute for net
income and earnings per share as determined in accordance with accounting
principles generally accepted in the United States. The calculations used by the
Company to derive core net interest margin, net overhead ratio and the
efficiency ratio may vary from, and not be comparable to, other companies.
Net income for the third quarter ended September 30, 2002 totaled $7.3 million,
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.
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 related to the
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 resulting in an after-tax charge of
$254,000, or $0.02 per diluted share.
On February 20, 2002, Wintrust completed its acquisition of the Wayne Hummer
Companies. Accounted for as a purchase, the Wayne Hummer Companies results of
operations are included in Wintrust's year-to-date 2002 results only since the
effective date of the acquisition (February 1, 2002).
NET INTEREST INCOME
Net interest income, which is the difference between interest income and fees on
earning assets and interest expense on deposits and borrowings, is the major
source of earnings for Wintrust. Tax-equivalent net interest income for the
quarter ended 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, the most significant
portion of average earning assets, 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 with the
proceeds being invested in lower yielding liquid assets, combined with the asset
sensitivity of the balance sheet.
- 20 -
The following table presents a summary of the Company's net interest income and
related net interest margins, calculated on a fully taxable equivalent basis,
for the periods shown:
FOR THE THREE MONTHS ENDED
---------------------------------------------------------------------------------
SEPTEMBER 30, 2002 September 30, 2001
--------------------------------------- ---------------------------------------
(Dollars in thousands) YIELD/ Yield/
---------------------- AVERAGE INTEREST RATE Average Interest Rate
--------------------------------------- ---------------------------------------
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>
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 of interest on liquidity
management assets and loans. The other earning assets shown in the third quarter
of 2002 reflect interest-bearing brokerage customer receivables and trading
account securities managed at the Wayne Hummer Companies. The yield on earning
assets is heavily dependent on the yield earned on loans since average loans
comprised approximately 79% of total average earning assets. The third quarter
2002 yield on loans was 6.73%, a 156 basis point decrease 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% during 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 began 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 Banks. The average
rate paid on Federal Home Loan Bank advances,
- 21 -
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 the Company's net interest income and
related net interest margin, calculated on a fully taxable equivalent basis, for
the periods shown:
FOR THE NINE MONTHS ENDED
---------------------------------------------------------------------------------
SEPTEMBER 30, 2002 September 30, 2001
--------------------------------------- ---------------------------------------
(Dollars in thousands) YIELD/ Yield/
---------------------- AVERAGE INTEREST RATE Average Interest Rate
--------------------------------------- ---------------------------------------
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 six 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. (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>
For the first nine months of 2002, tax-equivalent net interest income totaled
$72.6 million, an increase of $17.5 million, or 32% over the $55.1 million
recorded in the same period in 2001. Growth in the Company's earning asset base
was the primary contributor to this increase, as year-to-date average loans
increased 31%.
The yield on total earning assets for the first nine months of 2002 was 6.35% as
compared to 8.18% in 2001, a decrease of 183 basis points, resulting primarily
from the effect of decreases in general market rates of interest on liquidity
management assets and loans. The rate paid on interest-bearing liabilities for
the first nine months of 2002 was 3.22%, compared to 5.03% in 2001, a decline of
181 basis points. The interest rate spread (difference between the yield on
earning assets and the rate paid on interest-bearing liabilities) remained
stable in the first nine months of 2002, increasing by two basis points when
compared to the first nine months of 2001. The decline in the net interest
margin was mainly caused by a 13 basis point reduction in the contribution from
net free funds as the substitute value of these free funds fell by 181 basis
points in 2002.
The following table presents a reconciliation of the Company's tax-equivalent
net interest income between the three-month periods ended September 30, 2002 and
June 30, 2002, the nine-month periods ended September 30, 2002 and September 30,
2001 and between the three-month periods ended September 30, 2002 and September
30, 2001. The reconciliation sets forth the change in the tax-equivalent net
interest income as a result of changes in volumes, rates,
- 22 -
the change due to the combination of volume and rate and the differing number of
days in each period:
Third Quarter First Nine Months Third Quarter
of 2002 of 2002 of 2002
Compared to Compared to Compared to
Second Quarter First Nine Months Third Quarter
(Dollars in thousands) of 2002 of 2001 of 2001
- ------------------------------------------------------------------ ------------------- ----------------------- ---------------------
Tax-equivalent net interest income for comparative period $ 24,608 $ 55,069 $ 19,360
Change due to mix and growth of earning assets and
interest-bearing liabilities (volume) 2,822 16,572 5,923
Change due to interest rate fluctuations (rate) (1,781) (868) (299)
Change due to rate and volume fluctuations (rate/volume) (273) 1,854 658
Change due to number of days in each quarter (days) 266 -- --
------------------- ----------------------- ---------------------
TAX-EQUIVALENT NET INTEREST INCOME FOR THE PERIOD ENDED
SEPTEMBER 30, 2002 $ 25,642 $ 72,627 $ 25,642
=================== ======================= =====================
NON-INTEREST INCOME
For the third quarter of 2002, non-interest income totaled $16.0 million, an
increase of $8.9 million, or 125%, over the prior year quarter. For the nine
months ended September 30, 2002, non-interest income totaled $42.5 million, an
increase of $21.1 million, or 99%, over the same period last year. The following
table presents non-interest income by category for the periods presented:
Three Months Ended
September 30,
------------------------------------- $ %
(Dollars in thousands) 2002 2001 Change Change
- --------------------------------------------------------------- ------------------ ------------------ --------------- -------------
Trust, asset management and brokerage fees $ 6,725 $ 486 6,239 1,283.7
Fees on mortgage loans sold 3,794 1,725 2,069 119.9
Service charges on deposit accounts 798 637 161 25.3
Gain on sale of premium finance receivables 656 1,265 (609) (48.1)
Administrative services revenue 941 995 (54) (5.4)
Fees from covered call options 1,320 1,132 188 16.6
Net available-for-sale securities gains (losses) 196 (57) 253 443.9
Other 1,527 918 609 66.3
------------------ ------------------ --------------- -------------
Total non-interest income $ 15,957 $ 7,101 8,856 124.7
================== ================== =============== =============
Nine Months Ended
September 30,
------------------------------------- $ %
(Dollars in thousands) 2002 2001 Change Change
- --------------------------------------------------------------- ------------------ ------------------ --------------- -------------
Trust, asset management and brokerage fees $ 18,726 $ 1,459 17,267 1,183.5
Fees on mortgage loans sold 7,745 5,197 2,548 49.0
Service charges on deposit accounts 2,289 1,790 499 27.9
Gain on sale of premium finance receivables 2,250 3,656 (1,406) (38.5)
Administrative services revenue 2,694 3,137 (443) (14.1)
Fees from covered call options 3,678 3,435 243 7.1
Net available-for-sale securities gains 43 315 (272) (86.3)
Premium finance defalcation-partial settlement 1,250 -- 1,250 N/M
Other 3,805 2,353 1,452 61.7
------------------ ------------------ --------------- -------------
Total non-interest income $ 42,480 $ 21,342 21,138 99.0
================== ================== =============== =============
<FN>
N/M = calculation not meaningful
</FN>
- 23 -
Trust, asset management and brokerage fees comprise the trust and asset
management revenue of Wayne Hummer Trust Company (previously known as Wintrust
Asset Management Company) 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 increase due to 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 larger deposit base and a greater number
of accounts at the banking subsidiaries. The majority of deposit service charges
relates to customary fees on overdrawn accounts and returned items. The level of
service charges received is substantially below peer group levels, as management
believes in the philosophy of providing high quality service without encumbering
that service with numerous activity charges.
The administrative services revenue contributed by Tricom added $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.
Fees from covered call option transactions in the third quarter of 2002
increased by $188,000 to $1.3 million, compared to $1.1 million in the same
quarter last year. On a year-to-date basis, the Company has recognized $3.7
million in fees in 2002 from this activity compared to $3.4 million in 2001, an
increase of $243,000. During the first nine months of 2002, call option
contracts were written against $1.2 billion of underlying securities, compared
to $839 million in the first nine months of last year. The same security may be
included in this total more than once to the extent that multiple call option
contracts were written against it if the initial call option contracts were not
exercised. The Company routinely enters into these transactions with the goal of
enhancing its overall return on its investment portfolio. In the first nine
months of both years, the Company wrote call options with terms of less than
three months against certain U.S. Treasury and agency securities held in its
portfolio for liquidity and other purposes. There were no outstanding call
options at September 30, 2002, December 31, 2001 or September 30, 2001.
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 totaling $656,000
related to this activity on sales of $86.4 million of net receivables, compared
with $1.3 million of recognized gains in the third quarter of 2001 on sales of
$63.7 million. On a year-to-date basis, the Company recognized gains of $2.2
million in 2002 on sales of $222.4 million, compared to $3.7 million in 2001 on
sales of $186.6 million. Recognized gains related to this activity are
significantly influenced by the spread between the net yield on the loans sold
and the rate, based on a fixed spread to LIBOR, passed on to the purchaser. This
spread ranged from 3.62% to 5.51% in the first nine months of 2002 compared to a
range of 5.96% to 6.77% in the same period last year. The net yield on the loans
sold and the rates passed on to the purchaser typically do not react in a
parallel fashion, therefore causing the spreads to vary from period to period.
The
- 24 -
lower amount of gain recognized in the third quarter of 2002 compared to the
prior year was influenced by significantly lower spreads (ranging from 3.62% to
3.70% in the third quarter of 2002, compared to 6.70% to 6.77% in the same
period of 2001) as well as increased estimates of credit losses. During the
first nine months of 2002, credit losses were estimated at 0.75% of the
estimated average balances, compared to 0.25% in the first nine months of 2001.
The increase was a result of a higher level of charge-offs in recent quarters in
the overall premium finance receivables portfolio (see page 34 "Allowance for
Loan Losses" for more detail). The lower gain recognized in 2002 was also
significantly influenced by a reduction in the number of months these loans are
estimated to be outstanding. This reduction was due to recent trends of early
pay-downs as the economy has weakened, insurance rates have escalated and
borrowers cancelled their existing insurance in favor of more cost-effective
alternatives. The average terms of the loans in the first nine months of 2002
were estimated at approximately 8 months compared to 9 months in the same period
last year. The applicable discount rate used in determining gains related to
this activity was unchanged from the discount rate used in 2001.
At September 30, 2002, premium finance loans sold and serviced for others for
which we retain a recourse obligation related to credit losses totaled
approximately $128.0 million. The recourse obligation is considered in computing
the net gain on the sale of the premium finance receivables. At September 30,
2002, the remaining estimated recourse obligation carried in other liabilities
is approximately $671,000.
Credit losses incurred on loans sold are applied against the recourse obligation
liability that is established at the date of sale. Credit losses, net of
recoveries, in the first nine months of 2002 for premium finance receivables
sold and serviced for others totaled $24,000. At September 30, 2002,
non-performing loans related to this sold portfolio were approximately $1.9
million, or 1.52%, of the sold loans. Ultimate losses on premium finance loans
are substantially less than non-performing loans for the reason noted in the
"Non-performing Premium Finance Receivables" portion of the "Asset Quality"
section of this report on page 37.
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%. 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.
For the first nine months of 2002, total non-interest income was $42.5 million,
an increase of $21.1 million, or 99%, compared to the same period in 2001.
Excluding the impact of the Wayne Hummer Companies which contributed $17.7
million of non-interest revenue, and the $1.25 million received in partial
settlement of 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 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 larger
deposit base and a greater number of accounts at the Banks 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.
- 25 -
NON-INTEREST EXPENSE
Non-interest expense for the third quarter of 2002 totaled $27.9 million, an
increase of $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 through the establishment of 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 resulting in an increase
in other costs in order 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.
The following table presents non-interest expense by category for the periods
presented:
Three Months Ended
September 30,
-------------------------------------- $ %
(Dollars in thousands) 2002 2001 Change Change
------------------------------------------------------------ ------------------ ------------------ --------------- -------------
Salaries and employee benefits $ 16,863 $ 9,031 7,832 86.7
Occupancy, net 1,700 1,238 462 37.3
Equipment 1,760 1,561 199 12.7
Data processing 1,073 860 213 24.8
Advertising and marketing 596 411 185 45.0
Professional fees 737 459 278 60.6
Amortization of goodwill -- 152 (152) (100.0)
Amortization of other intangibles 120 17 103 605.9
Other 5,095 2,610 2,485 95.2
------------------ ------------------ --------------- -------------
Total non-interest expense $ 27,944 $ 16,339 11,605 71.0
================== ================== =============== =============
Nine Months Ended
September 30,
-------------------------------------- $ %
(Dollars in thousands) 2002 2001 Change Change
------------------------------------------------------------ ------------------ ------------------ --------------- -------------
Salaries and employee benefits $ 45,625 $ 26,244 19,381 73.8
Occupancy, net 4,853 3,660 1,193 32.6
Equipment 5,286 4,627 659 14.2
Data processing 3,129 2,512 617 24.6
Advertising and marketing 1,653 1,144 509 44.5
Professional fees 2,033 1,524 509 33.4
Amortization of goodwill -- 465 (465) (100.0)
Amortization of other intangibles 237 51 186 364.7
Other 13,713 8,365 5,348 63.9
------------------ ------------------ --------------- -------------
Total non-interest expense $ 76,529 $ 48,592 27,937 57.5
================== ================== =============== =============
On a year-to-date basis, non-interest expense totaled $76.5 million, an increase
of $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.
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 employee
benefit costs. Excluding the impact of the Wayne Hummer
- 26 -
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. Commissions paid
to mortgage originators contributed $738,000 and $605,000 of the increase in
salaries and employee benefits over the third quarter of 2001 and the second
quarter of 2002, respectively.
Other categories of non-interest expense, such as occupancy costs, equipment
expense, data processing and other expense, also increased over the prior year
third quarter due to the acquisition of the Wayne Hummer Companies.
Amortization expense related to goodwill and other intangibles totaled $120,000
for the third quarter of 2002, compared with $169,000 in the third quarter of
2001. See Note 12 - Goodwill and Other Intangible Assets to the Company's
unaudited consolidated financial statements for a detailed discussion of
intangible amortization.
INCOME TAXES
The Company recorded income tax expense of $3.6 million for the three months
ended September 30, 2002 versus $2.8 million for the same period of 2001. On a
year-to-date basis, income tax expense was $10.7 million in 2002 and $7.6
million in 2001. The effective tax rate was 33.3% in the third quarter of 2002
and 35.7 % in the third quarter of 2001.
OPERATING SEGMENT RESULTS
As shown in Note 9 to the unaudited consolidated financial statements, the
Company's operations consist of five primary segments: banking, premium finance,
indirect auto, Tricom and trust/asset management/brokerage. The Company's
profitability is primarily dependent on the net interest income, provision for
loan losses, non-interest income and operating expenses of its banking segment.
For the third quarter of 2002, the banking segment's net interest income totaled
$22.6 million, an increase of $4.7 million, or 26%, as compared to $17.9 million
recorded in the same quarter of 2001. This increase was the direct result of
earning asset growth, particularly in the loan portfolio. The banking segment's
non-interest income totaled $7.4 million for the third quarter of 2002 and
increased $2.9 million, or 64%, when compared to the prior year quarterly total
of $4.5 million. Contributing to this increase was a $2.1 million increase in
fees on mortgage loans sold. The banking segment's after-tax profit for the
quarter ended September 30, 2002, totaled $7.8 million, an increase of $2.4
million, or 45%, as compared to the prior year quarterly total of $5.4 million.
On a year-to-date basis, net interest income totaled $66.2 million for the first
nine months of 2002, an increase of $14.7 million, or 28%, as compared to the
$51.5 million recorded last year. Non-interest income increased $3.4 million to
$16.8 million in the first nine months of 2002. This increase was due primarily
to a $2.5 million increase in fees on mortgage loans sold resulting from higher
levels of refinancing activity as well as increased service charges on deposit
accounts of $499,000 due to a larger deposit base and a greater number of
accounts at the banking subsidiaries. The banking segment's after-tax profit for
the nine months ended September 30, 2002, totaled $21.1 million, an increase of
$5.9 million, or 39%, as compared to the prior year total of $15.2 million. The
banking segment accounted for the majority of the Company's total asset growth
since September 30, 2001, increasing by $980 million.
Net interest income from the premium finance segment totaled $8.6 million for
the quarter ended September 30, 2002, an increase of $1.7 million, or 25%, over
the $6.9 million recorded in the same quarter of 2001. This improvement was due
to an increase in average premium finance receivables of approximately 35%.
Non-interest income for the three months ended September 30, 2002 totaled
$656,000 million, compared to $1.3 million in the same quarter of 2001. Gains
from the sale of premium finance receivables decreased by $609,000 compared to
the same period last year. After-tax profit for the premium finance segment
totaled $3.4 million for the three-month period ended September 30, 2002, an
increase of $555,000, or 19%, over the same period of 2001. This increase was
due to higher levels of premium finance receivables resulting from targeted
marketing programs and market increases in insurance premiums charged by
insurance carriers. On a year-to-date basis, net interest income totaled $24.8
million for the first nine months of 2002, an increase of $5.4 million, or 28%,
as compared to the $19.4 million recorded in the same period last year.
Non-interest income decreased $114,000 to $3.5 million in the first nine months
of 2002. The proceeds from a partial settlement during the first quarter of 2002
related to the premium finance defalcation which occurred and was recognized in
2000 of $1.25 million was offset by a decrease of $1.4 million on gains from the
sale of premium finance receivables compared to the same period last
- 27 -
year. The premium finance segment's after-tax profit for the nine months ended
September 30, 2002 totaled $10.8 million, an increase of $3.2 million, or 42%,
as compared to the prior year period total of $7.6 million.
The indirect auto segment recorded $2.0 million of net interest income for the
third quarter of 2002, an increase of $218,000, or 12%, as compared to the 2001
quarterly total. Average outstanding loans decreased 3% in the third quarter of
2002, compared to the same quarter of 2001. After-tax segment profit totaled
$916,000 for the three-month period ended September 30 2002, an increase of
$290,000, or 46%, when compared to the same period of 2001. The increase in this
segment's profitability was caused mainly by lower variable rate funding costs
in the third quarter of 2002 contributing to the higher levels of net interest
income. On a year-to-date basis, net interest income totaled $6.1 million for
the first nine months of 2002, an increase of $1.3 million, or 26%, as compared
to the $4.8 million recorded in the same period last year. The indirect auto
segment's after-tax profit for the nine months ended September 30, 2002 totaled
$2.5 million, an increase of $896,000, or 58%, as compared to the prior year
period total of $1.6 million. Consistent with the after-tax profit contribution
in the third quarter of 2002, year-to-date profitability was positively impacted
due to lower variable rate funding costs.
The Tricom segment data reflects the net interest income, non-interest income
and segment profit associated with short-term accounts receivable financing and
value-added out-sourced administrative services, such as data processing of
payrolls, billing and cash management services, that Tricom provides to its
clients in the temporary staffing industry. The Tricom segment reported net
interest income of $1.2 million for the third quarter of 2002, an increase of
$217,000, or 22%, compared to $976,000 reported in the same period of 2001.
Non-interest income was $940,000 in the third quarter of 2002, a decrease of
$55,000, or 6%, compared to $995,000 in the third quarter of 2001. The segment's
after-tax profit was $466,000 in the third quarter of 2002, an increase of
$149,000, or 47%, as compared to the prior year third quarter of $317,000. On a
year-to-date basis, net interest income totaled $3.2 million for the first nine
months of 2002, an increase of $366,000, or 13%, as compared to the $2.8 million
recorded in the first nine months of 2001. Non-interest income decreased
$443,000 to $2.7 million in the first nine months of 2002. The Tricom segment's
after-tax profit for the nine months ended September 30, 2002, totaled $1.2
million, an increase of $304,000, or 33%, as compared to $919,000 in the first
nine months of 2001. As discussed in Note 12 - Goodwill and Other Intangible
Assets to the Company's unaudited consolidated financial statements, Tricom
benefited from the adoption of SFAS 142. Ceasing amortization of goodwill
contributed $86,000 to the segment's after-tax profit in the third quarter of
2002 and $258,000 to the segment's year-to-date 2002 after-tax profits.
The trust, asset management and brokerage segment reported net interest income
of $1.2 million for the third quarter of 2002 compared to $188,000 for the same
period last year. The rise in net interest income reported is due to the net
interest allocated to the segment from non-interest bearing and interest-bearing
account balances on deposit at the Banks and an increase in the segment's
earning assets, primarily the interest-bearing brokerage customer receivables at
WHI. This segment recorded non-interest income of $7.1 million for the third
quarter of 2002 as compared to $486,000 for the same quarter of 2001, an
increase of $6.6 million. The increase is 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. The trust, asset management and brokerage segment's
after-tax profit totaled $35,000 for the three-month period ended September 30,
2002, as compared to an after-tax loss of $114,000 for the same period of 2001.
On a year-to-date basis, net interest income totaled $2.6 million for the first
nine months of 2002, an increase of $2.0 million over the $540,000 recorded last
year. Non-interest income increased $17.9 million to $19.4 million in the first
nine months of 2002. The increase is attributable to the revenues from the Wayne
Hummer Companies. This segment's after-tax loss for the nine months ended
September 30, 2002, totaled $194,000, an improvement of $224,000 as compared to
the prior year loss of $418,000. The increased contribution in net interest
income and after tax profit in the third quarter of 2002 and the year-to-date
2002 results from this segment were primarily the result of the migration of
funds from the money market mutual fund balances managed by WHAMC into deposit
accounts of the Banks. See Note 5 - Deposits on page 7 for additional
information on these deposits.
FINANCIAL CONDITION
Total assets were $3.58 billion at September 30, 2002, an increase of $1.1
billion, or 42%, over $2.52 billion at September 30, 2001, and $871 million, or
43% on an annualized basis, over $2.71 billion at December 31, 2001. Growth at
the newer Banks and branches along with market share increases at the more
mature Banks and the addition of the Wayne
- 28 -
Hummer Companies were the primary factors for the increases since year-end,
adding $796 million and $75 million in total assets, respectively. Total
funding, which includes retail deposits, wholesale borrowings and Long-term
Debt-Trust Preferred Securities, was $3.28 billion at September 30, 2002, an
increase of $939 million, or 40%, over the September 30, 2001 reported amounts,
and $745 million, or 39% on an annualized basis, since December 31, 2001. The
increased funding was primarily utilized to fund growth in the loan portfolio of
$660 million since September 30, 2001 and $465 million since year-end. See Notes
3-7 of the Company's unaudited consolidated financial statements on pages 6-8
for additional period-end detail.
During the third quarter, the Company purchased $41.1 million of Bank Owned Life
Insurance ("BOLI"). The BOLI policies were purchased to consolidate existing
term life insurance contracts of executive officers to mitigate the mortality
risk associated with death benefits provided for in the executives' employment
contracts. The BOLI balances are included in "Accrued interest receivable and
other assets" on the Company's consolidated statement of condition. Adjustments
to the cash surrender value of the BOLI policies are recorded as non-interest
income. As a non-interest earning asset, the purchase of the BOLI policies in
the third quarter of 2002 contributed three basis points to the decline in net
interest margin as compared to the second quarter of 2002.
INTEREST-EARNING ASSETS
The following table sets forth, by category, the composition of average earning
asset balances and the relative percentage of total average earning assets for
the periods presented:
THREE MONTHS ENDED
------------------------------------------------------------------------------------
SEPTEMBER 30, 2002 June 30, 2002 September 30, 2001
---------------------------- -------------------------------------------------------
(Dollars in thousands) BALANCE PERCENT Balance Percent Balance Percent
-------------------------------------------------------------------------- -------------------------------------------------------
Loans:
Commercial and commercial real estate $ 1,171,503 37 % $ 1,059,413 38 % $ 836,998 38 %
Home equity 335,980 11 304,674 11 221,167 10
Residential real estate (1) 186,696 6 161,663 6 146,298 7
Premium finance receivables 491,486 16 432,603 16 362,875 16
Indirect auto loans 185,173 6 183,209 6 190,622 8
Tricom finance receivables 20,274 1 18,436 1 17,977 1
Other loans 61,127 2 58,970 2 72,531 3
---------------------------- -------------------------------------------------------
Total loans, net of unearned income $ 2,452,239 79 % $ 2,218,968 80 % $ 1,848,468 83 %
Liquidity management assets (2) 611,355 19 484,483 17 372,353 17
Other earning assets (3) 56,836 2 71,100 3 -- --
---------------------------- -------------------------------------------------------
Total earning assets $ 3,120,430 100 % $ 2,774,551 100 % $ 2,220,821 100 %
============================ =======================================================
Total assets $ 3,392,669 $ 2,992,133 $ 2,405,547
================ ================ ===============
Total earning assets to total assets 92 % 93 % 92 %
============ ============ ============
- ---------------------------------------------------
<FN>
(1) Includes mortgages held for sale
(2) Liquidity management assets include available-for-sale securities,
interest earning deposits with banks and federal funds sold.
(3) Other earning assets include brokerage customer receivables and trading
account securities.
</FN>
Average earning assets for the third quarter of 2002 increased $346 million, or
49% on an annualized basis, over the second quarter of 2002. The ratio of
average earning assets as a percent of total average assets remained consistent
at approximately 92% - 93% as of each reporting period date shown in the above
table.
Loan growth continued to fuel the Company's earning asset growth in the third
quarter of 2002. Total average loans increased by $233 million over the previous
quarter. Commercial and commercial real estate loans grew on average by 42%,
home equity by 41% and premium finance receivables by 54%, all on an annualized
basis, over the second quarter of 2002. The residential real estate average loan
growth is attributable to the growth in average balances of mortgages held for
sale.
- 29 -
Average earning assets for the third quarter of 2002, increased $900 million, or
41%, over the year-earlier third quarter. Average loans accounted for $604
million of the total average earning asset growth. Average other earning assets,
comprising the trading account securities and brokerage customer receivables as
a result of the acquisition of the Wayne Hummer Companies, contributed $57
million to total average earning asset growth.
In the normal course of business, Wayne Hummer Investments, LLC ("WHI")
activities involve the execution, settlement, and financing of various
securities transactions. These activities may expose WHI to risk in the event
the customer is unable to fulfill its contractual obligations. WHI maintains
cash and margin accounts for its customers generally located in the Chicago,
Illinois and Appleton, Wisconsin metropolitan areas of the Midwest.
WHI's customer securities activities are transacted on either a cash or margin
basis. In margin transactions, WHI extends credit to its customers, subject to
various regulatory and internal margin requirements, collateralized by cash and
securities in customer's accounts. In connection with these activities, WHI
executes and clears customer transactions relating to the sale of securities not
yet purchased, substantially all of which are transacted on a margin basis
subject to individual exchange regulations. Such transactions may expose WHI to
off-balance-sheet risk, particularly in volatile trading markets, in the event
margin requirements are not sufficient to fully cover losses that customers may
incur. In the event the customer fails to satisfy its obligations, WHI may be
required to purchase or sell financial instruments at prevailing market prices
to fulfill the customer's obligations. WHI seeks to control the risks associated
with its customers' activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal guidelines. WHI
monitors required margin levels daily and, pursuant to such guidelines, requires
the customer to deposit additional collateral or to reduce positions when
necessary.
WHI's customer financing and securities settlement activities require WHI to
pledge customer securities as collateral in support of various secured financing
sources such as bank loans and securities loaned. In the event the counterparty
is unable to meet its contractual obligation to return customer securities
pledged as collateral, WHI may be exposed to the risk of acquiring the
securities at prevailing market prices in order to satisfy its customer
obligations. WHI attempts to control this risk by monitoring the market value of
securities pledged on a daily basis and by requiring adjustments of collateral
levels in the event of excess market exposure. In addition, WHI establishes
credit limits for such activities and monitors compliance on a daily basis.
The following table sets forth, by category, the composition of average earning
asset balances and the relative percentage of total average earning assets for
the periods presented:
NINE MONTHS ENDED
-------------------------------------------------------------------
SEPTEMBER 30, 2002 September 30, 2001
-------------------------------- -------------------------------
(Dollars in thousands) BALANCE PERCENT Balance Percent
------------------------------------------------------- ----------------- ------------- ----------------- -------------
Loans:
Commercial and commercial real estate $ 1,073,017 38 % $ 751,938 37 %
Home equity 305,475 11 199,060 10
Residential real estate (1) 172,560 6 145,907 7
Premium finance receivables 445,814 16 355,553 17
Indirect auto loans 184,586 6 191,904 9
Tricom finance receivables 18,954 1 18,447 1
Other loans 61,651 2 70,164 3
----------------- ------------- ----------------- -------------
Total loans, net of unearned income $ 2,262,057 80 % $ 1,732,973 84 %
Liquidity management assets (2) 517,856 18 331,602 16
Other earning assets (3) 57,663 2 -- --
----------------- ------------- ----------------- -------------
Total earning assets $ 2,837,576 100 % $ 2,064,575 100 %
================= ============= ================= =============
Total assets $ 3,068,189 $ 2,245,797
================= =================
Total earning assets to total assets 92 % 92 %
------------------------------------------------------- ============= =============
<FN>
(1) Includes mortgages held for sale.
(2) Liquidity management assets include available-for-sale securities,
interest earning deposits with banks and federal funds sold.
(3) Other earning assets include brokerage customer receivables and trading
account securities.
</FN>
- 30 -
Average earning assets for the nine months ended September 30, 2002 increased
$773 million, or 37%, over the first nine months of 2001. The ratio of
year-to-date total average earning assets as a percent of year-to date total
average assets remained stable at approximately 92% for each reporting period
shown in the above table, consistent with this ratio on a quarterly basis. Loan
growth has fueled the Company's year-to-date total earning asset growth in 2002.
Total average loans increased by $529 million in the first nine months of 2002
over the same period in the previous year. Commercial and commercial real estate
loans grew on average by 43%, home equity by 53% and premium finance receivables
by 25% in the first nine months of 2002 compared to the first nine months of
2001.
DEPOSITS
The following table sets forth, by category, the composition of average deposit
balances and the relative percentage of total average deposits for the periods
presented:
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
SEPTEMBER 30, 2002 June 30, 2002 September 30, 2001
--------------------------------------------------------- -----------------------------
(Dollars in thousands) BALANCE PERCENT Balance Percent Balance Percent
------------------------------------------ --------------------------------------------------------- -----------------------------
Non-interest bearing $ 274,325 10 % $ 241,180 10 % $ 212,189 10 %
NOW 316,889 11 286,013 12 214,208 10
Brokerage customer deposits 152,723 5 14,631 1 -- --
Money market 374,147 13 364,754 15 305,384 14
Savings 136,551 5 130,247 5 121,664 6
Time certificate of deposits 1,559,234 56 1,407,602 57 1,263,841 60
--------------------------------------------------------- -----------------------------
Total deposits $ 2,813,869 100 $ 2,444,427 100 $ 2,117,286 100 %
========================================================= =============================
Total average deposits for the third quarter of 2002 were $2.81 billion, an
increase of $697 million, or 33%, over the third quarter of 2001 and an increase
of $369 million, or 60% on an annualized basis, over the second quarter of 2002.
As previously disclosed, following its acquisition of the Wayne Hummer Companies
in February 2002, Wintrust has undertaken efforts to migrate funds from the
money market mutual fund balances managed by Wayne Hummer Asset Management
Company into deposit accounts of the Wintrust Banks ("Brokerage customer
deposits" in table above). Consistent with reasonable interest rate risk
parameters, the funds will generally be invested in excess loan production of
the Banks as well as other investments suitable for banks. As of September 30,
2002, $179.8 million had migrated into an insured bank deposit product at the
various Banks. The migration of additional funds to the Banks is subject to the
desire of the customers to make the transition of their funds into FDIC-insured
bank accounts, capital capacity of the Company and the availability of suitable
investments in which to deploy the funds. As of October 31, 2002, a total of
approximately $195 million was resident in this account and Wintrust estimates
that approximately $200 to $300 million may migrate to the Banks by the end of
2002. Excluding these deposits, average deposits increased $231, or 38% on an
annualized basis, over the second quarter of 2002.
OTHER FUNDING SOURCES
Although deposits are the Company's main source of funding its interest-earning
asset growth, the Company's ability to manage the types and terms of deposits is
somewhat limited by customer preferences and market competition. As a result,
the Company uses several other funding sources to support its interest-earning
asset growth. These sources include short-term borrowings, notes payable, FHLB
advances, trust preferred securities, the issuance of equity securities as well
as the retention of earnings.
Average total interest-bearing funding, from sources other than deposits and
including trust preferred securities, decreased by $15 million in the third
quarter of 2002 to $306 million, compared to the second quarter of 2002 average
balance of $321 million. These funding sources increased by $187 million
compared to the third quarter of 2001 average total balance of $118 million.
- 31 -
The following table sets forth, by category, the composition of average other
funding sources for the periods presented:
THREE MONTHS ENDED
----------------------------------------------------------
SEPTEMBER 30, June 30, September 30,
(In thousands) 2002 2002 2001
----------------------------------------------------------------------- --------------------------------------- ------------------
Notes payable $ 50,429 $ 66,323 $ 25,261
Federal Home Loan Bank advances 139,900 104,938 22,500
Federal funds purchased 3,318 24,386 886
Securities sold under repurchase agreements 21,665 19,230 18,582
Wayne Hummer Companies borrowings 34,366 49,648 --
Other 5,000 5,000 --
Long-term Debt - Trust Preferred Securities 51,050 51,050 51,050
--------------------------------------- ------------------
Total other funding sources $ 305,728 $ 320,575 $ 118,279
======================================= ==================
The Wayne Hummer Companies borrowings consist of demand obligations to third
party banks primarily collateralized with customer assets at interest rates
approximating the fed funds rate that are used to finance securities purchased
by customers on margin and securities owned by WHI and demand obligations to
brokers and clearing organizations at rates approximating fed funds. The
decrease in the average balance in the third quarter of 2002 compared to the
second quarter of 2002 is a result of lower balances required to finance
securities purchased by customers on margin.
During 2001, Wintrust initiated borrowing from the Federal Home Loan Bank
("FHLB"). The Company initially borrowed from the FHLB in the third and fourth
quarters of 2001 and borrowed an additional $50 million in the second quarter of
2002 as part of the Company's interest rate risk management.
Other represents the Company's interest-bearing deferred portion of the purchase
price of the Wayne Hummer Companies.
Subsequent to the end of the third quarter, the Company renewed its revolving
loan agreement ("Agreement") with an unaffiliated bank (notes payable in above
table). The total amount of the Agreement was increased to $75 million,
comprised of a $50 million revolving note that matures on December 31, 2003 and
a $25 million revolving note that matures on February 27, 2006. This renewal
increased the Company's available funding by $5 million over the amount provided
under the previous Agreement. Additionally, subsequent to the end of the third
quarter, the Company completed a $25 million subordinated debt agreement with an
unaffiliated bank.
SHAREHOLDERS' EQUITY
Total shareholders' equity was $218.0 million at September 30, 2002 and
increased $80.0 million since September 30, 2001 and $76.8 million since the end
of 2001. The increase from year-end was the result of the Company's issuance of
762,742 shares, or $15.0 million, of its common stock in the acquisition of the
Wayne Hummer Companies, issuance of 1,362,750 shares of common stock through an
underwritten public offering completed in July 2002 (including the sale of
shares subject to the underwriters' over-allotment option), through which the
Company realized net proceeds of approximately $36.5 million, net income of
$20.0 million, $5.7 million of proceeds from the issuance of the Company's
common stock as the result of the exercise of stock options and warrants and
through the Company's employee stock purchase plan and director compensation
plan, a $1.5 million decrease in the unrealized loss on securities and
derivative financial instruments offset by $1.9 million of cash dividends paid
on the Company's common stock. The annualized return on average equity for the
nine months ended September 30, 2002 decreased to 14.98% as compared to 15.44%
for the first nine months of 2001.
On June 14, 2002 Wintrust announced the closing of an underwritten public
offering of 1,185,000 shares of common stock at a price of $28.70 per share.
Wintrust sold all 1,185,000 shares of common stock. In connection with the
offering, Wintrust granted the underwriters of the offering a 30-day
over-allotment option to purchase up to an additional 177,750 shares, which was
exercised and closed in July, 2002. Net proceeds to the Company, including the
over-allotment option
- 32 -
and after deducting the underwriting discount and estimated offering expenses,
were approximately $36.5 million. The net proceeds of this offering will be used
to increase the capital at our existing Banks, to pursue growth opportunities
(internal, additional de novo locations and possible acquisitions) and for
general corporate purposes.
The following tables reflect various consolidated measures of capital as of the
dates presented and the capital guidelines established by the Federal Reserve
Bank for a bank holding company:
SEPTEMBER 30, December 31, September 30,
2002 2001 2001
-------------------- ------------------- -----------------
Leverage ratio 7.2 % 7.1 % 7.3 %
Tier 1 risk-based capital ratio 8.0 7.7 8.1
Total risk-based capital ratio 8.6 8.5 9.0
Dividend payout ratio 7.7 7.4 7.4
- ------------------------------------------------------------------- --------------------------------------------------------------
Minimum
Capital Adequately Well
Requirements Capitalized Capitalized
-------------------- ------------------- -----------------
Leverage ratio 3.0 % 4.0 % 5.0 %
Tier 1 risk-based capital ratio 4.0 4.0 6.0
Total risk-based capital ratio 8.0 8.0 10.0
- ------------------------------------------------------------------- --------------------------------------------------------------
The Company attempts to maintain an efficient capital structure in order to
provide higher returns on equity. Additional capital is required from time to
time, however, to support the growth of the organization. The issuance of
additional common stock, additional trust preferred securities or subordinated
debt are the primary forms of capital that are considered as the Company
evaluates its capital position. As previously discussed, subsequent to the end
of the third quarter, the Company completed a $25 million subordinated debt
agreement with an unaffiliated bank. This amount, in its entirety, qualifies as
Tier II regulatory capital. The Company's total risk-based capital ratio at
September 30, 2002 would have been 9.4%, had this amount been included.
On January 24, 2002, Wintrust declared a semi-annual cash dividend of $0.06 per
common share. In July, the Company also declared a semi-annual cash dividend of
$0.06 per common share, paid August 20, 2002 to shareholders of record on August
6, 2002. Both 2002 semi-annual dividends represent a 29% increase over the
comparable dividends per share paid in 2001.
The Company has repurchased no shares of the Company's common stock since the
third quarter of 2000.
- 33 -
ASSET QUALITY
ALLOWANCE FOR LOAN LOSSES
A reconciliation of the activity in the balance of the allowance for loan losses
for the periods presented is shown below:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
(Dollars in thousands) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------- --------------------------------------
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 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 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 %
======================================
Management believes that the loan portfolio is well diversified and well
secured, without undue concentration in any specific risk area. Loan quality is
continually monitored by management and is reviewed by the Banks' Boards of
Directors and their Credit Committees on a monthly basis. Independent external
review of the loan portfolio is provided by the examinations conducted by
regulatory authorities and an independent loan review performed by an entity
engaged by the Board of Directors. The amount of additions to the allowance for
loan losses, which is charged to earnings through
- 34 -
the provision for loan losses, is determined based on management's assessment of
the adequacy of the allowance for loan losses. Management evaluates on a
quarterly basis a variety of factors, including actual charge-offs during the
year, historical loss experience, delinquent and other potential problem loans,
and economic conditions and trends in the market area in assessing the adequacy
of the allowance for loan losses.
The provision for loan losses totaled $2.5 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.
The allowance for loan losses is maintained at a level believed adequate by
management to cover losses inherent in the portfolio and is based on an
assessment of individual problem loans, actual and anticipated loss experience
and other pertinent factors. The allowance for loan losses consists of an
allocated and unallocated component. The Company reviews potential problem loans
on a case-by-case basis to allocate a specific dollar amount of reserves,
whereas all other loans are reserved for based on assigned reserve percentages
evaluated by loan groupings. The loan groupings utilized by the Company are
commercial, commercial real estate, residential real estate, home equity,
premium finance receivables, indirect automobile, Tricom finance receivables and
consumer. The reserve percentages applied to these loan groups attempts to
account for the inherent risk in the portfolio based upon various factors
including industry concentration, geographical concentrations, local and
national economic indicators, levels of delinquencies, historical loss
experience including an analysis of the lack of maturity in the loan portfolio,
changes in trends in risk ratings assigned to loans, changes in underwriting
standards and other pertinent factors. The unallocated portion of the allowance
for loan losses reflects management's estimate of probable inherent but
undetected losses within the portfolio due to uncertainties in economic
conditions, delays in obtaining information, including unfavorable information
about a borrower's financial condition, the difficulty in identifying triggering
events that correlate perfectly to subsequent loss rates, and risk factors that
have not yet manifested themselves in loss allocation factors. Management
believes the unallocated portion of the allowance for loan losses is necessary
due to the imprecision inherent in estimating expected future credit losses. The
amount of future additions to the allowance for loan losses will be dependent
upon the economy, changes in real estate values, interest rates, the regulatory
environment, the level of past-due and non-performing loans, and other factors.
(See "Past Due Loans and Non-performing Assets" below).
The increase in the allowance for loan losses of $3.5 million from December 31,
2001 to September 30, 2002 is primarily related to growth in the commercial and
commercial real estate portfolio of $242.8 million, or 32% on an annualized
basis and growth in the premium finance receivables portfolio of $122.3 million,
or 47% on an annualized basis. The allowance for loan losses as a percentage of
total loans was 0.69% at September 30, 2002 compared to 0.72% at September 30,
2001. The commercial and commercial real estate portfolios and the premium
finance portfolio have traditionally experienced the highest levels of
charge-offs by the Company, along with losses related to the indirect automobile
portfolio. The level of the allowance for loan losses was not impacted
significantly by changes in the amount or credit risk associated with the
indirect automobile loan portfolio as that portfolio has increased by only
$456,000 from the prior year and the allocated loss has been reduced due to
improvement in the delinquencies, underwriting standards and collection
routines.
- 35 -
PAST DUE LOANS AND NON-PERFORMING ASSETS
The following table sets forth the Company's non-performing assets as of the
dates presented:
SEPTEMBER 30, June 30, December 31, September 30,
(Dollars in thousands) 2002 2002 2001 2001
- ------------------------------------------------------------ ------------------ --------------- ----------------- ----------------
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 % 0.49 %
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 %
================== ============== =============== ===============
The information in the table should be read in conjunction with the detailed
discussion following the table.
- 36 -
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 from 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.
SEPTEMBER 30, September 30,
(Dollars in thousands) 2002 2001
-------------------------------------------------------------------------- -------------------------- ------------------------
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%
-------------------------------------------------------------------------- -------------------------- ------------------------
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 certain insurance agents that were referring
new business to our premium finance subsidiary that had relatively small
balances and higher than normal delinquency rates. The business associated with
those accounts has become a less significant percent of the entire portfolio and
is nearly extinguished. Management continues to see progress in this portfolio
and continues to expect the level of non-performing loans related to this
portfolio to remain at relatively low levels.
The ratio of non-performing premium finance receivables fluctuates throughout
the year due to the nature and timing of canceled account collections from
insurance carriers. Due to the nature of collateral for premium finance
receivables it customarily takes 60-150 days to convert the collateral into cash
collections. Accordingly, the level of non-performing premium finance
receivables is not necessarily indicative of the loss inherent in the portfolio.
In the event of default Wintrust has the power to cancel the insurance policy
and collect the unearned portion of the premium from the insurance carrier. In
the event of cancellation, the cash returned in payment of the unearned premium
by the insurer should generally be sufficient to cover the receivable balance,
the interest and other charges due. Due to notification requirements and
processing time by most insurance carriers, many receivables will become
delinquent beyond 90 days while the insurer is processing the return of the
unearned premium. Management continues to accrue interest until maturity as the
unearned premium is ordinarily sufficient to pay-off the outstanding balance and
contractual interest due.
Non-performing Indirect Automobile Loans
Total non-performing indirect automobile loans were $793,000 at September 30,
2002, decreasing from $857,000 at December 31, 2001 and up slightly from
$748,000 at September 30, 2001. The ratio of these non-performing loans to total
indirect automobile loans decreased to 0.43% of total indirect automobile loans
at September 30, 2002 from 0.47% at December 31, 2001 and increased slightly
from 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 $185 million, up
less than $1 million from December 31, 2001 but down $7 million, or 3% from
September 30, 2001.
- 37 -
Potential Problem Loans
Management believes that any loan where there are serious doubts as to the
ability of such borrowers to comply with the present loan repayment terms should
be identified as a non-performing loan and should be included in the disclosure
of "Past Due Loans and Non-performing Assets" on page 36. Accordingly, at the
periods presented in this report, the Company has no potential problem loans as
defined by Securities and Exchange Commission regulations.
Credit Quality Review Procedures
The Company utilizes a loan rating system to assign risk to loans and utilizes
that risk rating system to assist in developing an internal problem loan
identification system ("Watch List") as a means of reporting non-performing and
potential problem loans. At each scheduled meeting of the Boards of Directors of
the Banks and the Wintrust Board, a Watch List is presented, showing all loans
that are non-performing and loans that may warrant additional monitoring.
Accordingly, in addition to those loans disclosed under "Past Due Loans and
Non-performing Assets," there are certain loans in the portfolio which
management has identified, through its Watch List, which exhibit a higher than
normal credit risk. These Watch List credits are reviewed individually by
management to determine whether any specific reserve amount should be allocated
for each respective credit. However, these loans are still performing and,
accordingly, are not included in non-performing loans. Management's philosophy
is to be proactive and conservative in assigning risk ratings to loans and
identifying loans to be included on the Watch List. The principal amount of
loans on the Company's Watch List as of September 30, 2002 and June 30, 2002 was
approximately $40.1 million and $48.8 million, respectively. We believe these
loans are performing and, accordingly, do not cause management to have serious
doubts as to the ability of such borrowers to comply with the present loan
repayment terms.
LIQUIDITY
Wintrust manages the liquidity position of its banking operations to ensure that
sufficient funds are available to meet customers' needs for loans and deposit
withdrawals. The liquidity to meet the demand is provided by maturing assets,
sales of premium finance receivables, liquid assets that can be converted to
cash, and the ability to attract funds from external sources. Liquid assets
refer to federal funds sold and to marketable, unpledged securities, which can
be quickly sold without material loss of principal.
Please refer to the Interest-Earning Assets, Deposits, Other Funding Sources and
Shareholders' Equity discussions on pages 29-33 for additional information
regarding the Company's liquidity position.
INFLATION
A banking organization's assets and liabilities are primarily monetary. Changes
in the rate of inflation do not have as great an impact on the financial
condition of a bank as do changes in interest rates. Moreover, interest rates do
not necessarily change at the same percentage as does inflation. Accordingly,
changes in inflation are not expected to have a material impact on the Company.
An analysis of the Company's asset and liability structure provides the best
indication of how the organization is positioned to respond to changing interest
rates. See "Quantitative and Qualitative Disclosure About Market Risks"
beginning on page 40.
- 38 -
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and is including this
statement for purposes of invoking these safe harbor provisions. Such
forward-looking statements may be deemed to include, among other things,
statements relating to anticipated improvements in financial performance and
management's long-term performance goals, as well as statements relating to the
anticipated effects on results of operations and financial condition from
expected development or events, the Company's business and growth strategies,
including anticipated internal growth, plans to form additional de novo banks
and to open new branch offices, and to pursue additional potential development
or the acquisition of banks, specialty finance or fee-related businesses. Actual
results could differ materially from those addressed in the forward-looking
statements as a result of numerous factors, including the following:
o The level of reported net income, return on average assets and return on
average equity for the Company will in the near term continue to be
impacted by start-up costs associated with de novo bank formations, branch
openings, and expanded trust and investment operations. De novo banks may
typically require 13 to 24 months of operations before becoming profitable,
due to the impact of organizational and overhead expenses, the start-up
phase of generating deposits and the time lag typically involved in
redeploying deposits into attractively priced loans and other higher
yielding earning assets.
o The Company's success to date has been and will continue to be strongly
influenced by its ability to attract and retain senior management
experienced in banking and financial services.
o Although management believes the allowance for loan losses is adequate to
absorb losses that may develop in the existing portfolio of loans and
leases, there can be no assurance that the allowance will prove sufficient
to cover actual future loan or lease losses.
o If market interest rates should move contrary to the Company's gap position
on interest earning assets and interest bearing liabilities, the "gap" will
work against the Company and its net interest income may be negatively
affected.
o The financial services business is highly competitive which may affect the
pricing of the Company's loan and deposit products as well as its services.
o The Company may not be able to successfully adapt to technological changes
to compete effectively in the marketplace.
o Future events may cause slower than anticipated development and growth of
the Tricom business should the temporary staffing industry experience
continued slowness.
o Changes in the economic environment, competition, or other factors, may
influence the anticipated growth rate of loans and deposits, the quality of
the loan portfolio and the pricing of loans and deposits and may affect the
Company's ability to successfully pursue acquisition and expansion
strategies.
o Unforeseen future events surrounding the trust, asset management and
brokerage business, including competition and related pricing of brokerage
and asset management products, or difficulties integrating the acquisition
of the Wayne Hummer Companies.
- 39 -
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As a continuing part of its financial strategy, the Company attempts to manage
the impact of fluctuations in market interest rates on net interest income. This
effort entails providing a reasonable balance between interest rate risk, credit
risk, liquidity risk and maintenance of yield. Asset-liability management
policies are established and monitored by management in conjunction with the
Boards of Directors of the Banks, subject to general oversight by the Company's
Board of Directors. The policy establishes guidelines for acceptable limits on
the sensitivity of the market value of assets and liabilities to changes in
interest rates.
Interest rate risk arises when the maturity or repricing periods and interest
rate indices of interest earning assets, interest bearing liabilities, and
derivative financial instruments are different. The Company continuously
monitors not only the organization's current net interest margin, but also the
historical trends of these margins. In addition, management attempts to identify
potential adverse swings in net interest income in future years, as a result of
interest rate movements, by performing simulation analysis of potential interest
rate environments. If a potential adverse swing in net interest margin and/or
net income is identified, management then would take appropriate actions with
its asset-liability structure to counter these potentially adverse situations.
Please refer to the "Net Interest Income" section for further discussion of the
net interest margin.
Since the Company's primary source of interest bearing liabilities is customer
deposits, the Company's ability to manage the types and terms of such deposits
may be somewhat limited by customer preferences and local competition in the
market areas in which the Company operates. The rates, terms and interest rate
indices of the Company's interest earning assets result primarily from the
Company's strategy of investing in loans and short-term securities that permit
the Company to limit its exposure to interest rate risk, together with credit
risk, while at the same time achieving an acceptable interest rate spread.
One method utilized by financial institutions to manage interest rate risk is to
enter into derivative financial instruments. A derivative financial instrument
includes interest rate swaps, interest rate caps and floors, futures, forwards,
option contracts and other financial instruments with similar characteristics.
As of September 30, 2002, the Company had $75 million notional principal amount
of interest rate cap contracts outstanding that mature between January 2003 and
February 2003. These contracts were purchased to mitigate the effect of rising
rates on certain floating rate deposit products. Additionally, during 2001, the
Company entered into a $25 million notional principal amount interest rate swap
contract that matures in February 2004. This contract effectively converts a
portion of the Company's floating-rate notes payable to a fixed-rate basis, thus
reducing the impact of rising interest rates on future interest expense.
During the first nine months of 2002, the Company also entered into certain
covered call option transactions related to certain securities held by the
Company. These transactions are designed to increase the total return associated
with holding these securities as earning assets and are not used to manage
exposure to changing market interest rates. However, the Company's exposure to
interest rate risk may be effected by these transactions. To mitigate this risk,
the Company may acquire fixed rate term debt or use financial derivative
instruments. There were no call options outstanding as of September 30, 2002.
The Company's exposure to market risk is reviewed on a regular basis by
management and the boards of directors of the Banks and the Company. The
objective is to measure the effect on net interest income and to adjust balance
sheet and off-balance sheet instruments to minimize the inherent risk while at
the same time maximize income. Tools used by management include a standard gap
report and a rate simulation model whereby changes in net interest income are
measured in the event of various changes in interest rate indices. An
institution with more assets than liabilities repricing over a given time frame
is considered asset sensitive and will generally benefit from rising rates, and
conversely, a higher level of repricing liabilities versus assets would be
beneficial in a declining rate environment.
Subsequent to the end of the third quarter, the Company entered into two
separate derivative financial instruments. An interest rate swap contract was
entered into to swap the newly issued subordinated debt, (See "Shareholders
Equity" on page 33) effectively converting this debt from variable-rate to
fixed-rate. Additionally, an interest rate swap contract was entered into to
swap the Company's 9% Trust Preferred Securities, effectively converting them
from fixed-rate to variable-rate (See
- 40 -
Note 10-Derviative Financial Instruments on page 11). Both of these interest
rate swap contracts qualify as effective hedges pursuant to SFAS 133.
Standard gap analysis starts with contractual repricing information for assets,
liabilities and derivative financial instruments. These items are then combined
with repricing estimations for administered rate (NOW, savings and money market
accounts) and non-rate related products (demand deposit accounts, other assets,
other liabilities. The following table illustrates the Company's estimated
interest rate sensitivity and periodic and cumulative gap positions as of
September 30, 2002:
TIME TO MATURITY OR REPRICING
-----------------------------------------------------------------------
0-90 91-365 1-5 Over 5
(Dollars in thousands) Days Days Years Years Total
-------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Liquidity management assets $ 517,343 $ 58,475 $ 61,992 $ 39,025 $ 676,835
Loans, net of unearned income (1) 1,591,285 438,314 448,592 63,938 2,542,129
Other earning assets 50,186 -- -- -- 50,186
-----------------------------------------------------------------------
Total earning assets 2,158,814 496,789 510,584 102,963 3,269,150
Other non-earning assets -- -- -- 307,625 307,625
-----------------------------------------------------------------------
Total assets (RSA) $2,158,814 $496,789 $ 510,584 $410,588 $3,576,775
=======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing deposits (2) $1,480,086 $645,961 $ 547,787 $ 16,447 $2,690,281
Federal Home Loan Bank advances -- -- 118,750 21,250 140,000
Notes payable and other borrowings 112,870 -- -- -- 112,870
Long-term Debt - Trust Preferred Securities -- -- -- 51,050 51,050
-----------------------------------------------------------------------
Total interest-bearing liabilities 1,592,956 645,961 666,537 88,747 2,994,201
Demand deposits -- -- -- 281,204 281,204
Other liabilities -- -- -- 83,342 83,342
Shareholders' equity -- -- -- 218,028 218,028
EFFECT OF DERIVATIVE FINANCIAL INSTRUMENTS:
Interest rate swap (Company pays fixed, receives
floating) (25,000) -- 25,000 -- --
-----------------------------------------------------------------------
Total liabilities and shareholders' equity including
effect of derivative financial instruments (RSL) $1,567,956 $645,961 $ 691,537 $671,321 $3,576,775
=======================================================================
Repricing gap (RSA - RSL) $ 590,858 $ (149,172) $ (180,953) $(260,733)
Cumulative repricing gap $ 590,858 $ 441,686 $ 260,733 $ --
Cumulative RSA/Cumulative RSL 138% 120% 109%
Cumulative RSA/Total assets 60% 74% 89%
Cumulative RSL/Total assets 44% 62% 81%
Cumulative GAP/Total assets 17% 12% 7%
Cumulative GAP/Cumulative RSA 27% 17% 8%
-------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Loans, net of unearned income includes mortgages held for sale and
nonaccrual loans.
(2) Non-contractual interest-bearing deposits are subject to immediate
withdrawal and, therefore, are included in 0-90 days.
</FN>
While the gap position and related ratios illustrated in the table are useful
tools that management can use to assess the general positioning of the Company's
and its subsidiaries' balance sheets, it is only as of a point in time.
Additionally, the gap position does not reflect the impact of the interest rate
cap contracts that may mitigate the effect of rising rates on certain floating
rate deposit products. See Note 10-Derivative Financial Instruments to the
unaudited consolidated
- 41 -
financial statements for further information on the interest rate cap contracts.
Management uses an additional measurement tool to evaluate its asset-liability
sensitivity that determines exposure to changes in interest rates by measuring
the percentage change in net interest income due to changes in interest rates
over a two-year time horizon. Management measures its exposure to changes in
interest rates using many different interest rate scenarios. One interest rate
scenario utilized is to measure the percentage change in net interest income
assuming an immediate permanent parallel shift in the yield curve of 200 basis
points, both upward and downward. This analysis also includes the impact of both
interest rate cap agreements mentioned above. Utilizing this measurement
concept, the interest rate risk of the Company, expressed as a percentage change
in net interest income over a two-year time horizon due to changes in interest
rates as of the dates shown is as follows:
+ 200 BASIS - 200 BASIS
` POINTS POINTS
--------------- ---------------
Percentage change in net interest income due to an immediate permanent 200 basis
point parallel shift in the yield curve: (1)
SEPTEMBER 30, 2002 15.7 % (26.1) %
December 31, 2001 7.2 % (11.4) %
September 30, 2001 6.8 % (6.4) %
- -------------------------------------------------------------------------------------------------
<FN>
(1) The September 30, 2002 and the December 31, 2001 200 basis point immediate
permanent downward parallel shift in the yield curve impacted a majority of
rate sensitive assets by the entire 200 basis points, while certain
interest-bearing deposits may already be at their floor, or reprice
significantly less than 200 basis points. This caused the results in a 200
basis point immediate permanent downward parallel shift in the yield curve
to reflect a larger decrease in net interest income at September 30, 2002
and December 31, 2001 compared to September 30, 2001.
</FN>
These results are based solely on an immediate parallel shift in the yield curve
and do not reflect the net interest income sensitivity that may arise from other
factors, such as changes in the shape of the yield curve or the change in spread
between key market rates. No management actions to mitigate potential changes in
net interest income are included in this simulation. These management actions
could include, but would not be limited to, delaying a change in deposit rates,
extending the maturity of liabilities, the use of derivative financial
instruments, changing the pricing characteristics of loans or modifying the
growth rate of certain types of assets or liabilities.
ITEM 4
CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company's Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer carried
out an evaluation under their supervision, with the participation of other
members of management as they deemed appropriate, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures as
contemplated by Exchange Act Rule 13a-15. Based upon, and as of the date of that
evaluation, the Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective, in all material respects, in timely alerting them to
material information relating to the Company (and its consolidated subsidiaries)
required to be included in the periodic reports the Company is required to file
and submit to the SEC under the Exchange Act.
There have been no significant changes to the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date that the internal controls were most recently evaluated. There were no
significant deficiencies or material weaknesses identified in that evaluation
and, therefore, no corrective actions were taken.
- 42 -
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5: OTHER INFORMATION.
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
---------
3.1 Amended and Restated Articles of Incorporation of Wintrust Financial
Corporation (incorporated by reference to Exhibit 3.1 of the Company's
Form S-1 Registration Statement (No. 333-18699) filed with the
Securities and Exchange Commission on December 24, 1996).
3.2 Statement of Resolution Establishing Series of Junior Serial Preferred
Stock A of Wintrust Financial Corporation (incorporated by reference to
Exhibit 3.2 of the Company's Form 10-K for the year ended December 31,
1998).
3.3 Amended By-laws of Wintrust Financial Corporation (incorporated by
reference to Exhibit 3(i) of the Company's Form 10-Q for the quarter
ended June 30, 1998).
4.1 Rights Agreement between Wintrust Financial Corporation and Illinois
Stock Transfer Company, as Rights Agent, dated July 28, 1998
(incorporated by reference to Exhibit 4.1 of the Company's Form 8-A
Registration Statement (No. 000-21923) filed with the Securities and
Exchange Commission on August 28, 1998).
4.2 Certain instruments defining the rights of holders of long-term debt of
the Company and certain of its subsidiaries, none of which authorize a
total amount of indebtedness in excess of 10% of the total assets of
the Company and its subsidiaries on a consolidated basis, have not been
filed as Exhibits. The Company hereby agrees to furnish a copy of any
of these agreements to the Commission upon request.
- 43 -
99.1 Certification of President and Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Senior Executive Vice President and Chief Operating
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.3 Certification of Executive Vice President and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Reports on Form 8-K.
- --------------------
- Form 8-K report dated July 18, 2002, filed with the SEC on July 24,
2002, provided the Company's second quarter 2002 earnings release dated
July 18, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINTRUST FINANCIAL CORPORATION
(Registrant)
Date: November 12, 2002 /s/ EDWARD J. WEHMER
--------------------
President and Chief Executive Officer
Date: November 12, 2002 /s/ DAVID A. DYKSTRA
--------------------
Senior Executive Vice President and
Chief Operating Officer
Date: November 12, 2002 /s/ DAVID L. STOEHR
-------------------
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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CERTIFICATIONS
- --------------
I, Edward J. Wehmer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wintrust Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ EDWARD J. WEHMER
-----------------------------------------------
Name: Edward J. Wehmer
Title: President and Chief Executive Officer
- 46 -
CERTIFICATIONS
- --------------
I, David A. Dykstra, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wintrust Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ DAVID A. DYKSTRA
------------------------------------------
Name: David A. Dykstra
Title: Senior Executive Vice President and
Chief Operating Officer
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CERTIFICATIONS
- --------------
I, David L. Stoehr, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wintrust Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
/s/ DAVID L. STOEHR
------------------------------------
Name: David L. Stoehr
Title: Executive Vice President and
Chief Financial Officer
- 48 -
EXHIBIT INDEX
-------------
3.1 Amended and Restated Articles of Incorporation of Wintrust Financial
Corporation (incorporated by reference to Exhibit 3.1 of the Company's
Form S-1 Registration Statement (No. 333-18699) filed with the Securities
and Exchange Commission on December 24, 1996).
3.2 Statement of Resolution Establishing Series of Junior Serial Preferred
Stock A of Wintrust Financial Corporation (incorporated by reference to
Exhibit 3.2 of the Company's Form 10-K for the year ended December 31,
1998).
3.3 Amended By-laws of Wintrust Financial Corporation (incorporated by
reference to Exhibit 3(i) of the Company's Form 10-Q for the quarter ended
June 30, 1998).
4.1 Rights Agreement between Wintrust Financial Corporation and Illinois Stock
Transfer Company, as Rights Agent, dated July 28, 1998 (incorporated by
reference to Exhibit 4.1 of the Company's Form 8-A Registration Statement
(No. 000-21923) filed with the Securities Exchange Commission on August
28, 1998).
4.2 Certain instruments defining the rights of holders of long-term debt of
the Company and certain of its subsidiaries, none of which authorize a
total amount of indebtedness in excess of 10% of the total assets of the
Company and its subsidiaries on a consolidated basis, have not been filed
as Exhibits. The Company hereby agrees to furnish a copy of any of these
agreements to the Commission upon request.
99.1 Certification of President and Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Senior Executive Vice President and Chief Operating
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
99.3 Certification of Executive Vice President and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
- 49 -