UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
0-21923
Commission File Number
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)
COMMON STOCK, NO PAR VALUE*
9.00% CUMULATIVE TRUST PREFERRED SECURITIES (AND RELATED GUARANTEE)
10.50% CUMULATIVE TRUST PREFERRED SECURITIES (AND RELATED GUARANTEE)
Securities registered pursuant to Section 12(g) of the Act
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 for 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. X Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). X Yes No
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
registrant on June 28, 2002 (the last business day of the registrant's most
recently completed second quarter), determined using the closing price of the
common stock on that day of $34.57, as reported by the Nasdaq National Market,
was $548,394,039.
As of March 19, 2003, the registrant had 17,364,380 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
2002, which is included as Exhibit 13.1 to this Form 10-K, are incorporated by
reference into Parts I and II hereof and portions of the Proxy Statement for the
Company's Annual Meeting of Shareholders to be held on May 22, 2003 are
incorporated by reference into Part III.
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* INCLUDING PREFERRED SHARE PURCHASE RIGHTS RELATED THERETO
TABLE OF CONTENTS
PART I
Page
----
ITEM 1. Business......................................................... 3
ITEM 2. Properties....................................................... 19
ITEM 3. Legal Proceedings................................................ 21
ITEM 4. Submission of Matters to a Vote of Security Holders.............. 21
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 22
ITEM 6. Selected Financial Data.......................................... 24
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation...................................... 24
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk....... 24
ITEM 8. Financial Statements and Supplementary Data...................... 25
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 33
PART III
ITEM 10. Directors and Executive Officers of the Registrant............... 34
ITEM 11. Executive Compensation........................................... 34
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters............................... 34
ITEM 13. Certain Relationships and Related Transactions................... 35
ITEM 14. Controls and Procedures.......................................... 35
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 36
Signatures....................................................... 42
Certifications................................................... 44
PART I
ITEM 1. BUSINESS
Wintrust Financial Corporation, an Illinois corporation (the "Company"), is a
financial holding company based in Lake Forest, Illinois, with total assets of
approximately $3.7 billion at December 31, 2002. The Company engages in the
business of providing traditional community banking services, trust and
investment services, commercial insurance premium financing, short-term accounts
receivable financing, and certain administrative services, such as data
processing of payrolls, billing and cash management services.
The Company provides community-oriented, personal and commercial banking
services to customers located predominantly in affluent suburbs of Chicago,
Illinois through its seven wholly-owned banking subsidiaries (collectively,
"Banks"), all of which started as de novo (i.e., started new) institutions,
including Lake Forest Bank and Trust Company ("Lake Forest Bank"), Hinsdale Bank
and Trust Company ("Hinsdale Bank"), North Shore Community Bank and Trust
Company ("North Shore Bank"), Libertyville Bank and Trust Company ("Libertyville
Bank"), Barrington Bank and Trust Company, N.A. ("Barrington Bank"), Crystal
Lake Bank & Trust Company, N.A. ("Crystal Lake Bank"), and Northbrook Bank &
Trust Company ("Northbrook Bank").
The Company provides trust and investment services in the communities served by
the Banks through its wholly-owned subsidiary, Wayne Hummer Trust Company, N.A.
("WHTC"), formerly known as Wintrust Asset Management Company, N.A. Through
Wayne Hummer Investments, LLC ("WHI") and Wayne Hummer Asset Management Company
("WHAMC"), firms the Company acquired in February 2002 to expand its wealth
management business, the Company provides brokerage and asset management
services to over 35,000 customers, primarily in the Midwest, as well as to
customers of the Banks. In addition, Focused Investment, LLC ("FI"), which is a
wholly-owned subsidiary of WHI, provides a full range of investment services to
individuals through a network of relationships with community-based financial
institutions in Illinois. The Company provides financing for the payment of
commercial insurance premiums ("premium finance receivables"), on a national
basis, through First Insurance Funding Corporation ("FIFC"), a wholly-owned
subsidiary of Crabtree Capital Corporation ("Crabtree") which is a wholly-owned
subsidiary of Lake Forest Bank. Tricom, Inc. of Milwaukee ("Tricom"), a
wholly-owned subsidiary of Hinsdale Bank, provides short-term accounts
receivable financing ("Tricom finance receivables") and out-sourced
administrative services, such as data processing of payrolls, billing and cash
management services, to clients in the temporary staffing industry located
throughout the United States. Through Hinsdale Bank, the Company operates its
indirect auto segment, which provides new and used automobile loans through a
large network of auto dealerships within the Chicago metropolitan area. All
indirect auto loans are currently being purchased by the Banks and retained
within their loan portfolios.
As a mid-size financial services company, management expects to benefit from
greater access to financial and managerial resources while maintaining its
commitment to local decision-making and to its community banking philosophy.
Management also believes the Company is positioned to compete more effectively
with other larger and more diversified banks, bank holding
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companies and other financial services companies as it continues its growth
strategy through additional branch openings and de novo bank formations,
expansion of trust and investment activities, pursuit of specialized earning
asset niches and potential acquisitions of banks or specialty finance companies.
Additional information regarding the Company's business and strategies is
included in the "Management's Discussion and Analysis" section of the 2002
Annual Report to Shareholders, which is filed as Exhibit 13.1 to this Form 10-K
and Item 8 under "Supplemental Statistical Data". Such information is
incorporated herein by reference and constitutes a part of this report.
COMMUNITY BANKING
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The Company provides banking and financial services to individuals, small to
mid-sized businesses, local governmental units and institutional clients
residing primarily in the Banks' local service areas. These services include
traditional demand, NOW, money market, savings and time deposit accounts, as
well as a number of unique deposit products targeted to specific market
segments. The Banks offer home equity, home mortgage, consumer, real estate and
commercial loans, safe deposit facilities, ATMs, and other innovative and
traditional services specially tailored to meet the needs of customers in their
market areas.
Each of the Banks was founded as a de novo banking organization within the last
twelve years. The organizational efforts began in 1991, when a group of
experienced bankers and local business people identified an unfilled niche in
the Chicago metropolitan area retail banking market. As large banks acquired
smaller ones and personal service was subjected to consolidation strategies, the
opportunity increased in affluent suburbs for locally owned and operated, highly
personal service-oriented banks. As a result, Lake Forest Bank was founded in
December 1991 to service the Lake Forest and Lake Bluff communities. In 1994,
Lake Forest Bank opened a branch office in Lake Bluff. In early 2000 Lake Forest
Bank opened a branch in Highwood to serve the Highwood-Fort Sheridan
communities, and in 2002, Lake Forest Bank opened a branch in Highland Park. In
1993, Hinsdale Bank was opened to service the communities of Hinsdale and Burr
Ridge. Hinsdale Bank established branch facilities in Clarendon Hills and
Western Springs in 1996 and 1997, respectively. In early 2002, Hinsdale Bank
opened a branch in Riverside. In 1994, North Shore Bank was started in order to
service Wilmette and Kenilworth. North Shore Bank opened branch facilities in
Glencoe during 1995 and 1998, in Winnetka during 1996 to service Winnetka and
Northfield, and in Skokie during 1999. In 1995, Libertyville Bank was opened to
service Libertyville, Vernon Hills and Mundelein. Libertyville Bank opened a
branch facility in south Libertyville during 1998 to service south Libertyville
an d Vernon Hills and in Wauconda during 2000. In December 1996, Barrington Bank
was opened to service the greater Barrington/Inverness areas, and in September
2001, Barrington Bank established a branch facility in Hoffman Estates. In
December 1997, Crystal Lake Bank was opened to serve the Crystal Lake/Cary
communities, and in 1999 Crystal Lake Bank opened two new branch facilities in
Crystal Lake. In February 2001, Crystal Lake Bank opened a branch facility in
McHenry, and in early 2003 Crystal Lake Bank opened a branch facility in Cary.
In November 2000, Northbrook Bank opened to serve the Northbrook, Glenview and
Deerfield communities. All Banks are insured by the Federal Deposit Insurance
Company ("FDIC") and are subject to regulation, supervision and regular
examination by the Illinois Office of Banks and Real Estate, the Federal Reserve
Bank and/or the Office of the Comptroller of Currency ("OCC").
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WEALTH MANAGEMENT ACTIVITIES
- ----------------------------
The Company offers trust and investment management services in the communities
served by the banks through its trust company subsidiary that is now called
Wayne Hummer Trust Company, N.A. ("WHTC"). Assets under management by WHTC as of
December 31, 2002 were approximately $445 million. WHTC is subject to
regulation, supervision and regular examination by the OCC.
To expand its asset management business and to enter into the securities
brokerage business, in February 2002, the Company acquired Wayne Hummer
Investments, LLC, ("WHI"), a registered broker-dealer, Wayne Hummer Asset
Management Company, ("WHAMC"), a registered investment adviser, and Focused
Investments LLC, ("FI"), a broker-dealer and wholly-owned subsidiary of WHI,
each based in Chicago. WHI, WHAMC and FI are collectively referred to as the
Wayne Hummer Companies. The acquisition has enabled the Company to augment its
fee-based revenue and to diversify its revenue stream by adding brokerage
services as well as offering traditional banking products to the customers of
the Wayne Hummer Companies.
Through WHI, the Company provides a full range of private client and securities
brokerage services to approximately 35,000 customers, located primarily in the
Midwest, with client assets of approximately $4.0 billion at December 31, 2002.
FI provides a full range of investment services to clients through a network of
relationships with community-based financial institutions primarily in Illinois.
WHAMC provides money management services and advisory services to individual and
institutional accounts, as well as four proprietary mutual funds, and also
provides portfolio management and financial supervision for a wide range of
pension and profit-sharing plans. WHAMC had approximately $700 million of assets
under management at December 31, 2002.
To further expand the Company's wealth management business in the Chicago
metropolitan area, on February 4, 2003, the Company completed the acquisition of
Lake Forest Capital Management Company. Lake Forest Capital Management, a
registered investment adviser with approximately $300 million of assets under
management as of December 31, 2002, will operate as a separate division of Wayne
Hummer Asset Management Company.
SPECIALTY LENDING
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FIFC commenced operations ten years ago and is headquartered in Northbrook,
Illinois. Through FIFC the Company 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 nation. The insurance premiums
financed are primarily for commercial customers' purchases of liability,
property and casualty and other commercial insurance. This lending involves
relatively rapid turnover of the loan portfolio and high volume of loan
originations. Because of the indirect nature of this lending and because the
borrowers are located nationwide, this segment may be more susceptible to third
party fraud. The majority of these loans are purchased by the Banks in order to
more fully utilize their lending capacity. These loans generally provide the
Banks higher yields than alternative investments. Since the second quarter of
1999, the Company has also been selling some of the loan originations to an
unrelated third party with servicing
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retained. FIFC is licensed or otherwise qualified to do business as an insurance
premium finance company in all 50 states and the District of Columbia. Tricom
was acquired by Hinsdale Bank in October 1999 as part of the Company's strategy
to pursue specialty lending niches. It is located in Milwaukee, Wisconsin and
has been in business over eleven years. Through Tricom, the Company provides
high-yielding, short-term accounts receivable financing and value-added,
outsourced administrative services, such as data processing of payrolls, billing
and cash management services to the temporary staffing industry. Tricom's
clients, located throughout the United States, provide staffing services to
businesses in diversified industries. During 2002, Tricom processed payrolls
with associated client billings of approximately $244.7 million and contributed
$7.7 million of revenues, net of interest expense, to the Company.
We engage in other specialty lending through divisions of our Banks, including
indirect auto lending which we conduct through a division of Hinsdale Bank. The
indirect automobile loans are diversified among many individual borrowers,
secured by new and used automobiles and are generated by a network of automobile
dealers located in the Chicago area with which we have established
relationships. Like other consumer loans, the indirect auto loans are subject to
the Banks' established credit standards. We regard substantially all of these
loans as prime quality loans. Management continually monitors the dealer
relationships to deter third party fraud, and the Banks are not dependent on any
one dealer as a source of such loans. At December 31, 2002, our indirect auto
loans were $178.2 million and comprised approximately 7% of our loan portfolio.
Management is not pursuing growth in this segment and anticipates that this
portfolio will comprise a smaller portion of the net loan portfolio in the
future.
COMPETITION
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The Company competes in the commercial banking industry through the Banks in the
communities each serves. The commercial banking industry is highly competitive,
and the Banks face strong direct competition for deposits, loans, and other
financial-related services. The Banks compete directly in Cook, DuPage, Lake and
McHenry counties with other commercial banks, thrifts, credit unions,
stockbrokers, and the finance divisions of automobile companies. Some of these
competitors are local, while others are statewide or nationwide. The Banks have
developed a community banking and marketing strategy. In keeping with this
strategy, the Banks provide highly personalized and responsive service, a
characteristic of locally-owned and managed institutions. As such, the Banks
compete for deposits principally by offering depositors a variety of deposit
programs, convenient office locations, hours and other services, and for loan
originations primarily through the interest rates and loan fees they charge, the
efficiency and quality of services they provide to borrowers and the variety of
their loan products. Some of the financial institutions and financial services
organizations with which the Banks compete are not subject to the same degree of
regulation as imposed on financial holding companies, Illinois banking
corporations and national banking associations. In addition, the larger banking
organizations have significantly greater resources than are available to the
Banks. As a result, such competitors have advantages over the Banks in providing
certain non-deposit services.
FIFC encounters intense competition from numerous other firms, including a
number of national commercial premium finance companies, companies affiliated
with insurance carriers, independent insurance brokers who offer premium finance
services, banks and other lending institutions. Some
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of FIFC's competitors are larger and have greater financial and other resources
and are better known than FIFC. FIFC competes with these entities by emphasizing
a high level of knowledge of the insurance industry, flexibility in structuring
financing transactions, and the timely purchase of qualifying contracts. FIFC
believes that its commitment to account service also distinguishes it from its
competitors. It is FIFC's policy to notify the insurance agent when an insured
is in default and to assist in collection, if requested by the agent. To the
extent that affiliates of insurance carriers, banks, and other lending
institutions add greater service and flexibility to their financing practices in
the future, the Company's operations could be adversely affected. There can be
no assurance that FIFC will be able to continue to compete successfully in its
markets.
The Company's wealth management companies (WHTC, WHI, WHAMC and FI) compete with
more established wealth management subsidiaries of other larger bank holding
companies as well as with other trust companies, brokerage and other financial
service companies, stockbrokers and financial advisors. The Company believes it
can successfully compete for trust, asset management and brokerage business by
offering personalized attention and customer service to small to mid-size
businesses and affluent individuals. The hiring of several experienced
professionals from the more established Chicago area trust and asset management
companies is also expected to help in attracting new customer relationships. The
Company will expand its asset management business in 2003 with its acquisition
of Lake Forest Capital Management, a registered investment advisor located in
Lake Forest, one of Wintrust's primary business areas. Lake Forest Capital
Management had approximately $300 million of assets under management as of
December 31, 2002, and will operate as a division of WHAMC. There can be no
assurances, however, that WHTC, WHI, WHAMC and FI will be successful in
establishing themselves as a preferred alternative to the larger trust and asset
management companies, and that the Company will be successful in the integration
of Lake Forest Capital Management into the Wintrust organization.
Tricom competes with numerous other firms, including a small number of similar
niche finance companies and payroll processing firms, as well as various finance
companies, banks and other lending institutions. Tricom management believes that
its commitment to service distinguishes itself from competitors. To the extent
that other finance companies, financial institutions and payroll processing
firms add greater programs and services to their existing businesses, Tricom's
operations could be adversely affected. There can be no assurance that Tricom
will be able to continue to compete successfully in its markets.
EMPLOYEES
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At December 31, 2002, the Company and its subsidiaries employed a total of 822
full-time-equivalent employees. The Company provides its employees with
comprehensive medical and dental benefit plans, life insurance plans, 401(k)
plans and an employee stock purchase plan. The Company considers its
relationship with its employees to be good.
AVAILABLE INFORMATION
- ---------------------
The Company's internet address is www.wintrust.com. The Company makes available
at this address, free of charge, its annual report on Form 10-K, its annual
reports to shareholders, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act as soon as reasonably practicable after such
material is electronically filed, or furnished to, the SEC.
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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 the Company's projected growth, anticipated improvements
in earnings, earnings per share and other financial performance measures, and
management's long-term performance goals, as well as statements relating to the
anticipated effects on financial results of condition from expected developments
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 acquisition of banks,
wealth management entities or specialty finance 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 wealth management services. De novo banks typically
require 13 to 24 months of operations before becoming profitable, due to
the impact of organizational and overhead expenses, the start-up phase of
generating deposits and the time lag typically involved in redeploying
deposits into attractively priced loans and other higher yielding earning
assets. Similarly, the expansion of wealth management services through the
Company's acquisition of the Wayne Hummer Companies and Lake Forest Capital
Management will depend on the successful integration of these businesses.
o The Company's success to date has been and will continue to be strongly
influenced by its ability to attract and retain senior management
experienced in banking and financial services.
o Although management believes the allowance for loan losses is adequate to
absorb losses inherent in the existing portfolio of loans and leases, there
can be no assurance that the allowance will prove sufficient to cover
actual 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's ability to adapt successfully to technological changes to
compete effectively in the marketplace.
o Unforeseen future events that may cause slower than anticipated development
and growth of the Tricom business and/or changes in the temporary staffing
industry.
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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 The conditions in the financial markets and economic conditions generally,
as well as unforeseen future events surrounding the wealth management
business, including competition and related pricing of brokerage, trust and
asset management products.
SUPERVISION AND REGULATION
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Bank holding companies, banks and investment firms are extensively regulated
under federal and state law. References under this heading to applicable
statutes or regulations are brief summaries or portions thereof which do not
purport to be complete and which are qualified in their entirety by reference to
those statutes and regulations. Any change in applicable laws or regulations may
have a material effect on the business of commercial banks and bank holding
companies, including the Company, the Banks, FIFC, WHTC, WHI, WHAMC, FI and
Tricom. However, management is not aware of any current recommendations by any
regulatory authority which, if implemented, would have or would be reasonably
likely to have a material effect on liquidity, capital resources, or operations
of the Company, the Banks, FIFC, WHTC, WHI, WHAMC, FI or Tricom. The
supervision, regulation and examination of banks and bank holding companies by
bank regulatory agencies are intended primarily for the protection of depositors
rather than stockholders of banks and bank holding companies.
BANK HOLDING COMPANY REGULATION
- -------------------------------
In connection with its acquisition of the Wayne Hummer Companies, in early 2002
the Company became a "financial holding company" as provided in the
Gramm-Leach-Bliley Act (the "GLB Act"). The GLB Act, enacted in November 1999,
established a comprehensive framework to permit affiliations among commercial
banks, insurance companies and securities firms. Under the GLB Act, bank holding
companies approved as financial holding companies may engage in an expanded
range of activities, including the businesses conducted by the Wayne Hummer
Companies. Banking subsidiaries of financial holding companies are required to
be "well capitalized" and "well-managed" as defined in the applicable regulatory
standards. If these conditions are not maintained, and the financial holding
company fails to correct any deficiency within 180 days, the Federal Reserve may
require the Company to either divest control of its banking subsidiaries or, at
the election of the Company, cease to engage in any activities not permissible
for a bank holding company.
The Company continues to be subject to supervision and regulation by the Federal
Reserve under the Bank Holding Company Act (the Bank Holding Company Act, as
amended by the GLB Act, and the regulations issued thereunder, are collectively
the "BHC Act"). The Company is required to file with the Federal Reserve
periodic reports and such additional information as the Federal Reserve may
require pursuant to the BHC Act. The Federal Reserve examines the Company and
may examine the Banks and the Company's other subsidiaries.
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The BHC Act requires prior Federal Reserve approval for, among other things, the
acquisition by a bank holding company of direct or indirect ownership or control
of more than 5% of the voting shares or substantially all the assets of any
bank, or for a merger or consolidation of a bank holding company with another
bank holding company. With certain exceptions, the BHC Act prohibits a financial
holding company from acquiring direct or indirect ownership or control of voting
shares of any company which is not a business that is financial in nature or
incidental thereto, and from engaging directly or indirectly in any activity
that is not financial in nature or incidental thereto. Also, as discussed below,
the Federal Reserve expects bank holding companies to maintain strong capital
positions while experiencing growth. The Federal Reserve, as a matter of policy,
may require a bank holding company to be well-capitalized at the time of filing
an acquisition application and upon consummation of the acquisition.
Under the BHC Act and Federal Reserve regulations, the Company and the Banks are
prohibited from engaging in certain tie-in arrangements in connection with an
extension of credit, lease, sale of property, or furnishing of services. That
means that, except with respect to traditional banking products, the Banks may
not condition a customer's purchase of services on the purchase of other
services from any of the Banks or other subsidiaries of the Company.
Under the Illinois Banking Act, any person who acquires more than 10% of the
Company's stock may be required to obtain the prior approval of the Commissioner
of the Illinois Office of Banks and Real Estate (the "Illinois Commissioner").
Similarly, under the Change in Bank Control Act, a person may be required to
obtain the prior regulatory approval of the Federal Reserve or the Office of the
Comptroller of the Currency (the "OCC") before acquiring control of 10% or more
of any class of the Company's outstanding stock.
It is the policy of the Federal Reserve that the Company is expected to act as a
source of financial strength to its subsidiaries, and to commit resources to
support the subsidiaries. The Federal Reserve takes the position that in
implementing this policy, it may require the Company to provide such support
when the Company otherwise would not consider itself able to do so.
The Federal Reserve has adopted risk-based capital requirements for assessing
bank holding company capital adequacy. These standards define regulatory capital
and establish minimum capital ratios in relation to assets, both on an aggregate
basis and as adjusted for credit risks and off-balance sheet exposures. Under
the Federal Reserve's risk-based guidelines, capital is classified into two
categories. For bank holding companies, Tier 1 capital, or "core" capital,
consists of common stockholders' equity, qualifying noncumulative perpetual
preferred stock (including related surplus), qualifying cumulative perpetual
preferred stock (including related surplus) (subject to certain limitations) and
minority interests in the common equity accounts of consolidated subsidiaries,
and is reduced by goodwill and specified intangible assets ("Tier 1 Capital").
Tier 2 capital, or "supplementary" capital, consists of the following items, all
of which are subject to certain conditions and limitations: the allowance for
loan and lease losses; perpetual preferred stock and related surplus; hybrid
capital instruments; unrealized holding gains on marketable equity securities;
perpetual debt and mandatory convertible debt securities; term subordinated debt
and intermediate-term preferred stock.
Under the Federal Reserve's capital guidelines, bank holding companies are
required to maintain a minimum ratio of qualifying total capital to
risk-weighted assets of 8.0%, of which at least 4.0% must be in the form of Tier
1 Capital. The Federal Reserve also requires a minimum leverage ratio
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of Tier 1 Capital to total assets of 3.0% for strong bank holding companies
(those rated a composite "1" under the Federal Reserve's rating system). For all
other bank holding companies, the minimum ratio of Tier 1 Capital to total
assets is 4%. In addition, the Federal Reserve continues to consider the Tier 1
leverage ratio (Tier 1 capital to average quarterly assets) in evaluating
proposals for expansion or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that the
foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing growth, whether
internally or by making acquisitions, are expected to maintain strong capital
positions substantially above the minimum levels. As a Financial Holding
Company, the Company's depository institutions are required to maintain their
capital positions at the "well-capitalized" level.
As of December 31, 2002, the Company's total capital to risk-weighted assets
ratio was 9.4%, its Tier 1 Capital to risk-weighted asset ratio was 8.0% and its
leverage ratio was 7.0%.
DIVIDEND LIMITATIONS. Because the Company's consolidated net income consists
largely of net income of the Banks and its non-bank subsidiaries, the Company's
ability to pay dividends depends upon its receipt of dividends from these
entities. Federal and state statutes and regulations impose restrictions on the
payment of dividends by the Company, the Banks and its non-bank subsidiaries.
See Part II, Item 5 for further discussion of dividend limitations.
Federal Reserve policy provides that a bank holding company should not pay
dividends unless (i) the bank holding company's net income over the prior year
is sufficient to fully fund the dividends and (ii) the prospective rate of
earnings retention appears consistent with the capital needs, asset quality and
overall financial condition of the bank holding company and its subsidiaries.
Additionally, the Federal Reserve possesses enforcement powers over bank holding
companies and their non-bank subsidiaries to prevent or remedy actions that
represent unsafe or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to prohibit or limit the payment
of dividends by bank holding companies.
Illinois law also places certain limitations on the ability of the Company to
pay dividends. For example, the Company may not pay dividends to its
shareholders if, after giving effect to the dividend, the Company would not be
able to pay its debts as they become due. Since a major potential source of the
Company's revenue is dividends the Company expects to receive from the Banks,
the Company's ability to pay dividends is likely to be dependent on the amount
of dividends paid by the Banks. No assurance can be given that the Banks will,
in any circumstances, pay dividends to the Company.
BANK REGULATION
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Lake Forest Bank, Hinsdale Bank, North Shore Bank, Libertyville Bank and
Northbrook Bank are Illinois-chartered banks and as such they and their
subsidiaries are subject to supervision and examination by the Illinois
Commissioner. As an affiliate of these Banks, the Company is also subject to
examination by the Illinois Commissioner. Barrington Bank, Crystal Lake Bank and
WHTC are federally-chartered banks and are subject to supervision and
examination by the OCC pursuant to the National Bank Act and regulations
promulgated thereunder. Each of the
- 11 -
Banks and WHTC are members of the Federal Reserve Bank and, as such, is also
subject to examination by the Federal Reserve. The deposits of the Banks are
insured by the Bank Insurance Fund under the provisions of the Federal Deposit
Insurance Act (the "FDIA"), and the Banks are, therefore, also subject to
supervision and examination by the FDIC. FDIA requires that the appropriate
federal regulatory authority (the Federal Reserve Bank in the case of Lake
Forest Bank, North Shore Bank, Hinsdale Bank, Libertyville Bank and Northbrook
Bank, or the OCC, in the case of Barrington Bank and Crystal Lake Bank) approve
any merger and/or consolidation by or with an insured bank, as well as the
establishment or relocation of any bank or branch office. The FDIA also gives
the Federal Reserve, the OCC and the other federal bank regulatory agencies
power to issue cease and desist orders against either banks, holding companies
or persons regarded as "institution affiliated parties." A cease and desist
order can either prohibit such entities from engaging in certain unsafe and
unsound bank activity or can require them to take certain affirmative action.
The FDIC also supervises compliance with the provisions of federal law and
regulations which, in addition to other requirements, place restrictions on
loans by FDIC-insured banks to their directors, executive officers and other
controlling persons.
FINANCIAL INSTITUTION REGULATION GENERALLY
- ------------------------------------------
TRANSACTIONS WITH AFFILIATES. Transactions between a bank and its holding
company or other affiliates are subject to various restrictions imposed by state
and federal regulatory agencies. Such transactions include loans and other
extensions of credit, purchases of securities and other assets, and payments of
fees or other distributions. In general, these restrictions limit the amount of
transactions between an institution and an affiliate of such institution, as
well as the aggregate amount of transactions between an institution and all of
its affiliates, and require transactions with affiliates to be on terms
comparable to those for transactions with unaffiliated entities.
CAPITAL REQUIREMENTS. Capital requirements for the Banks generally parallel the
capital requirements previously noted for bank holding companies. Each of the
Banks is subject to applicable capital requirements on a separate company basis.
The federal banking regulators must take prompt corrective action with respect
to FDIC-insured depository institutions that do not meet minimum capital
requirements. There are five capital tiers: "well-capitalized",
"adequately-capitalized", "undercapitalized", "significantly undercapitalized"
and "critically undercapitalized". As of December 31, 2002, each of the
Company's Banks was categorized as "well-capitalized." Because the Company is
designated as a financial holding company, each of the Banks is required to
maintain capital ratios at or above the "well-capitalized" levels.
PROMPT CORRECTIVE ACTION. The Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") requires the federal banking regulators, including the
Federal Reserve, the OCC and the FDIC, to take prompt corrective action with
respect to depository institutions that fall below minimum capital standards and
prohibits any depository institution from making any capital distribution that
would cause it to be undercapitalized. Institutions that are not adequately
capitalized may be subject to a variety of supervisory actions including, but
not limited to, restrictions on growth, investment activities, capital
distributions and affiliate transactions and will be required to submit a
capital restoration plan which, to be accepted by
- 12 -
the regulators, must be guaranteed in part by any company having control of the
institution (such as the Company). In other respects, FDICIA provides for
enhanced supervisory authority, including greater authority for the appointment
of a conservator or receiver for undercapitalized institutions. The
capital-based prompt corrective action provisions of FDICIA and their
implementing regulations apply to FDIC-insured depository institutions. However,
federal banking agencies have indicated that, in regulating bank holding
companies, the agencies may take appropriate action at the holding company level
based on their assessment of the effectiveness of supervisory actions imposed
upon subsidiary insured depository institutions pursuant to the prompt
corrective action provisions of FDICIA.
DIVIDENDS. As Illinois state-chartered banks, Lake Forest Bank, North Shore
Bank, Hinsdale Bank, Libertyville Bank and Northbrook Bank may not pay dividends
in an amount greater than their current net profits after deducting losses and
bad debts out of undivided profits provided that its surplus equals or exceeds
its capital. For the purpose of determining the amount of dividends that an
Illinois bank may pay, bad debts are defined as debts upon which interest is
past due and unpaid for a period of six months or more unless such debts are
well-secured and in the process of collection. Furthermore, federal regulations
also prohibit any Federal Reserve member bank, including each of the Banks and
WHTC, from declaring dividends in any calendar year in excess of its net income
for the year plus the retained net income for the preceding two years, less any
required transfers to the surplus account. Similarly, as national associations
supervised by the OCC, Barrington Bank, Crystal Lake Bank and WHTC may not
declare dividends in any year in excess of its net income for the year plus the
retained net income for the preceding two years, less any required transfers to
the surplus account. Furthermore, the OCC may, after notice and opportunity for
hearing, prohibit the payment of a dividend by a national bank if it determines
that such payment would constitute an unsafe or unsound practice.
In addition to the foregoing, the ability of the Company, the Banks and WHTC to
pay dividends may be affected by the various minimum capital requirements and
the capital and non-capital standards established under the FDICIA, as described
below. The right of the Company, its shareholders and its creditors to
participate in any distribution of the assets or earnings of its subsidiaries is
further subject to the prior claims of creditors of the respective subsidiaries.
STANDARDS FOR SAFETY AND SOUNDNESS. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994 requires the
Federal Reserve, together with the other federal bank regulatory agencies, to
prescribe standards of safety and soundness, by regulations or guidelines,
relating generally to operations and management, asset growth, asset quality,
earnings, stock valuation, and compensation. The Federal Reserve, the OCC and
the other federal bank regulatory agencies have adopted a set of guidelines
prescribing safety and soundness standards pursuant to FDICIA, as amended. The
guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee,
- 13 -
director or principal shareholder. In addition, each of the Federal Reserve and
the OCC adopted regulations that authorize, but do not require, the Federal
Reserve or the OCC, as the case may be, to order an institution that has been
given notice by the Federal Reserve or the OCC, as the case may be, that it is
not satisfying any of such safety and soundness standards to submit a compliance
plan. If, after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the Federal Reserve or the OCC, as the case may be, must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized association is
subject under the "prompt corrective action" provisions of FDICIA. If an
institution fails to comply with such an order, the Federal Reserve or the OCC,
as the case may be, may seek to enforce such order in judicial proceedings and
to impose civil money penalties. The Federal Reserve, the OCC and the other
federal bank regulatory agencies also adopted guidelines for asset quality and
earnings standards.
A range of other provisions in FDICIA include requirements applicable to:
closure of branches; additional disclosures to depositors with respect to terms
and interest rates applicable to deposit accounts; uniform regulations for
extensions of credit secured by real estate; restrictions on activities of and
investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of
off-balance sheet items and supplemental disclosure of estimated fair market
value of assets and liabilities in financial statements filed with the banking
regulators; increased penalties in making or failing to file assessment reports
with the FDIC; greater restrictions on extensions of credit to directors,
officers and principal shareholders; and increased reporting requirements on
agricultural loans and loans to small businesses.
In addition, the Federal Reserve, OCC, FDIC and other federal banking agencies
adopted a final rule, which modified the risk-based capital standards, to
provide for consideration of interest rate risk when assessing the capital
adequacy of a bank. Under this rule, the Federal Reserve, the OCC and the FDIC
must explicitly include a bank's exposure to declines in the economic value of
its capital due to changes in interest rates as a factor in evaluating a bank's
capital adequacy. The Federal Reserve, the FDIC, the OCC and other federal
banking agencies also have adopted a joint agency policy statement providing
guidance to banks for managing interest rate risk. The policy statement
emphasizes the importance of adequate oversight by management and a sound risk
management process. The assessment of interest rate risk management made by the
banks' examiners will be incorporated into the banks' overall risk management
rating and used to determine the effectiveness of management.
INSURANCE OF DEPOSIT ACCOUNTS. Under FDICIA, as an FDIC-insured institution,
each of the Banks is required to pay deposit insurance premiums based on the
risk it poses to the Bank Insurance Fund ("BIF"). The FDIC has authority to
raise or lower assessment rates on insured deposits in order to achieve
statutorily required reserve ratios in the insurance funds and to impose special
additional assessments. Each depository institution is assigned to one of three
capital groups: "well capitalized," "adequately capitalized" or
"undercapitalized." An institution is considered well capitalized if it has a
total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not
subject to any order or written directive to meet and maintain a specific
capital level. An "adequately capitalized" institution is defined as one that
has a total risk-based capital
- 14 -
ratio of 8% or greater, has a Tier 1 risk-based capital ratio of 4% or greater,
has a leverage ratio of 4% or greater and does not meet the definition of a well
capitalized bank. An institution is considered "undercapitalized" if it does not
meet the definition of "well capitalized" or "adequately capitalized." Within
each capital group, institutions are assigned to one of three supervisory
subgroups: "A" (institutions with few minor weaknesses), "B" (institutions which
demonstrate weaknesses which, if not corrected, could result in significant
deterioration of the institution and increased risk of loss to the BIF), and "C"
(institutions that pose a substantial probability of loss to BIF unless
effective corrective action is taken). Accordingly, there are nine combinations
of capital groups and supervisory subgroups to which varying assessment rates
are applicable. An institution's assessment rate depends on the capital category
and supervisory category to which it is assigned.
During 2002, the Banks paid deposit insurance premiums in the aggregate amount
of $407,000.
Deposit insurance may be terminated by the FDIC upon a finding that an
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. Such terminations can
only occur, if contested, following judicial review through the federal courts.
The management of each of the Banks does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
FEDERAL RESERVE SYSTEM. The Banks are subject to Federal Reserve regulations
requiring depository institutions to maintain non-interest-earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve, regulations generally require 3.0% reserves on
the first $42.8 million of transaction accounts plus 10.0% on the remainder. The
first $5.5 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve) are exempted from the reserve requirements. The Banks are
in compliance with the foregoing requirements.
COMMUNITY REINVESTMENT. Under the Community Reinvestment Act ("CRA"), a
financial institution has a continuing and affirmative obligation, consistent
with the safe and sound operation of such institution, to help meet the credit
needs of its entire community, including low- and moderate-income neighborhoods.
The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution's discretion to develop
the types of products and services that it believes are best suited to its
particular community, consistent with the CRA. However, institutions are rated
on their performance in meeting the needs of their communities. Performance is
judged in three areas: (a) a lending test, to evaluate the institution's record
of making loans in its assessment areas; (b) an investment test, to evaluate the
institution's record of investing in community development projects, affordable
housing and programs benefiting low or moderate income individuals and business;
and (c) a service test, to evaluate the institution's delivery of services
through its branches, ATMs and other offices. The CRA requires each federal
banking agency, in connection with its examination of a financial institution,
to assess and assign one of four ratings to the institution's record of meeting
the credit needs of its community and to take such record into account in its
evaluation of certain applications by the institution, including applications
for charters, branches and other deposit facilities, relocations, mergers,
consolidations, acquisitions of assets or assumptions of liabilities, and
savings and loan holding company acquisitions. The
- 15 -
CRA also requires that all institutions make public disclosure of their CRA
ratings. Each of the Banks received a "satisfactory" rating from either the
Federal Reserve or OCC on their most recent CRA performance evaluations. Because
the Company is a financial holding company, failure of any of the Banks to
maintain "satisfactory" CRA ratings could restrict further expansion of the
Company's or the Banks' activities.
BROKERED DEPOSITS. Well-capitalized institutions are not subject to limitations
on brokered deposits, while an adequately capitalized institution is able to
accept, renew or rollover brokered deposits only with a waiver from the FDIC and
subject to certain restrictions on the yield paid on such deposits.
Undercapitalized institutions are not permitted to accept brokered deposits.
Each of the Banks is eligible to accept brokered deposits (as a result of its
capital levels) and may use this funding source from time to time when
management deems it appropriate from an asset/liability management perspective.
ENFORCEMENT ACTIONS. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
enforcement action against an institution that fails to comply with regulatory
requirements, particularly capital requirements. Possible enforcement actions
range from the imposition of a capital plan and capital directive to civil money
penalties, cease and desist orders, receivership, conservatorship or the
termination of deposit insurance.
COMPLIANCE WITH CONSUMER PROTECTION LAWS. The Banks are also subject to many
federal consumer protection statutes and regulations including the CRA, the
Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Real Estate Settlement Procedures Act and the
Home Mortgage Disclosure Act. Among other things, these acts:
o require banks to meet the credit needs of their communities;
o require banks to disclose credit terms in meaningful and consistent
ways;
o prohibit discrimination against an applicant in any consumer or
business credit transaction;
o prohibit discrimination in housing-related lending activities;
o require banks to collect and report applicant and borrower data
regarding loans for home purchases or improvement projects;
o require lenders to provide borrowers with information regarding the
nature and cost of real estate settlements;
o prohibit certain lending practices and limit escrow account amounts
with respect to real estate transactions; and
o prescribe possible penalties for violations of the requirements of
consumer protection statutes and regulations.
INTERSTATE BANKING AND BRANCHING LEGISLATION. Under the Riegle-Neal Interstate
Banking and Efficiency Act of 1994 (the "Interstate Banking Act"), adequately
capitalized and adequately managed bank holding companies are allowed to acquire
banks across state lines subject to
- 16 -
certain limitations. In addition, under the Interstate Banking Act, banks are
permitted, under certain circumstances, to merge with one another across state
lines and thereby create a main bank with branches in separate states. After
establishing branches in a state through an interstate merger transaction, a
bank may establish and acquire additional branches at any location in the state
where any bank involved in the interstate merger could have established or
acquired branches under applicable federal and state law.
BROKER-DEALER AND INVESTMENT ADVISER REGULATION
- -----------------------------------------------
The broker-dealers and investment advisers are subject to extensive regulation
under federal and state securities laws. These firms are required to be
registered with the Securities and Exchange Commission, although much of their
regulation and examination has been delegated to self-regulatory organizations
("SROs") that the SEC oversees, including the National Association of Securities
Dealers and the national securities exchanges. In addition to SEC rules and
regulations, the SROs adopt rules, subject to approval of the SEC, that govern
all aspects of business in the securities industry and conduct periodic
examinations of member firms. These businesses are also subject to regulation by
state securities commissions in states where they conduct business.
As a result of federal and state registrations and SRO memberships, the Wayne
Hummer Companies are subject to over-lapping schemes of regulation which cover
all aspects of their securities businesses. Such regulations cover, among other
things, matters including minimum net capital requirements; uses and safekeeping
of clients' funds; recordkeeping and reporting requirements; supervisory and
organizational procedures intended to assure compliance with securities laws and
to prevent improper trading on material nonpublic information; employee-related
matters, including qualification and licensing of supervisory and sales
personnel; limitations on extensions of credit in securities transactions;
clearance and settlement procedures; "suitability" determinations as to certain
customer transactions, limitations on the amounts and types of fees and
commissions that may be charged to customers, and the timing of proprietary
trading in relation to customers' trades; affiliate transactions; and mutual
fund management. The principal purpose of regulation and discipline of
investment firms is the protection of customers and the securities markets
rather than the protection of creditors and stockholders of investment firms.
MONETARY POLICY AND ECONOMIC CONDITIONS
- ---------------------------------------
The earnings of banks and bank holding companies are affected by general
economic conditions and also by the fiscal and monetary policies of federal
regulatory agencies, including the Federal Reserve. Through open market
transactions, variations in the discount rate and the establishment of reserve
requirements, the Federal Reserve exerts considerable influence over the cost
and availability of funds obtainable for lending or investing.
The above monetary and fiscal policies and resulting changes in interest rates
have affected the operating results of all commercial banks in the past and are
expected to do so in the future. The Banks and their respective holding company
cannot fully predict the nature or the extent of any effects which fiscal or
monetary policies may have on their business and earnings.
- 17 -
SUPPLEMENTAL STATISTICAL DATA
- -----------------------------
Pages 3, 68 and 69 of the 2002 Annual Report to Shareholders and Item 8 of this
Form 10-K contain supplemental statistical data as required by The Exchange Act
Industry Guide 3 which is part of Regulation S-K as promulgated by the SEC. This
data should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto, and Management's Discussion and Analysis which are
contained in its 2002 Annual Report to Shareholders filed herewith as Exhibit
13.1 and incorporated herein by reference.
- 18 -
ITEM 2. PROPERTIES
The Company's executive offices are located in the main bank facility of Lake
Forest Bank. The Company also leases additional office space for its corporate
staff directly across the street from Lake Forest Bank's main facility.
Lake Forest Bank operates from seven physical banking locations. Lake Forest
Bank's main bank facility is located at 727 N. Bank Lane, Lake Forest, Illinois,
and is a three story, 37,000 square foot brick building that includes a 15,200
square foot addition that was completed in May 1999. The Company's executive
offices and staff of the holding company, Lake Forest Bank and WHTC are located
on the second and third floors of the addition with first floor retail space
leased to unrelated third parties. Lake Forest Bank constructed a drive-through,
walk-up banking facility on land leased from the City of Lake Forest on the
corner of Bank Lane and Wisconsin Avenue in Lake Forest, approximately one block
north of the main banking facility. Lake Forest Bank also leases a 1,200 square
foot full service banking facility at 103 East Scranton Avenue in Lake Bluff,
Illinois; a 4,500 square foot full service banking facility on the west side of
Lake Forest at 810 South Waukegan Road; and a drive-in and walk-up banking
facility at 911 S. Telegraph Road in the West Lake Forest Train Station. In
2000, Lake Forest Bank constructed a new branch facility in Highwood, Illinois
that includes a drive-through facility. During 2001, Lake Forest Bank closed a
small office facility at a retirement community known as Lake Forest Place.
During 2002, Lake Forest Bank opened a new branch in Highland Park in a leased
facility. Plans are underway for construction of a permanent facility in
Highland Park. ATMs are located at each of Lake Forest Bank's locations except
the 810 South Waukegan Road facility. Lake Forest Bank has no off-site ATMs.
At December 31, 2002, Hinsdale Bank operated five physical banking locations,
all of which are owned. The main bank facility is a two story brick building
located at 25 East First Street in downtown Hinsdale, Illinois. The 1,000 square
foot drive-through, walk-up banking facility at 130 West Chestnut is
approximately two blocks west of the main banking facility. Hinsdale Bank also
has full service branches in Clarendon Hills and Western Springs. The buildings
in Clarendon Hills and Western Springs are partially used for bank purposes,
with the remainder being leased to unrelated parties. During 2001, Hinsdale Bank
purchased property at 17 E. Burlington, in Riverside, Illinois, and in January
2002, opened a banking office at this location. Hinsdale Bank maintains one ATM
machine at each location, with the exception of Clarendon Hills, which has two.
In addition, Hinsdale has a separate, stand-alone, ATM drive-through facility in
Clarendon Hills. Other than this stand-alone ATM drive-through facility in
Clarendon Hills, Hinsdale Bank has no off-site ATMs.
North Shore Bank currently operates seven physical banking locations. North
Shore Bank owns the main bank facility, a one-story brick building that is
located at 1145 Wilmette Avenue in downtown Wilmette, Illinois. North Shore Bank
also owns a 9,600 square foot drive-through, walk-up banking facility at 720
12th Street, approximately one block west of the main banking facility. North
Shore Bank also leases a full service banking facility at 362 Park Avenue in
Glencoe, Illinois. In 1998, North Shore Bank opened a drive-up and ATM for the
Glencoe branch and a small facility at 4th Street and Linden in Wilmette. In
1999, a full service leased facility was opened at 5049 Oakton Street in Skokie,
Illinois, and in 2001, North Shore Bank purchased the Skokie building. In 2001,
North Shore Bank relocated its Winnetka branch to a one-story fully-
- 19 -
renovated owned-facility located at 576 Lincoln Avenue in Winnetka. North Shore
Bank maintains ATMs at each of its locations, and has one off-site ATMs located
in Glencoe.
Libertyville Bank currently operates from five physical banking locations.
Libertyville Bank owns the main bank facility, which is a 13,000 square foot two
story brick building located at 507 North Milwaukee Avenue in downtown
Libertyville, Illinois. Libertyville Bank also owns a 2,500 square foot
drive-through, walk-up banking facility at 201 East Hurlburt Court, which is
approximately five blocks southeast of the main banking facility. A leased
branch facility located at 1167 South Milwaukee Avenue in south Libertyville was
opened in October 1998. In 2000, Libertyville Bank opened two facilities in
Wauconda -- a full service branch located at 495 Liberty Street and a leased
drive-through facility at 1180 Dato Lane. During 2002, construction was
completed on a new permanent facility at 495 Liberty Street, the same location
of the temporary site. Libertyville Bank maintains ATMs at each of its banking
locations and at one off-site location.
Barrington Bank currently has two physical banking locations, both of which are
owned. Its main office is located at 201 South Hough Street in Barrington,
Illinois and is a 12,700 square foot, two-story frame construction building that
has an attached drive-through facility. In 2001, Barrington Bank constructed a
one-story building with a basement and attached drive-through lanes, at 1375
Palatine Road, in Hoffman Estates, Illinois, for its new Hoffman Estates branch.
Barrington Bank. It has four ATMs, two at its main office in Barrrington and two
at its Hoffman Estates branch. Barrington Bank leases approximately 5,000 square
feet of space at 202 Cook Street in Barrington to house its mortgage department
and the staff supporting the Community Advantage program.
Crystal Lake Bank has five physical banking locations. Crystal Lake Bank's main
banking office is a two-story, 12,000 square foot facility located at 70
Williams Street in downtown Crystal Lake, Illinois. Crystal Lake Bank also has a
drive-through facility that is located in the downtown area, near the main bank
facility and a full service owned-facility located at 1000 McHenry Avenue in
south Crystal Lake. In early 2001, Crystal Lake Bank opened a branch office in a
leased facility in McHenry, Illinois, and in 2002, relocated this branch office
to a newly constructed building. In early 2003, Crystal Lake Bank opened its
fifth banking location, in Cary, Illinois. Crystal Lake Bank maintains an ATM at
each location.
In November 2000, Northbrook Bank opened for business in a temporary leased
facility located at 1340 Shermer Road in Northbrook, Illinois. In December 2001,
Northbrook Bank moved into its newly constructed permanent facility, located at
the corner of Shermer and Waukegan Roads, in Northbrook, Illinois. Northbrook
Bank has two ATMs located at its banking office, including one drive-through
ATM, and no off-site ATMs.
FIFC's offices are located at 450 Skokie Boulevard, Suite 1000, Northbrook,
Illinois. The building provides approximately 16,000 square feet of office
space, which is used solely by FIFC.
WHTC's executive and operations staff is based in office space leased from Lake
Forest Bank. WHTC also leases office space for its trust professionals at Lake
Forest Bank, Hinsdale Bank, North Shore Bank, Barrington Bank and Northbrook
Bank.
Tricom relocated its offices in 2002 to a newly renovated owned-facility located
at 16866 W. Lisbon Road, Menomonee Falls, Wisconsin.
- 20 -
Wintrust Information Technology Services, a wholly-owned subsidiary of the
Company, owns a two-story office building located at 851 N. Villa Avenue, in
Villa Park, Illinois. The imaging services and Internet banking support for the
Banks as well as the Company's technology staff are housed at this location.
The Wayne Hummer Companies lease office space in downtown Chicago, Illinois at
300 South Wacker Drive and in Appleton, Wisconsin at 200 E. Washington Street
and established branch locations in offices at Lake Forest Bank and Hinsdale
Bank.
Lake Forest Capital Management leases office space in Lake Forest, Illinois. The
lease expires in 2003, and there are no plans to renew it. The staff and
operations of Lake Forest Capital Management will move to the locations of the
Wayne Hummer Companies.
See Note 9 to the Consolidated Financial Statements contained in the 2002 Annual
Report to Shareholders filed herewith as Exhibit 13.1 and incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries, from time to time, are subject to pending and
threatened legal action and proceedings arising in the ordinary course of
business. Any such litigation currently pending against the Company or its
subsidiaries is incidental to the Company's business and, based on information
currently available to management, management believes the outcome of such
actions or proceedings will not have a material adverse effect on the operations
or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2002.
- 21 -
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The Nasdaq Stock Market(R) under the
symbol WTFC. The following table sets forth the high and low sales prices
reported on Nasdaq for the common stock during 2002 and 2001.
- ----------------------------------------------------------------------------------------------------------
2002 2001
---------------------------------- ----------------------------------
High Low High Low
----------------- ---------------- ----------------- ----------------
Fourth quarter $ 32.66 25.45 22.13 17.93
Third quarter 36.00 26.54 21.41 16.27
Second quarter 34.58 22.22 17.62 11.67
First quarter 22.99 18.33 12.75 10.54
==========================================================================================================
The prices reflected above have been adjusted to reflect the 3-for-2 stock split
(effected in the form of a 50% common stock dividend) announced in January 2002
and paid on March 14, 2002 to shareholders of record on March 4, 2002.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
- ---------------------------------------------
As of March 19, 2003 there were approximately 1,231 shareholders of record of
the Company's common stock.
DIVIDENDS ON COMMON STOCK
- -------------------------
In January 2000, the Company's Board of Directors approved the first semi-annual
cash dividend on its common stock and has continued to approve a semi-annual
dividend since that time. Additionally, as previously noted, in January 2002,
the Company's Board of Directors approved a 3-for-2 stock split, effected in the
form of a 50% common stock dividend, paid on March 14, 2002 to shareholders of
record on March 4, 2002.
Following is a summary of the cash dividends approved in 2001 and 2002, adjusted
to give effect to the stock split:
- ----------------------------------------------------------------------------------------------------------------
Record Date Payable Date Dividend per Share
----------- ------------ ------------------
February 8, 2001 February 22, 2001 $0.0467
August 9, 2001 August 23, 2001 $0.0467
February 5, 2002 February 19, 2002 $0.0600
August 6, 2002 August 20, 2002 $0.0600
================================================================================================================
In January 2003, the Company's Board of Directors approved a 33% increase in its
semi-annual dividend to $0.08 per share. The dividend was paid on February 20,
2003 to shareholders of record as of February 6, 2003.
- 22 -
The final determination of timing, amount and payment of dividends is at the
discretion of the Company's Board of Directors and will depend upon the
Company's earnings, financial condition, capital requirements and other relevant
factors. Additionally, the payment of dividends is also subject to statutory
restrictions and restrictions arising under the terms of the Company's Trust
Preferred Securities offerings and under certain financial covenants in the
Company's revolving line of credit.
Because the Company's consolidated net income consists largely of net income of
the Banks, FIFC, Tricom, WHTC and the Wayne Hummer Companies, the Company's
ability to pay dividends depends upon its receipt of dividends from these
entities. The Banks' ability to pay dividends is regulated by banking statutes.
See "Financial Institution Regulation Generally - Dividends" on page 12 of this
Form 10-K. During 2002 the Banks paid no dividends to the Company. In 2001 and
2000, the Banks paid $13.5 million and $16.0 million, respectively, in dividends
to the Company. De novo banks are prohibited from paying dividends during their
first three years of operations. As of January 1, 2003, Northbrook Bank, which
began operations in November 2000, is the only bank currently subject to this
additional dividend restriction. Its de novo period will end in November 2003.
Reference is made to Note 19 to the Consolidated Financial Statements contained
in the 2002 Annual Report to Shareholders, attached hereto as Exhibit 13.1,
which is incorporated herein by reference, for a description of the restrictions
on the ability of certain subsidiaries to transfer funds to the Company in the
form of dividends.
RECENT SALES OF UNREGISTERED SECURITIES
- ---------------------------------------
The Company had no sales of unregistered securities during the fourth quarter of
2002.
- 23 -
ITEM 6. SELECTED FINANCIAL DATA
Certain information required in response to this item is contained in the 2002
Annual Report to Shareholders under the caption "Selected Financial Highlights"
and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required in response to this item is contained in the 2002
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations", which is
incorporated herein by reference. This discussion and analysis of financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and notes thereto contained in the 2002 Annual
Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Certain information required in response to this item is contained in the 2002
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset-Liability
Management," which is incorporated herein by reference. That information should
be read in conjunction with the complete Consolidated Financial Statements and
notes thereto also included in the 2002 Annual Report to Shareholders.
- 24 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this item is contained in the 2002
Annual Report to Shareholders under the caption "Consolidated Financial
Statements," and is incorporated herein by reference. Also, refer to Item 15 of
this Report for the Index to Financial Statements.
SUPPLEMENTAL STATISTICAL DATA
- -----------------------------
INVESTMENT SECURITIES PORTFOLIO
The following table presents the carrying value of the Company's
available-for-sale securities portfolio, by investment category, as of December
31, 2002, 2001 and 2000 (in thousands):
- ------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
--------------------------- ------------------------- ------------------------
Available-for-sale:
U.S. Treasury obligations $ 34,022 3,048 29,987
Federal agency obligations 140,752 152,185 61,871
Municipal securities 6,467 6,686 5,142
Corporate notes and other 75,193 25,895 29,197
Mortgage-backed securities 270,962 181,425 54,274
Equity securities 20,283 16,111 12,634
--------------------------- ------------------------- ------------------------
Total available-for-sale securities $ 547,679 385,350 193,105
========================================================================================================================
Tables presenting the carrying amounts and gross unrealized gains and losses for
securities available-for-sale at December 31, 2002 and 2001 are included by
reference to Note 3 to the Consolidated Financial Statements included in the
2002 Annual Report to Shareholders, which is incorporated herein by reference.
At December 31, 2002 and 2001, there were no held-to-maturity securities.
Maturities of securities as of December 31, 2002, by maturity distribution, are
as follows (in thousands):
- ------------------------------------------------------------------------------------------------------------------------
Mortgage-
Within From 1 From 5 to After backed Equity
1 Year to 5 Years 10 Years 10 years securities securities Total
--------- ----------- ----------- ----------- -------------- ------------- -----------
U.S. Treasury obligations $ 2,256 304 31,462 -- -- -- 34,022
Federal agency obligations 49,730 40,602 50,420 -- -- -- 140,752
Municipal securities 2,944 710 2,813 -- -- -- 6,467
Corporate notes and other 32,254 14,648 -- 28,291 -- -- 75,193
Mortgage-backed securities(1) -- -- -- -- 270,962 -- 270,962
Equity securities (2) -- -- -- -- -- 20,283 20,283
--------- ----------- ----------- ----------- -------------- ------------- -----------
Total $ 87,184 56,264 84,695 28,291 270,962 20,283 547,679
========================================================================================================================
<FN>
(1) The maturities of mortgage-backed securities may differ from contractual
maturities since the underlying mortgages may be called or prepaid without
any penalties. Therefore, these securities are not included within the
maturity categories above.
(2) Includes stock of the Federal Reserve Bank, the Federal Home Loan Bank and
other equity securities.
</FN>
- 25 -
The weighted average yield for each range of maturities of securities, on a
tax-equivalent basis, is shown below as of December 31, 2002:
- ------------------------------------------------------------------------------------------------------------------------
Mortgage-
Within From 1 From 5 to After backed Equity
1 Year to 5 Years 10 Years 10 years securities securities Total
--------- ----------- ----------- ----------- -------------- ------------- -----------
U.S. Treasury obligations 2.02% 2.25% 3.71% -- -- -- 3.59%
Federal agency obligations 2.69% 2.25% 2.31% -- -- -- 2.43%
Municipal securities 3.71% 3.40% 7.75% -- -- -- 5.38%
Corporate notes and other 2.54% 3.61% -- 5.56% -- -- 3.89%
Mortgage-backed securities (1) -- -- -- -- 5.24% -- 5.24%
Equity securities (2) -- -- -- -- -- 5.42% 5.42%
--------- ----------- ----------- ----------- -------------- ------------- -----------
Total 2.65% 2.62% 3.00% 5.56% 5.24% 5.42% 4.24%
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The maturities of mortgage-backed securities may differ from contractual
maturities since the underlying mortgages may be called or prepaid without
any penalties. Therefore, these securities are not included within the
maturity categories above.
(2) Includes stock of the Federal Reserve Bank, the Federal Home Loan Bank and
other equity securities.
</FN>
LOAN PORTFOLIO
The following table shows the Company's loan portfolio by category as of
December 31 for each of the five previous fiscal years (in thousands):
- -----------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
% OF % of % of % of % of
AMOUNT TOTAL Amount Total Amount Total Amount Total Amount Total
- ------------------------------------------------------------------------------------------------------------------------
Commercial and commercial
real estate $1,320,598 52% 1,007,580 50 647,947 42 485,776 38 366,229 38
Home equity 365,521 14 261,049 13 179,168 12 139,194 11 111,537 11
Residential real estate 156,213 6 140,041 7 131,495 9 102,903 8 73,494 7
Premium finance receivables 461,614 18 348,163 17 313,066 20 219,341 17 178,138 18
Indirect auto loans 178,234 7 184,209 9 203,571 13 255,410 20 209,983 22
Tricom finance receivables 21,048 1 18,280 1 20,354 1 17,577 1 - -
Consumer and other loans 52,858 2 59,157 3 51,995 3 49,925 4 34,650 4
---------------------------------------------------------------------------------------------
Total loans, net of
unearned income $2,556,086 100% 2,018,479 100 1,547,596 100 1,270,126 100 974,031 100
=======================================================================================================================
Commercial and commercial real estate loans. The commercial loan component is
comprised primarily of commercial real estate loans, lines of credit for working
capital purposes, and term loans for the acquisition of equipment. This category
also includes certain commercial equipment leases. Commercial real estate is
predominantly owner occupied and secured by a first mortgage lien and assignment
of rents on the property. Equipment loans and leases are generally fully
amortized over 24 to 60 months and secured by titles and/or U.C.C. filings.
Working capital lines are generally renewable annually and supported by business
assets, personal guarantees and,
- 26 -
oftentimes, additional collateral. Also included in this category are loans to
condominium and homeowner associations originated through Barrington Bank's
Community Advantage program and small aircraft financing, a new earning asset
niche developed at Crystal Lake Bank. Commercial business lending is generally
considered to involve a higher degree of risk than traditional consumer bank
lending. The vast majority of commercial loans are made within the Banks'
immediate market areas. The increase in this loan category can be attributed to
additional banking facilities, an emphasis on business development calling
programs and superior servicing of existing commercial loan customers which has
increased referrals.
In addition to the home mortgages originated by the Banks, the Company
participates in mortgage warehouse lending by providing interim funding to
unaffiliated mortgage brokers to finance residential mortgages originated by
such brokers for sale into the secondary market. The Company's loans to the
mortgage brokers are secured by the business assets of the mortgage companies as
well as the underlying mortgages, the majority of which are funded by the
Company on a loan-by-loan basis after they have been pre-approved for purchase
by third party end lenders who forward payment directly to the Company upon
their acceptance of final loan documentation. In addition, the Company may also
provide interim financing for packages of mortgage loans on a bulk basis in
circumstances where the mortgage brokers desire to competitively bid a number of
mortgages for sale as a package in the secondary market. Typically, the Company
will serve as sole funding source for its mortgage warehouse lending customers
under short-term revolving credit agreements. Amounts advanced with respect to
any particular mortgages are usually required to be repaid within 15 days. The
Company has developed strong relationships with a number of mortgage brokers and
is seeking to expand its customer base for this specialty business.
The following table classifies the commercial loan portfolio category at
December 31, 2002 by date at which the loans mature (in thousands):
- -------------------------------------------------------------------------------------------------------------------
One year From one After
or less to five years five years Total
----------- ------------- ---------- ---------
Commercial loans and
commercial real estate loans.......... $ 620,020 608,608 91,970 1,320,598
Premium finance receivables,
net of unearned income................ 461,614 -- -- 461,614
Tricom finance receivables.............. 21,048 -- -- 21,048
- -------------------------------------------------------------------------------------------------------------------
Of those loans maturing after one year, approximately $237.1 million have fixed
rates.
Home equity loans. The Company's home equity loan products are generally
structured as lines of credit secured by first or second position mortgage liens
on the underlying property with loan-to-value ratios not exceeding 80%,
including prior liens, if any. The Banks' home equity loans feature competitive
rate structures and fee arrangements. In addition, the Banks periodically offer
promotional home equity loan products as part of their marketing strategy often
featuring lower introductory rates.
Indirect auto loans. As part of its strategy to pursue specialized earning asset
niches to augment loan generation within the Banks' target markets, the Company
finances fixed rate automobile loans funded indirectly through unaffiliated
automobile dealers. As of December 31, 2002, indirect auto
- 27 -
loans comprised approximately 77% of the Company's consumer loans. In response
to economic conditions and the competitive environment for this product, the
Company has been reducing the level of new indirect auto loans originated.
However, the Company continues to maintain its relationships with the dealers
and may increase its volume of originations when market conditions indicate it
is prudent to do so. Indirect automobile loans are secured by new and used
automobiles and are generated by a large network of automobile dealers located
in the Chicago area with which the Company has established relationships. These
credits generally have an average initial balance of approximately $16,600 and
have an original maturity of 36 to 60 months with the average actual maturity,
as a result of prepayments, estimated to be approximately 35-40 months. The
Company does not currently originate any significant level of sub-prime loans,
which are made to individuals with impaired credit histories at generally higher
interest rates, and accordingly, with higher levels of credit risk. The risk
associated with this portfolio is diversified among many individual borrowers.
Management continually monitors the dealer relationships and the Banks are not
dependent on any one dealer as a source of such loans. Like other consumer
loans, the indirect auto loans are subject to the Banks' stringent credit
standards.
Residential real estate mortgages. The residential real estate category
predominantly includes one-to-four family adjustable rate mortgages that have
repricing terms generally from one to three years, construction loans to
individuals and bridge financing loans for qualifying customers. The adjustable
rate mortgages are often non-agency conforming, may have terms based on
differing indexes, and relate to properties located principally in the Chicago
metropolitan area or vacation homes owned by local residents. Adjustable-rate
mortgage loans decrease, but do not eliminate, the risks associated with changes
in interest rates. Because periodic and lifetime caps limit the interest rate
adjustments, the value of adjustable-rate mortgage loans fluctuates inversely
with changes in interest rates. In addition, as interest rates increase, the
required payments by the borrower increases, thus increasing the potential for
default. The Company does not generally originate loans for its own portfolio
with long-term fixed rates due to interest rate risk considerations. However,
the Banks do accommodate customer requests for fixed rate loans by originating
and selling these loans into the secondary market, in connection with which the
Company receives fee income, or by selectively including certain of these loans
within the Banks' own portfolios. A portion of the loans sold by the Banks into
the secondary market are sold to the Federal National Mortgage Association
("FNMA") with the servicing of those loans retained. The amount of loans
serviced for FNMA as of December 31, 2002 and 2001 was $239.2 million and $131.5
million, respectively. All other mortgage loans held for sale are sold into the
secondary market without the retention of servicing rights.
Premium finance receivables. The Company originates premium finance receivables
through FIFC. Most of the receivables originated by FIFC are sold to the Banks
and retained within their loan portfolios. However, due to FIFC's loan
origination volume exceeding the capacity within the Banks' loan portfolios,
FIFC began selling loans to an unrelated third party in 1999. During 2002, FIFC
originated approximately $1.7 billion of loans and sold approximately $311
million of those loans originated in 2002 to an unrelated financial institution.
FIFC recognized gains of $3.4 million on the sale of those loans. As of December
31, 2002 and 2001, the balance of these receivables that FIFC services for
others totaled approximately $141.1 million and $107.8 million, respectively.
All premium finance receivables are subject to the Company's stringent credit
standards, and substantially all such loans are made to commercial customers.
The Company rarely finances consumer insurance premiums.
- 28 -
FIFC generally offers financing of approximately 80% of an insurance premium
primarily to commercial purchasers of property and casualty and liability
insurance who desire to pay insurance premiums on an installment basis. FIFC
markets its financial services primarily by establishing and maintaining
relationships with medium and large insurance agents and brokers and by offering
a high degree of service and innovative products. Senior management is
significantly involved in FIFC's marketing efforts, currently focused almost
exclusively on commercial accounts. Loans are originated by FIFC's own sales
force by working with insurance agents and brokers throughout the United States.
As of December 31, 2002, FIFC had the necessary licensing and other regulatory
approvals to do business in all 50 states and the District of Columbia.
In financing insurance premiums, the Company does not assume the risk of loss
normally borne by insurance carriers. Typically, the insured buys an insurance
policy from an independent insurance agent or broker who offers financing
through FIFC. The insured typically makes a down payment of approximately 15% to
25% of the total premium and signs a premium finance agreement for the balance
due, which amount FIFC disburses directly to the insurance carrier or its agents
to satisfy the unpaid premium amount. The average initial balance of premium
finance loans is approximately $30,000 and the average term of the agreements is
approximately 10 months. As the insurer earns the premium ratably over the life
of the policy, the unearned portion of the premium secures payment of the
balance due to FIFC by the insured. Under the terms of the Company's standard
form of financing contract, the Company has the power to cancel the insurance
policy if there is a default in the payment on the finance contract and to
collect the unearned portion of the premium from the insurance carrier. In the
event of cancellation of a policy, the cash returned in payment of the unearned
premium by the insurer should be sufficient to cover the loan balance and
generally the interest and other charges due as well. The major risks inherent
in this type of lending are (1) the risk of fraud on the part of an insurance
agent whereby the agent fraudulently fails to forward funds to the insurance
carrier or to FIFC, as the case may be; (2) the risk that the insurance carrier
becomes insolvent and is unable to return unearned premiums related to loans in
default; (3) for policies that are subject to an audit by the insurance carrier
(i.e. workers compensation policies where the insurance carrier can audit the
insured actual payroll records), the risk that the initial underwriting of the
policy was such that the premium paid by the insured are not sufficient to cover
the a entire return premium in the event of default; and (4) that the borrower
is unable to ultimately satisfy the debt in the event the returned unearned
premium is insufficient to retire the loan. FIFC has established underwriting
procedures to reduce the potential of loss associated with the aforementioned
risks and has systems in place to continually monitor conditions that would
indicate an increase in risk factors and to act on situations where the
Company's collateral position is in jeopardy.
Tricom finance receivables. Tricom finance receivables represent high-yielding
short-term accounts receivable financing to clients in the temporary staffing
industry located throughout the United States. The clients' working capital
needs arise primarily from the timing differences between weekly payroll funding
and monthly collections from customers. The primary security for Tricom's
finance receivables are the accounts receivable of its clients and personal
guarantees. Tricom generally advances 80-95% based on various factors including
the client's financial condition, the length of client relationship and the
nature of the client's customer business lines. Typically, Tricom will also
provide value-added out-sourced administrative services to many of these
clients, such as data processing of payrolls, billing and cash management
services, which generates additional fee income.
- 29 -
Consumer and Other. Included in the consumer and other loan category is a wide
variety of personal and consumer loans to individuals. The Banks have been
originating consumer loans in recent years in order to provide a wider range of
financial services to their customers. Consumer loans generally have shorter
terms and higher interest rates than mortgage loans but generally involve more
credit risk than mortgage loans due to the type and nature of the collateral.
The Company had no loans to businesses or governments of foreign countries at
any time during the reporting periods.
RISK ELEMENTS IN THE LOAN PORTFOLIO
The following table sets forth the allocation of the allowance for loan losses
by major loan type and the percentage of loans in each category to total loans
(dollars in thousands):
- -------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------------
AMOUNT PERCENT Amount Percent Amount Percent Amount Percent Amount Percent
- -------------------------------------------------------------------------------------------------------------------
Commercial and
Commercial Real Estate $ 6,921 52% 6,251 50 4,019 42 3,435 38 2,480 38
Home equity 559 14 1,353 13 992 12 1,146 11 1,046 11
Residential real estate 197 6 137 7 141 9 126 8 81 7
Premium finance 3,565 18 1,391 17 1,209 20 721 17 919 18
receivables
Indirect auto loans 941 7 1,442 9 1,552 13 1,947 20 1,205 22
Tricom finance 120 1 112 1 120 1 120 2 - -
receivables
Consumer and other 362 2 835 3 473 3 469 4 494 4
Unallocated 5,725 - 2,165 - 1,927 - 819 - 809 -
-----------------------------------------------------------------------------------------
Totals $ 18,390 100% 13,686 100 10,433 100 8,783 100 7,034 100
===================================================================================================================
Management determines the amount of allowance that is required for specific loan
categories based on relative risk characteristics of the loan portfolio. The
allocation methodology applied by the Company, designed to assess the adequacy
of the allowance for loan losses, focuses on changes in the size and
characteristics of the each loan portfolio component, changes in levels of
impaired and other non-performing loans, the risk inherent in specific loan
portfolio components, concentrations of loans to specific borrowers or
industries, existing economic conditions, and historical losses on each loan
portfolio component. Each of the criteria used is subject to change, as a result
the allocation of the allowance for loan losses is made for analytical purposes
and is not necessarily indicative of the trend of future loan losses in any
particular loan category. The total allowance is available to absorb losses from
any segment of the portfolio. Management continues to target and maintain the
allowance for loan losses equal to the allocation methodology plus an
unallocated portion, as determined by economic conditions and other qualitative
and quantitative factors affecting the Company's borrowers. Management
determined that the allowance for loan losses was adequate at December 31, 2002.
The Company's loan rating process is an integral component of the methodology
utilized in determining the allowance for loan losses. 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
Risk Management Committee, a Watch List is presented, showing all loans that are
- 30 -
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.
An analysis of commercial and commercial real estate loans actual loss
experience is conducted to assess reserves established for credits with similar
risk characteristics. An allowance is established for loans on the Watch List
and for pools of loans based on the loan types and the risk ratings assigned.
The Company separately analyzes the carrying value of impaired loans to
determine whether the carrying value is less than or equal to the appraised
collateral value less costs to sell, or the present value of expected future
cash flows. Commercial and commercial real estate loans continue to represent a
larger percentage of the Company's total loans outstanding. The credit risk of
commercial and commercial real estate loans is largely influenced by the impact
on borrowers of general economic conditions, which have been challenging,
uncertain and deteriorating. Historically low net charge-offs of commercial and
commercial real-estate loans may not be indicative of future charge-off levels.
The allowance established for commercial and commercial real estate loans,
including impaired loans, was $6.9 million at December 31, 2002 compared with
$6.3 million at December 31, 2001 and $4.0 million at December 31, 2000. The
increase in the allowance for commercial and commercial real estate loans
reflects the 31% growth in 2002 compared to 2001 and 56% growth in 2001 compared
to 2000 of commercial and commercial real estate loans.
The home equity, residential real estate and other loan allocations are based on
analysis of historical delinquency and charge off statistics and trends. The
allowance established for home equity, residential real estate and other loans
was $756,000 at December 31, 2002 compared with $1.5 million at December 31,
2001 and $1.1 million at December 31, 2000. The decrease in the allowance for
home equity and residential real estate loans reflects lower level of
non-performing home equity, residential real estate and other loans in 2002
compared to 2001. The increase in allowance established for home equity,
residential real estate and other loans in 2001 compared to 2000 was due to
higher levels of non-performing credits during 2001.
Specialized earning asset niche loans such as premium finance receivables,
indirect auto and Tricom finance receivables allocations are based on an
analysis of historical delinquency and charge off statistics and historical
growth trends. The allowance established for premium finance loans was $3.6
million at December 31, 2002 compared with $1.4 million at December 31, 2001 and
$1.2 million at December 31, 2000. The increase in the allowance for premium
finance loans at December 31, 2002 reflected an increase of approximately
$500,000 related to the 33% growth in premium finance receivables outstanding
and approximately $2.1 million related to a change in the risk rating to reflect
the historical loss experience. The slight increase in the allowance established
for premium finance receivables at December 31, 2001 compared to December 31,
2000 reflects the 11% growth in balances outstanding in 2001.
- 31 -
The allowance established for indirect auto loans was $941,000 at December 31,
2002 compared with $1.4 million at December 31, 2001 and $1.6 million at
December 31, 2000. The decrease in the allowance for indirect auto loans at
December 31, 2002 reflects the lower risk ratings assigned to these loans to
reflect management's decision to de-emphasize relative growth of this portfolio
and the declining credit loss ratios. Regardless of the extent of the Company's
analysis of customer performance, loan portfolio trends, the risk assessment
processes and volatility of economic conditions, certain inherent but undetected
losses are probable within the loan portfolios. This is due to several factors,
including inherent delays in obtaining information regarding a customer's
financial condition or changes in their unique business conditions, the
judgmental nature of individual loan evaluations, collateral assessments and the
interpretation of economic trends. Because of the imprecision surrounding these
factors, primarily the uncertainty related to the economic outlook, the Company
estimates a range of inherent losses and maintains an "unallocated" allowance
that is not allocated to a specific loan category. The amount of unallocated
allowance was $5.7 million at December 31, 2002 compared with $2.2 million at
December 31, 2001 and $1.9 million at December 31, 2000.
For analysis and review of the loan loss provision and allowance for loan
losses; non-accrual, past due and restructured loans; other real estate owned;
potential problem loans; and loan concentrations, reference is made to the
"Credit Risk and Asset Quality" section of the Management's Discussion and
Analysis of Financial Condition and Results of Operations of the 2002 Annual
Report to Shareholders filed herewith as Exhibit 13.1, and incorporated herein
by reference.
DEPOSITS
The following table sets forth the scheduled maturities of time deposits in
denominations of $100,000 or more at December 31, 2002 (in thousands):
- -----------------------------------------------------------------
Maturing within 3 months.......... $ 144,221
After 3 but within 6 months....... 150,920
After 6 but within 12 months...... 211,568
After 12 months................... 312,016
----------
Total.......................... $ 818,725
- -----------------------------------------------------------------
- 32 -
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to the Company's equity and
assets as of and for the years ended December 31:
- ----------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Return on average total assets 0.87% 0.79% 0.60%
Return of average common shareholders' equity 14.76% 15.24% 11.51%
Dividend payout ratio 7.50% 7.37% 8.00%
Average equity to average total assets 5.9% 5.2% 5.2%
Ending total risk based capital ratio 9.4% 8.5% 8.4%
Leverage ratio 7.0% 7.1% 6.3%
================================================================================================================
SHORT-TERM BORROWINGS
The Company's short-term borrowings include federal funds purchased, overnight
and term security repurchase agreements and borrowings by WHI (sometimes
referred to as "Wayne Hummer Company funding"), which consist of demand
obligations to third party banks and brokers for the financing of securities
purchased by WHI customers on margin and securities owned by WHI. The average
balances in each of these categories during 2002 were $7.2 million of federal
funds purchased, $27.5 million of repurchase agreements and $33.3 million of
Wayne Hummer Company funding. During 2002, the Company participated in overnight
and term security repurchase agreements. The overnight agreements represent
sweep accounts in connection with a master repurchase agreement. In this case,
securities under the Company's control are pledged for and interest is paid on
the available balance of the customers' accounts. For term repurchase
agreements, securities are transferred to the applicable counterparty.
Securities underlying the overnight and term repurchase agreements are included
in the available-for-sale securities portfolio as reflected on the Consolidated
Statements of Condition. At December 31, 2002, securities sold under agreements
to repurchase consisted of U.S. government agency, mortgage-backed and corporate
securities.
Further information regarding Short-Term Borrowings is contained in the
"Analysis of Financial Condition - Deposits and Other Funding Sources" section
of the Management's Discussion and Analysis of Financial Condition and Results
of Operations in the 2002 Annual Report to Shareholders filed herewith as
Exhibit 13.1, and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No changes were made in the Company's independent accountants during the two
most recent fiscal years or any subsequent interim period.
- 33 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item will be contained in the
Company's definitive Proxy Statement (the "Proxy Statement") for its Annual
Meeting of Shareholders to be held May 22, 2003 under the captions "Nominees to
Serve as Class I Directors Until the Annual Meeting of Shareholders in Year
2006", "Class II - Continuing Directors Serving Until the Year 2004", "Class III
- - Continuing Directors Serving Until the Year 2005", and "Executive Officers of
the Company" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item will be contained in the
Company's Proxy Statement under the caption "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and
management is incorporated by reference to the section "Security Ownership of
Certain Beneficial Owners and Management" that will be included in the Proxy
Statement for the Annual Meeting of Shareholders to be held on May 22, 2003.
The following table summarizes information as of December 31, 2002, relating to
equity compensation plans of the Company pursuant to which common stock is
authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
- -----------------------------------------------------------------------------------------------------------------------
Number of securities Number of securities
to be issued remaining available
upon exercise of Weighted-average for future issuance under
outstanding exercise price of equity compensation plans
options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
Plan category (a) (b) (c)
- -----------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders:
- --------------------------------------------
o WTFC 1997 Stock Incentive Plan,
as amended 2,928,920 $12.98 595,913
o WTFC Employee Stock Purchase Plan N/A N/A 300,458
o WTFC Directors Deferred Fee
and Stock Plan N/A N/A 221,315
- -----------------------------------------------------------------------------------------------------------------------
2,928,920 $12.98 1,117,686
- -----------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security holders
- --------------------------------------------
o None
- -----------------------------------------------------------------------------------------------------------------------
Total 2,928,920 $12.98 1,117,686
=======================================================================================================================
- 34 -
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item will be contained in the Proxy
Statement under the sub-caption "Transactions with Management and Others" and is
incorporated herein by reference.
ITEM 14. 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.
The Company's management, including the Chief Executive Officer and the Chief
Financial Officer, does not expect that our Disclosure Controls or our Internal
Controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable assurance that the
objectives of the control system are met. Further, the design of a control
system will take into account resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, any system of controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected. However, the Company's management
believes its system of controls provides reasonable assurances as to the
integrity of its financial records and accounts.
- 35 -
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this Report:
1., 2. Financial Statements and Schedules
----------------------------------
The following financial statements of Wintrust Financial Corporation,
incorporated herein by reference to the 2002 Annual Report to
Shareholders filed as Exhibit 13.1, are filed as part of this document
pursuant to Item 8, Financial Statements and Supplementary Data:
Consolidated Statements of Condition as of December 31, 2002 and 2001
Consolidated Statements of Income for the Years Ended December 31, 2002,
2001 and 2000
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31,2002, 2001 and 2000
Consolidated Statements of Cash Flows for the Years Ended December 31,
2002, 2001 and 2000
Notes to Consolidated Financial Statements
Report of Independent Auditors
No schedules are required to be filed with this report.
3. Exhibits (Exhibits marked with a "*" denote management contracts
--------
or compensatory plans or arrangements)
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).
- 36 -
4.2 Certain instruments defining the rights of the holders of
long-term debt of the Corporation and certain of its
subsidiaries, none of which authorize a total amount of
indebtedness in excess of 10% of the total assets of the
Corporation and its subsidiaries on a consolidted basis, have
not been filed as Exhibits. The Corporation hereby agrees to
furnish a copy of any of these agreements to the Commission upon
request.
10.1 $25 Million Revolving Loan Agreement between LaSalle National
Bank and Wintrust Financial Corporation, dated September 1, 1996
(incorporated by reference to Exhibit 10.1 of the Company's Form
S-1 Registration Statement (No. 333-18699) filed with the
Securities and Exchange Commission on December 24, 1996).
10.2 First Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle National Bank, dated March 1, 1997
(incorporated by reference to Exhibit 10.29 to Registrant's Form
10-K for the year ended December 31, 1996, filed with the
Securities and Exchange Commission on March 28, 1997).
10.3 Second Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle National Bank, dated March 1, 1997
(incorporated by reference to Exhibit 10.3 of the Company's Form
10-K for the year ended December 31, 1997, filed with the
Securities and Exchange Commission on March 31, 1998).
10.4 Third Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle National Bank, dated September 1, 1998
(incorporated by reference to Exhibit 10 of the Company's Form
10-Q for the quarter ended September 30, 1998, filed with the
Securities and Exchange Commission on November 13, 1998).
10.5 Fourth Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle Bank National Association, dated
September 1, 1999 (incorporated by reference to Exhibit 10.5 of
the Company's Form 10-K for the year ended December 31, 1999).
10.6 Fifth Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle Bank National Association, dated August
30, 2000 (incorporated by reference to Exhibit 10.6 of the
Company's Form 10-K for the year ended December 31, 2000).
10.7 Sixth Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle Bank National Association, dated June 1,
2001 (incorporated by reference to Exhibit 99.1 of the Company's
Form S-3 Registration Statement filed with the SEC on May 16,
2001).
10.8 Seventh Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle Bank National Association, dated
December 31, 2001, but effective as of November 29, 2001
(incorporated by reference to Exhibit 10.8 of the Company's Form
10-K for the year ending December 31, 2001).
- 37 -
10.9 Amended and Restated Loan Agreement ($75 million) between
Wintrust Financial Corporation and LaSalle National Association,
dated October 29, 2002.
10.10 $25 million Subordinated Note between Wintrust Financial
Corporation and LaSalle National Association, dated October 29,
2002.
10.11 Form of Wintrust Financial Corporation Warrant Agreement
(incorporated by reference to Exhibit 10.29 to Amendment No. 1
to Registrant's Form S-4 Registration Statement (No. 333-4645),
filed with the Securities and Exchange Commission on July 22,
1996). *
10.12 Lake Forest Bank & Trust Company Lease for drive-up facility
located at the corner of Bank Lane & Wisconsin Avenue, Lake
Forest, Illinois, dated December 11, 1992 (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 to Registrant's
Form S-4 Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).
10.13 Lake Forest Bank & Trust Company Lease for banking facility
located at 810 South Waukegan Road, Lake Forest, Illinois
(incorporated by reference to Exhibit 10.6 to Amendment No. 1 to
Registrant's Form S-4 Registration Statement (No. 333-4645)
filed with the Securities and Exchange Commission on July 22,
1996).
10.14 Lake Forest Bank & Trust Company Lease for banking facility
located at 666 North Western Avenue, Lake Forest, Illinois,
dated July 19, 1991 and Amendment (incorporated by reference to
Exhibit 10.6 to Amendment No. 1 to Registrant's Form S-4
Registration Statement (No. 333-4645) filed with the Securities
and Exchange Commission on July 22, 1996).
10.15 Lake Forest Bank & Trust Company Lease for banking facility
located at 103 East Scranton Avenue, Lake Bluff, Illinois, dated
November 1, 1994 (incorporated by reference to Exhibit 10.6 to
Amendment No. 1 to Registrant's Form S-4 Registration Statement
(No. 333-4645) filed with the Securities and Exchange Commission
on July 22, 1996).
10.16 North Shore Bank & Trust Company Lease for banking facility
located at 362 Park Avenue, Glencoe, Illinois, dated July 27,
1995 (incorporated by reference to Exhibit 10.6 to Amendment No.
1 to Registrant's Form S-4 Registration Statement (No. 333-4645)
filed with the Securities and Exchange Commission on July 22,
1996).
10.17 North Shore Bank & Trust Company Lease for banking facility
located at 794 Oak Street, Winnetka, Illinois, dated June 16,
1995 (incorporated by reference to Exhibit 10.6 to Amendment No.
1 to Registrant's Form S-4 Registration Statement (No. 333-4645)
filed with the Securities and Exchange Commission on July 22,
1996).
- 38 -
10.18 Barrington Bank and Trust Company Lease for property located at
202A South Cook Street, Barrington, Illinois, dated December 29,
1995 (incorporated by reference to Exhibit 10.24 of the
Company's Form S-1 Registration Statement (No 333-18699) filed
with the Securities and Exchange Commission on December 24,
1996).
10.19 Real Estate Contract by and between Wolfhoya Investments, Inc.
and Amoco Oil Company, dated March 25, 1996, and amended as of
__________, 1996, relating to the purchase of property located
at 201 South Hough, Barrington, Illinois (incorporated by
reference to Exhibit 10.25 of the Company's Form S-1
Registration Statement (No 333-18699) filed with the Securities
and Exchange Commission on December 24, 1996).
10.20 Lake Forest Bank & Trust Company Lease for drive-up and walk-up
facility located at 911 South Telegraph Road, Lake Forest,
Illinois, dated November 7, 1996 (incorporated by reference to
Exhibit 10.28 to Amendment No. 1 of the Company's Form S-1
Registration Statement (No. 333-18699) filed with the Securities
and Exchange Commission on January 24, 1997).
10.21 Form of Employment Agreement (entered into between the Company
and Edward J. Wehmer, President and Chief Executive Officer).
The Company entered into Employment Agreements with David A.
Dykstra, Executive Vice President and Chief Financial Officer,
Robert F. Key, Executive Vice President-Marketing and Lloyd M.
Bowden, Executive Vice President-Technology during 1998 in
substantially identical form to this exhibit (incorporated by
reference to Exhibit 10.15 of the Company's Form 10-K for the
year ended December 31, 1998). *
10.22 Form of First Amendment to Employment Agreement (entered into
between the Company and Edward J. Wehmer, President and Chief
Executive Officer). The Company amended the Employment
Agreements with David A. Dykstra, Executive Vice President and
Chief Financial Officer, Robert F. Key, Executive Vice
President-Marketing and Lloyd M. Bowden, Executive Vice
President-Technology during 1999 in substantially identical form
to this exhibit (incorporated by reference to Exhibit 10.17a of
the Company's Form 10-K for the year ended December 31, 2000). *
10.23 Term Note ($1.2 million) and related Stock Pledge Agreement
dated January 31, 2000, between Edward J. Wehmer and Dorothy M.
Wehmer (as borrowers) and Wintrust Financial Corporation (as
lender), (incorporated by reference to Exhibit 10.17a of the
Company's Form 10-K for the year ended December 31, 2000). *
10.24 Second Amendment to Employment Agreement by and between Wintrust
Financial Corporation and Edward J. Wehmer, dated January 31,
2000, (incorporated by reference to Exhibit 10.19 of the
Company's Form 10-K for the year ended December 31, 2000). *
- 39 -
10.25 Wintrust Financial Corporation 1997 Stock Incentive Plan
(incorporated by reference to Appendix A of the Proxy Statement
----------
relating to the May 22, 1997 Annual Meeting of Shareholders of
the Company). *
10.26 First Amendment to Wintrust Financial Corporation 1997 Stock
Incentive Plan (incorporated by reference to Exhibit 10.1 of the
Company's Form 10-Q for the quarter ended June 30, 2000). *
10.27 Second Amendment to Wintrust Financial Corporation 1997 Stock
Incentive Plan adopted by the Board of Directors on January 24,
2002 (incorporated by reference to Exhibit 99 of the Proxy
Statement relating to the May 23, 2002 Annual Meeting of
Shareholders of the Company.) *
10.28 Wintrust Financial Corporation Employee Stock Purchase Plan
(incorporated by reference to Appendix B of the Proxy Statement
relating to the May 22, 1997 Annual Meeting of Shareholders of
the Company). *
10.29 Wintrust Financial Corporation Directors Deferred Fee and Stock
Plan (incorporated by reference to Appendix B of the Proxy
Statement relating to the May 24, 2001 Annual Meeting of
Shareholders of the Company). *
10.30 Term Note ($500,000) and related Stock Pledge Agreement dated
January 31, 2002 by and between David A. Dykstra (as borrower)
and Wintrust Financial Corporation (as lender) (incorporated by
reference to Exhibit 10.1 of the Company's Form 10-Q for the
quarter ended March 30, 2002) *
10.31 Second Amendment to Employment Agreement by and between Wintrust
Financial Corporation and David A. Dykstra, dated January 31,
2002 (incorporated by reference to Exhibit 10.2 of the Company's
Form 10-Q for the quarter ended March 30, 2002). *
12.1 Computation of Ratio of Earnings to Fixed Charges.
13.1 2002 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
99 Lake Forest Bank & Trust Company, Our Story (Brochure included
in 2002 Annual Report to Sharholders)
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
signed by Edward J. Wehmer, President and Chief Executive
Officer.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
signed by David A. Dykstra, Senior Executive Vice President and
Chief Operating Officer.
99.3 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -
signed by David. L. Stoehr, Executive Vice President and Chief
Financial Officer.
- 40 -
(b) Reports on Form 8-K
Three reports on Form 8-K were filed with the Securities and Exchange
Commission during the fourth quarter of 2002.
o October 25, 2002 - Form 8-K filed on October 28, 2002, to
announce the promotion of David L. Stoehr to Executive Vice
President and Chief Financial Officer.
o October 17, 2002 - Form 8-K filed on November 12, 2002 to report
the Company's letter to shareholders issued in November 2002,
related to third quarter 2002 earnings.
o December 19, 2002 - Form 8-K filed on December 20, 2002 to
report the signing of an agreement to acquire Lake Forest
Capital Management.
- 41 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
EDWARD J. WEHMER /s/ EDWARD J. WEHMER March 27, 2003
------------------------------------------
President and Chief Executive Officer
DAVID A. DYKSTRA /s/ DAVID A. DYKSTRA March 27, 2003
------------------------------------------
Senior Executive Vice President and
Chief Operating Officer
DAVID L. STOEHR /s/ DAVID L. STOEHR March 27, 2003
------------------------------------------
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
JOHN S. LILLARD /s/ JOHN S. LILLARD March 27, 2003
--------------------------------------
Chairman of the Board of Directors
EDWARD J. WEHMER /s/ EDWARD J. WEHMER March 27, 2003
--------------------------------------
President and CEO and Director
PETER D. CRIST /s/ PETER D. CRIST March 27, 2003
--------------------------------------
Director
BRUCE K. CROWTHER /s/ BRUCE K. CROWTHE March 27, 2003
--------------------------------------
Director
BERT A. GETZ, JR. /s/ BERT A. GETZ, JR. March 27, 2003
--------------------------------------
Director
PHILIP W. HUMMER /s/ PHILIP W. HUMMER March 27, 2003
--------------------------------------
Director
- 42 -
JAMES B. MCCARTHY /s/ JAMES B. MCCARTHY March 27, 2003
--------------------------------------
Director
MARGUERITE SAVARD MCKENNA /s/ MARGUERITE SAVARD MCKENNA March 27, 2003
--------------------------------------
Director
ALBIN F. MOSCHNER /s/ ALBIN F. MOSCHNER March 27, 2003
--------------------------------------
Director
THOMAS J. NEIS /s/ THOMAS J. NEIS March 27, 2003
--------------------------------------
Director
HOLLIS W. RADEMACHER /s/ HOLLIS W. RADEMACHER March 27, 2003
--------------------------------------
Director
J. CHRISTOPHER REYES /s/ J. CHRISTOPHER REYES March 27, 2003
--------------------------------------
Director
JOHN J. SCHORNACK /s/ JOHN J. SCHORNACK March 27, 2003
--------------------------------------
Director
INGRID S. STAFFORD /s/ INGRID S. STAFFORD March 27, 2003
--------------------------------------
Director
- 43 -
CERTIFICATION
-------------
I, Edward J. Wehmer, President and Chief Executive Officer of Wintrust Financial
Corporation, certify that:
1. I have reviewed this annual report on Form 10-K (this "Form 10-K") of
Wintrust Financial Corporation;
2. Based on my knowledge, this Form 10-K 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 Form 10-K;
3. Based on my knowledge, the financial statements, and other financial
information included in this Form 10-K, 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 Form
10-K;
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
Form 10-K 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 Form 10-K (the "Evaluation Date"); and
c) presented in this Form 10-K 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
Form 10-K 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: March 27, 2003
/s/ EDWARD J. WEHMER
------------------------------------------
Name: Edward J. Wehmer
Title: President and Chief Executive Officer
- 44 -
CERTIFICATION
-------------
I, David A. Dykstra, Senior Executive Vice President and Chief Operating Officer
of Wintrust Financial Corporation, certify that:
1. I have reviewed this annual report on Form 10-K (this "Form 10-K") of
Wintrust Financial Corporation;
2. Based on my knowledge, this Form 10-K 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 Form 10-K;
3. Based on my knowledge, the financial statements, and other financial
information included in this Form 10-K, 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 Form
10-K;
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
Form 10-K 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 Form 10-K (the "Evaluation Date"); and
c) presented in this Form 10-K 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
Form 10-K 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: March 27, 2003
/s/ DAVID A. DYKSTRA
----------------------------------------------
Name: David A. Dykstra
Title: Senior Executive Vice President and
Chief Operating Officer
- 45 -
CERTIFICATION
-------------
I, David L. Stoehr, Executive Vice President and Chief Financial Officer of
Wintrust Financial Corporation, certify that:
1. I have reviewed this annual report on Form 10-K (this "Form 10-K") of
Wintrust Financial Corporation;
2. Based on my knowledge, this Form 10-K 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 Form 10-K;
3. Based on my knowledge, the financial statements, and other financial
information included in this Form 10-K, 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 Form
10-K;
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
Form 10-K 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 Form 10-K (the "Evaluation Date"); and
c) presented in this Form 10-K 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
Form 10-K 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: March 27, 2003
/s/ DAVID L. STOEHR
---------------------------------------------------
Name: David L. Stoehr
Title: Executive Vice President and
Chief Financial Officer
- 46 -