UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,June 30, 1997
Commission File Number 0-21923
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Illinois 36-3873352
_---------------------------------------- ---------------------------------------- ------------------------------------
(State of incorporation of organization) (I.R.S. Employer Identification No.)
727 North Bank Lane
Lake Forest, Illinois 60045
-----------------------------------------------------
(Address of principal executive offices)
(847) 615-4096
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of issuer's class of common
stock, as of the last practicable date.
Common Stock - no par value, 8,019,893 shares, as of MayAugust 13, 1997.
TABLE OF CONTENTS
PART I. -- FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements and Notes (Unaudited) ....................................... 1-6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 7-19................................. 7-20
PART II. -- OTHER INFORMATION
ITEM 1. This item has been omitted from this Form since it is
inapplicable or would contain a negative response ........ 20......... 21
ITEM 2. Changes in Securities ......................................... 20........................................ 21
ITEM 3. This item has been omitted from this Form since it is
inapplicable or would contain a negative response ........ 20......... 21
ITEM 4. Matters submitted to a Vote of Security Holders ............... 20.............. 21
ITEM 5. Other information ............................................. 20............................................ 22
ITEM 6. Exhibits and Reports on Form 8-K .............................. 20............................. 22
Signatures .................................................... 21................................................... 23
Exhibit Index ................................................. 22................................................ 24
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(IN THOUSANDS)
MARCH 31,(In thousands)
June 30, December 31, March 31,June 30,
ASSETS 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks-noninterest bearing $ 23,97634,463 $ 36,581 $ 10,86911,597
Federal funds sold 46,31956,590 38,835 49,23634,563
Interest-bearing deposits with banks 15,0012,018 18,732 19,10032,100
Available-for-Sale securities, at market value 62,65059,501 69,387 103,17370,452
Held-to-Maturity securities, at amortized cost 5,001 5,001 5,001
Loans, net of unearned income 566,894650,085 492,548 299,773361,093
Less: Allowance for possible loan losses 4,0734,432 3,636 2,9613,378
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net loans 562,821645,653 488,912 296,812357,715
Premises and equipment, net 31,89233,986 30,277 25,36127,381
Accrued interest receivable and other assets 14,99717,876 16,426 10,10311,070
Goodwill and organizational costs 1,9141,857 1,886 509434
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 764,571856,945 $ 706,037 $ 520,164
===============================================================================================================================550,313
====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 74,85072,137 $ 67,164 $ 47,41654,686
Interest bearing 607,343700,037 550,865 407,812429,574
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total deposits 682,193772,174 618,029 455,228484,260
Short-term borrowings - 7,058 -955
Notes payable 6,50311,253 22,057 12,51215,517
Other liabilities 12,3448,554 16,273 11,3629,946
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 701,040791,981 663,417 479,102510,678
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock - - 503
issued and outstanding at December 31, 1996, and 113,063
issued and outstanding at December 31, 1995
Common stock 7,9978,020 6,603 5,905
6,515,880 and 5,830,866 issued and outstanding at December 31,
1996 and 1995, respectively5,909
Surplus 71,67871,976 52,871 50,91750,963
Common stock warrants 100 100 75
Retained deficit (16,234)(15,108) (16,963) (16,346)(17,812)
Net, unrealized gains (losses) on Available-for-Sale
securities, net of tax (10)(24) 9 8(3)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 63,53164,964 42,620 41,06239,635
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 764,571856,945 $ 706,037 $ 520,164
===============================================================================================================================550,313
====================================================================================================
- 1 -
WINTRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
PERIODS ENDED MARCH 31,JUNE 30, 1997 ANDand 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,(In thousands except per share data)
Six Months Ended Three Months Ended
June 30, June 30,
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Interest income $ 13,07828,459 $ 8,28717,223 $ 15,381 $ 8,936
Interest expense 7,826 5,20716,418 10,778 8,592 5,571
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net interest income 5,252 3,08012,041 6,445 6,789 3,365
Provision for possible loan losses 679 4101,554 893 875 483
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 4,573 2,670
- ---------------------------------------------------------------------------------------
Noninterest income 1,592 2,014
Securities gains, net -- --
- ---------------------------------------------------------------------------------------10,487 5,552 5,914 2,882
Total noninterest income 1,592 2,014
- ---------------------------------------------------------------------------------------
Noninterest expense 6,354 4,958
Merger related expenses -- --
- ---------------------------------------------------------------------------------------2,520 3,948 928 1,934
Total noninterest expense 6,354 4,95812,778 11,177 6,424 6,219
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes (189) (274)229 (1,677) 418 (1,403)
Income tax (benefit) expense (918) 82(1,626) 145 (708) 63
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 7291,855 $ (356)
=======================================================================================(1,822) $ 1,126 $ (1,466)
=========================================================================================================================
Net income (loss) per common share $ 0.100.24 $ (0.06)
=======================================================================================(0.31) $ 0.13 $ (0.25)
=========================================================================================================================
Weighted average common shares and
common share equivalents outstanding 7,293 5,862
=======================================================================================outstandin 7,882 5,885 8,472 5,907
=========================================================================================================================
- 2 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
NET
UNREALIZED
GAIN (LOSS)
ON SECURITIES TOTAL
PREFERRED COMMON RETAINED AVAILABLE SHAREHOLDERS'
STOCK STOCK SURPLUS WARRANTS (DEFICIT) FOR SALE EQUITY(In thousands)
Net
unrealized
gain (loss)
on securities Total
Preferred Common Retained available shareholders'
stock stock Surplus Warrants (deficit) for sale equity
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 503 $ 5,831 $ 50,053 $ 75 $ (15,990)$(15,990) $ 15 $ 40,487
Net loss (356) (356)-- -- -- -- (1,822) -- (1,822)
Common stock issuance - 78 908 - - - 986
epurchase-- 82 954 -- -- -- 1,036
Repurchase of common stock --- (4) (44) - - --- -- -- (48)
Change in net unrealized gain on securities
available-for-sale, net of tax effect -- -- -- -- -- (18) (18)
- - - - - (7) (7)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31,JUNE 30, 1996 $ 503 $ 5,9055,909 $ 50,91750,963 $ 75 $(17,812) $ (16,346)(3) $ 8 $ 41,062
- --------------------------------------------------------------------------------------------------------------------------------39,635
=================================================================================================================================
Balance at December 31, 1996 $ --- $ 6,603 $ 52,871 $ 100 $ (16,963)$(16,963) $ 9 $ 42,620
Net income - - - - 729 - 729-- -- -- -- 1,855 -- 1,855
Common stock issued upon exercise
of stock options - 16 79 - - - 95-- 19 108 -- -- -- 127
Common stock issued in conjunction with
public offering, net of issuance costs - 1,378 18,728 - - - 20,106-- 1,398 18,997 -- -- -- 20,395
Change in net unrealized gain on securities
available-for-sale, net of tax effect -- -- -- -- -- (33) (33)
- - - - - (19) (19)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31,JUNE 30, 1997 $ --- $ 7,9978,020 $ 71,67871,976 $ 100 $(15,108) $ (16,234)(24) $ (10) $ 63,531
- --------------------------------------------------------------------------------------------------------------------------------64,964
=================================================================================================================================
- 3 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNADUDITED)
(IN THOUSANDS)
THREE(UNAUDITED)
(in thousands)
SIX MONTHS ENDED
MARCH 31,JUNE 30,
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:-----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ 729 ($356)1,855 $ (1,822)
Adjustments to reconcile net income (loss) to net cash
used for, or provided by, operating activities:
Provision for possible loan losses 679 4101,554 893
Depreciation and amortization 518 4401,131 867
Deferred income tax (benefit) expense (918) 82(1,626) 145
Net accretion/amortization of investment securities (163) (209)(243) (808)
Decrease (increase) in other assets, net 2,288 (1,266)75 (2,296)
Decrease in other liabilities, net (3,949) (1,766)(7,751) (3,191)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (817) (2,665)(5,005) (6,212)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of Available-for-Sale securities 30,170 100,96663,751 204,701
Purchases of securities (23,270) (146,042)(53,622) (216,458)
Net decrease in interest bearing deposits 3,731 31,50016,714 18,500
Net increase in loans (74,587) (41,753)(158,295) (103,140)
Purchases of premises and equipment, net (2,102) (1,730)(4,711) (4,102)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (66,057) (57,059)(136,163) (100,499)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts 64,164 49,570
Decrease154,145 78,602
(Decrease) increase in short-term borrowings, net (7,058) (867)88
Proceeds from notes payable - 1,7544,750 4,759
Repayment of notes payable (15,554) -
Issuance of common stock, net of issuance costs 20,201 93820,522 1,036
Repurchase of common stock - ------------------------------------------------------------------------------------------------------(48)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 61,753 51,395156,805 84,437
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET DECREASEINCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,121) (8,329)15,637 (22,274)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 75,416 68,434
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 70,29591,053 $ 60,105
======================================================================================================46,160
===========================================================================================================
- 4 -
WINTRUST FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
The consolidated financial statements of Wintrust Financial Corporation and
Subsidiaries ("Wintrust" or "Company") presented herein are unaudited, but in
the opinion of management reflect all necessary adjustments for a fair
presentation of results as of the dates and for the periods covered by the
consolidated financial statements.
The consolidated Wintrust entity was formed on September 1, 1996 through a
merger transaction whereby the holding companies of Lake Forest, Hinsdale,
Libertyville and First Premium were merged with newly formed wholly-owned
subsidiaries of North Shore Community Bancorp, Inc. (which changed its name to
Wintrust Financial Corporation concurrent with the merger). The merger
transaction was accounted for in accordance with the pooling-of-interest method
of accounting for a business combination. Accordingly, the consolidated
financial statements included herein reflect the combination of the historical
financial results of the five entities and the recorded assets and liabilities
have been carried forward to the consolidated company at their historical cost.
In October 1996, Wintrust purchased a company known as Wolfhoya Investments,
Inc. ("Wolfhoya") for a purchase price of approximately $1.3 million. Wolfhoya
was a company organized prior to the merger transaction by certain directors and
officers of the Company for purposes of organizing a de novo banking operation
in Barrington, Illinois. At the date of purchase by Wintrust, Wolfhoya had
purchased real estate for a permanent banking location and constructed a
temporary banking location in downtown Barrington. Wolfhoya had also secured the
services of its top three executive officers to run the new de novo bank. On
December 19, 1996, Wintrust opened Barrington Bank and Trust Company, the bank
that Wolfhoya had begun to organize prior to the acquisition. The acquisition
was accounted for using the purchase method of accounting and the purchase price
was paid for by issuing approximately 88,000 shares of Wintrust common stock to
the shareholders of Wolfhoya.
The accompanying consolidated financial statements are unaudited and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations or cash flows in accordance with
generally accepted accounting principles. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes included in Wintrust's Annual Report and Form 10-K for the year ended
December 31, 1996. Operating results for the three-month and six-month periods
presented are not necessarily indicative of the results which may be expected
for the entire year.
(2) Statement of Financial Accounting Standard No. 122:
--------------------------------------------------
In May 1995, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard No. 122, "Accounting for Mortgage Servicing
Rights, an amendment of Financial Accounting Standard No. 65" (SFAS No. 122).
The statement requires the recognition as separate assets the rights to service
mortgage loans for others, however those rights are acquired. SFAS No. 122
requires that when a definitive plan exists to sell the loan and retain
servicing rights, the cost of the mortgage will be allocated between the loan
and the related mortgage servicing right based on their relative fair values at
the date of
- 5 -
origination or purchase; otherwise the date of sale will be used. Mortgage
servicing rights are amortized ratably over the period of the associated
estimated net servicing income. SFAS No. 122 also requires assessing the
- 5 -
capitalized mortgage servicing rights for impairment by comparing the recorded
book value to the fair value of those rights.
(3) Statement of Financial Accounting Standard No. 114 and No. 118:
--------------------------------------------------------------
The Company follows the guidance of Statement of Financial Accounting Standard
No. 114 (as amended by Statement of Financial Accounting Standard No. 118),
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" to account for impaired loans. A loan is considered impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due. Impaired loans under SFAS No. 114 and SFAS
No. 118 are considered by the Company to be nonaccrual loans, restructured loans
and loans with principal and/or interest at risk, even if the loan is current
with all payments of principal and interest. Impairment is measured by
determining the fair value of the loan based on the present value of expected
cash flows, the market price of the loan, or the fair value of the underlying
collateral. If the fair value of the loan is less than the recorded book value,
a valuation allowance is established as a component of the allowance for
possible loan losses. Interest income is not accrued on loans where management
has determined that the borrowers may be unable to meet contractual principal
and/or interest obligations, or where interest or principal is 90 days or more
past due, unless the loans are adequately secured and in the process of
collection. Cash receipts on nonaccrual loans are generally applied to the
principal balance until the remaining balance is considered collectible, at
which time interest income may be recognized when received.
(4) Statement of Financial Accounting Standard No. 125
--------------------------------------------------
As of January 1, 1997, the Company adopted Financial Accounting Standards Board
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS No. 125). SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is applied prospectively.
SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extingushments of liabilities based on
consistent application of a financial components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. The adoption of SFAS No. 125 did not have
a material impact on the Company's financial position, results of operations or
liquidity.
(5) Cash and Cash Equivalents
-------------------------
For the purposes of the Consolidated Statements of Cash Flows, the Company
considers cash and cash equivalents to include cash and due from banks and
federal funds sold which have an original maturity of 90 days or less.
(6) Per Common Share Data
---------------------
Earnings per share are calculated by dividing net income, after consideration of
preferred stock dividends, by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period. Common stock
equivalents are calculated using the treasury stock method.
- 6 -
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wintrust Financial Corporation ("Wintrust" or "Company") is a multi-bank holding
company currently engaged in the business of providing financial services
primarily through its banking subsidiaries to customers in the Chicago
metropolitan area and financing the payment of insurance premiums, on a national
basis, through its subsidiary, First Premium Services, Inc. ("First Premium").
As of March 31,June 30, 1997, Wintrust owned five bank subsidiaries ("Banks"), all of
which started as de novo institutions, including Lake Forest Bank & Trust
Company ("Lake Forest"), Hinsdale Bank & Trust Company ("Hinsdale"), North Shore
Community Bank & Trust Company ("North Shore"), Libertyville Bank & Trust
Company ("Libertyville") and Barrington Bank & Trust Company ("Barrington").
The consolidated Wintrust entity was formed on September 1, 1996 through a
merger transaction whereby the holding companies of Lake Forest, Hinsdale,
Libertyville and First Premium were merged with newly formed wholly-owned
subsidiaries of North Shore Community Bancorp, Inc. (which changed its name to
Wintrust Financial Corporation concurrent with the merger). The merger
transaction was accounted for in accordance with the pooling-of-interest method
of accounting for a business combination. Accordingly, the consolidated
financial statements included herein reflect the combination of the historical
financial results of the five entities and the recorded assets and liabilities
have been carried forward to the consolidated company at their historical cost.
In October 1996, Wintrust purchased a company known as Wolfhoya Investments, Inc. ("Wolfhoya") for
a purchase price of approximately $1.3 million. Wolfhoya
was a company that had aThe sole business purpose of
organizingWolfhoya was to organize a de novo banking operation in Barrington, Illinois. At
the date of purchase by Wintrust, Wolfhoya had secured a permanent banking
location and constructed a temporary banking location in downtown Barrington.
Wolfhoya had also secured the services of its top three executive officers to
run the new de novo bank. Barrington opened on December 19, 1996. The
acquisition was accounted for using the purchase method of accounting and the
purchase price was paid for by issuing approximately 88,000 shares of Wintrust
common stock to the shareholders of Wolfhoya. Accordingly, the Company's
consolidated financial statements reflects the financial condition and results
of operations of Barrington since the date of acquisition.
Each of Lake Forest, Hinsdale, Libertyville and First Premium are wholly-owned
by mid-tier holding companies known as Lake Forest Bancorp, Inc., Hinsdale
Bancorp, Inc., Libertyville Bancorp, Inc., and Crabtree Capital Corporation,
respectively. These mid-tier holding companies are all owned 100% by Wintrust.
The existing operating subsidiaries have all started operations within the last
seven years. Each of the operating subsidiaries were started in an effort to
fulfill a financial services need in the banking and insurance premium financing
industries. Lake Forest, Hinsdale, North Shore, Libertyville and Barrington
began banking operations in December 1991, October 1993, September 1994, October
1995 and December 1996, respectively. Subsequent to those initial dates of
operations, each of the banks, except Libertyville and Barrington have
established additional full service banking facilities. First Premium began
operations in 1990 and is primarily involved in the financing of property and
casualty insurance premiums written through independent insurance - 7 -
agents or
brokers on a national basis for commercial customers. Since its commencement of
operations, First
- 7 -
Premium has consistently expanded its umbrella of operations to include
additional states in which it can operate. As such, Wintrust is a growth
oriented company which is still undertaking to establish additional market share
in the communities and industry segmentsindustries it serves.
The management of Wintrust presents the following discussion and analysis of its
financial condition as of March 31,June 30, 1997 compared with December 31, 1996 and March 31,June
30, 1996 and the results of operations for the periods ending March 31,June 30, 1997 and
1996. This discussion should be read in conjunction with Wintrust's unaudited
consolidated financial statements contained in this report.
OVERVIEW
Wintrust reported net income for the quarter ended March 31,June 30, 1997 of $729,000$1,126,000
compared to a net loss of $356,000$1,466,000 in the prior year. For the six months ended
June 30, 1997, net income was $1,855,000 compared with a net loss of $1,822,000.
A significant factor contributing to the net income in 1997 was the recording of
a net tax benefitbenefits of $918,000.$708,000 and $1,626,000 in the three month and six months
ending June 30, 1997, respectively. The income tax benefit recorded in 1997
reflected management's determination that certain of the Company's subsidiaries
earnings history and projected future earnings were sufficient to make a
judgment that the realization of a portion of the net deferred tax assets not
previously valued was more likely than not to occur. Excluding the impact of
income taxes, the Company recorded pre-taxoperating income of $418,000 and $229,000 for
the three months and six months ended June 30 1997, respectively, compared with
operating losses of approximately $189,000$1,403,000 and $274,000$1,677,000 for the same periods ending June
30, 1996. The improvement in operating results was due to the first three monthsenhanced
performance of 1997 and 1996, respectively. The reduction in the pre-tax
net loss was a result of improved results at the Company's four banking subsidiaries that existed as of MarchJune,
1996 and at the Company's premium finance subsidiary. However, the improvement
accomplished at those subsidiaries was offset by an expected pre-tax loss of
approximately $483,000$846,000 at Barrington in the first half of 1997. Barrington, the
Company's newest de novo bank, was opened in December, 1996. Additionally, the
1997 results were negatively impacted by the costs associated with the first
year of operations at the Company's full services banking facilitiesfacility opened in Winnetka,
Illinois and
Clarendon Hills, Illinois in May 1996 and August, 1996, and the opening of a new drive-up
banking facility in Lake Forest, Illinois during February, 1997.
The loss in 1996 was attributable in part to start up costs associated with full
service banking operations in (a) Libertyville, Illinois via a newly chartered
de novo bank during October 1995 and (b) branch banking facilities in Glencoe,
Illinois in October 1995 via
a full service branch banking facility.(October 1995) and Winnetka, Illinois (May, 1996). Additionally, North
Shore and Hinsdale opened separately located drive-up/walk-up facilities in the
fourth quarter of 1995. Generally, a community bank's results of operations are
reliant upon the net interest income to produce an overall profit for the bank.
However, as these banking locations were only operational for less than one
year, the revenues generated through the net interest income were not sufficient
to offset organizational expenses and the overhead established to support full
service banking operations, as has been typical during the first twelve to
fifteen months of the Company's start-up banking operations and was anticipated
by management during its planning of these facilities.
Total assets grew $58.5$150.9 million, or 8% to $764.621%, from $706.0 million as of March 31, 1997
compared toat December 31,
1996.1996 to $856.9 million at June 30, 1997. Loans increased $74.4$157.5 million, up 15%or 32%,
from year
end. Over the same period, deposits$492.5 at year-end to $650.1 million at June 30, 1997. Deposits grew $64.2$154.1
million, up 10%.or 25%, from $618.0 million at year-end 1996 to $772.2 million at June
30, 1997. Shareholders' equity increased $20.9$22.3 million to $63.5$65.0 million at March 31,June
30, 1997 compared with $42.6
- 8 -
million at December 31, 1996 due primarily to the proceeds received from the
Company's common stock offering.
- 8 -
offering and the Company's net earnings for the first six
months of the year.
CONSOLIDATED RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is defined as the difference between interest income and
fees on earning assets and interest expense on deposits and borrowings. The
related net interest margin represents the net interest income on a fully tax
equivalent basis as a percentage of average earning assets during the period.
The following table presents a summary of Wintrust's net interest income and
related net interest margin, calculated on a fully taxable equivalent basis
(dollars in thousands).
THREESIX MONTHS ENDED THREE MONTHS ENDED
MARCH 31,Six Months Ended
JUNE 30, 1997 MARCH 31,June 30, 1996
----------------------------------------- --------------------------------------------------------------------------------- --------------------------------------
AVERAGE INTEREST RATE AVERAGE INTEREST RATE
--------------- ------------- ----------- --------------- --------------- -----------Average Interest Rate
-------------- ------------ ---------- -------------- ------------ ----------
Interest bearing deposits with banks $ 16,16710,809 $ 227 5.62%300 5.55% $ 33,91034,404 $ 47 5.59%957 5.56%
Federal funds sold 51,213 651 5.09 53,171 706 5.3152,645 1,394 5.30 41,929 1,104 5.27
Investment securities* 72,136 970 5.38 94,475 1,24568,196 1,881 5.52 94,634 2,495 5.27
Loans, net of unearned discount* 516,717 11,257 8.71 265,177 5,876 8.86
--------------- ------------- ----------- --------------- ------------- -----------560,077 24,918 8.90 292,175 12,696 8.69
-------------- ------------ ---------- -------------- ------------ ----------
Total earning assets $ 656,233 $13,105 7.99% $446,733 $ 8,301 7.43%
--------------- ------------- ----------- --------------- ------------- -----------$691,727 $28,493 8.24% $463,142 $17,252 7.45%
-------------- ------------ ---------- -------------- ------------ ----------
Interest-bearing deposits $ 580,814 $ 7,481 5.15% $383,937 $ 4,886 5.09%
Short-term borrowings 818 7 3.35 508 6 4.72$614,013 $15,954 5.20% $399,692 $10,102 5.05%
Term debt 19,015 338 7.11 13,251 315 9.51
--------------- ------------- ----------- --------------- ------------- -----------and short-term borrowings 13,559 464 6.84 14,201 676 9.52
-------------- ------------ ---------- -------------- ------------ ----------
Total interest-bearing liabilities $ 600,647 $ 7,826$627,572 $16,418 5.23% $413,893 $10,778 5.21%
$397,696 $ 5,207 5.24%
--------------- ------------- ----------- --------------- ------------- ------------------------- ------------ ---------- -------------- ------------ ----------
Taxable equivalent net interest income $12,075 $ 5,279 $ 3,094
============= =============6,474
============ ============
Net interest spread 2.78% 2.20%
=========== ===========3.01% 2.24%
========== ==========
Net interest margin 3.22% 2.77%
=========== ===========3.49% 2.80%
========== ==========
- -------------------------------
* - Interest income on tax advantaged investment securities and loan
reflects a tax equivalent adjustment based on a marginal federal
corporate tax of 34%. The total tax-equivalent adjustment reflected in
the above table is $27,000$34,000 and $14,000$29,000 in 1997 and 1996, respectively.
The net interest margin increased 0.45%0.69% to 3.22%3.49% in the first quarterhalf of 1997 from
2.77%2.80% in the year ago period. The increase in the net interest margin was
primarily the result of a shift in the composition of the earning asset
portfolio whereby loans constituted approximately 79%81% of the average earning
assets during the first quarterhalf of 1997 compared to only 59%63% in the first quarterhalf of
1996. Contributing to the increase of loans is the fact that the Company is now
maintaining the premium finance loans originated by First Premium as assets of
the subsidiary banks. First Premium had previously funded its loan generation
through a securitization facility whereby most loans were sold into the
secondary market, with servicing retained by First Premium. The cost of First
Premium's funding was more expensive than the cost of funds that could be
provided by the subsidiary banks'
- 9 -
deposit base. As such, subsequent to the consummation of the merger in September
1996, First Premium has sold their loan production to the subsidiary banks. TheOn a
consolidated basis, the sale of the loans to the banks has enabled the
- 9 -
consolidated Wintrust entity to enjoyresulted in a larger
net interest margin in the first quarterhalf of 1997 as the high yielding insurance
premium loans remain on the books of the Company using a lower overall cost of
funds. As of June 30, 1997, the subsidiary banks have absorbed virtually all of
loan volume of First Premium.
Additionally, the Company's borrowing costs have been reduced by lower rates
charged on term debt. During the first quarterhalf of 1996, each of the predecessor
companies were distinct entities with a relatively higher borrowing rates. As a
result of the consummation of the merger and consolidation of the debt
outstanding at each of the predecessor companies, Wintrust was able to secure
more favorable interest rate terms from its lender.
Despite an increase in the net interest margin as discussed above, the Company's
net interest margin is low compared to industry standards for a variety of
reasons. First, as de novo banking institutions, Wintrust's subsidiary banks
have been aggressive in attempting to provideproviding competitive loan and deposit interest rates to
the communities they serve. This strategy fulfills the organization's objectives of
providing the communities with favorable banking products and thereby garnering
high market penetration and deposit growth. Management believes that a strong
core deposit base will allow the organization to fund various diversified asset
niches in the future that will provide long-term shareholder value.served. Next, as de
novo banking institutions, Wintrust's subsidiary banks have been cautious to
originate primarily
high quality loans as opposed to originating higher yielding loans that bring
more credit risk with them. Also, the subsidiary banks have purposefully
maintained an investment portfolio that is short-term in nature in order to
facilitate the funding of quality loan demand as it emerged and to keep the
banks in a liquid condition in the event that deposit levels fluctuated. In the
current interest rate environment, the short-term investment portfolio has been
yielding less than a portfolio with extended maturities; however, management
believed that this method of investing was prudent given de novo status of the
banks.
RECONCILIATION OF THE NET INTEREST INCOME ACCORDING TO RATE AND VOLUME VARIANCES
The following table presents a reconciliation of Wintrust's net interest income,
calculated on a fully taxable equivalent basis between the threesix month periods
ended March 31,June 30, 1996 and March 31,June 30, 1997. The reconciliation sets forth the change
in the net interest income as a result of changes in volumes, changes in rates
and the change due to the combination of volume and rate changes (in thousands):
Fully tax equivalent net interest income for the threesix months ended March 31,June 30, 1996 $ 3,0946,474
Change due to average earning assets fluctuations (volume) 1,4513,200
Change due to interest rate fluctuations (rate) 5031,598
Change due to rate/volume fluctuations (mix) 231
----------803
--------------
Fully tax equivalent net interest income for the threesix months ended March 31,June 30, 1997 $ 5,279
==========12,075
==============
- 10 -
NONINTEREST INCOME
Total noninterest income decreased approximately $422,000,$1.4 million, or 21%36%, to $1.6$2.5
million for the first threesix months of 1997, as compared to $2.0$3.9 million in the
same period in 1996. The following table presents noninterest income by category
(in thousands):
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED MARCH 31,
----------------------------JUNE 30,
--------------------------------------- ---------------------------------------
1997 1996 1997 1996
------------------ ------------------- ------------------- ----------------
Fees on mortgage loans sold $ 425 $320917 $ 723 $ 492 $ 403
Gains on sale of premium finance loans - 9671,909 - 900
Loan servicing fees 176 335254 733 78 398
Service charges on deposit accounts 158 73326 185 168 112
Trust fees 154 115309 259 155 144
Securities gains, net - 4918 - (31)
Other income 679 155714 121 35 8
------------------- ------------------- ------------------- ---------------
Total noninterest income $ 1,5922,520 $ 2,0143,948 $ 928 $ 1,934
=================== =================== =================== ===============
Beginning in the fourth quarter of 1996 First Premium began selling premium
finance loans to the Company's banking subsidiaries. Previously, such loans had
been sold to a third-party securitization facility whereby gains on the sale of
such loans and related servicing fees were recorded. Fee income earned in 1997
by First Premium in conjunction with the sale and servicing of such loans to the
subsidiary banks was eliminated as an intercompany transaction. Consequently,
gains on the sale of premium finance loans sold and loan servicing fees
decreased from 1996 to 1997. Although these income categories declined in 1997,
the Company's net interest margin was impacted positively by the additional
interest income that the bank subsidiaries earn over the life of such loans.
Fees on mortgage loans sold relate to income derived by the subsidiary banks for
services rendered in originating and selling residential real estate loans into
the secondary market. Such fees rose $105,000$194,000 or 33%27% in the first quarterhalf of 1997
to $425,000$917,000 from $320,000$723,000 in 1996. The increase came as a result of a
favorable interest rate environment and the efforts of experienced lenders.
Service charges on deposit accounts more than doubledrose 76% to $158,000$326,000 for the threesix months
ended March 31,June 30, 1997 from $73,000$185,000 from the year ago period. The increase is
primarily a result of the 50%a 59% increase in deposit balances from March 31,June 30, 1996 to
March 31,June 30, 1997. The majority of service charges on deposit accounts relates to
customary fees on accounts in overdraft positions and for returned items on an
account. The level of service charges received on deposit accounts is
substantially below peer group levels as management believes in the philosophy
of providing high quality service without encumbering that service with numerous
activity charges.
That philosophy has contributed to the growth in
retail deposits.
Trust fees increased 34%19% to $154,000$309,000 from $115,000$259,000 for the threesix months ended March 31,June
30, 1997 and 1996, respectively. The continuing efforts of the trust management
team to establish new account relationships and the "hands on"to provide high quality customer
service provided to our trust customers has resulted in a steady increase in trust fees.
Management anticipates adding additional trust
departments to existing banks during the remainder of 1997 and during 1998.
- 11 -
Other noninterest income in 1997 increased to $679,000$714,000 from $155,000$121,000 one year
earlier. The increase is primarily related to the settlement of a lawsuit.
Excluding the impact of such settlement, other noninterest income remained
relatively stable.
- 11 -
NONINTEREST EXPENSE
Total noninterest expense increased approximately $1.4$1.6 million, or 28%14%, to $6.4$12.8
million for the first threesix months of 1997, as compared to $5.0$11.2 million in the
same period of 1996. The following table presents noninterest expenses by
category (in thousands):
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED MARCH 31,
--------------------------------------JUNE 30,
--------------------------------------- ----------------------------------------
1997 1996 1997 1996
----------------- ---------------- ------------------- -----------------
Salaries and employee benefits $ 3,456 $2,4976,869 $ 5,251 $ 3,413 $ 2,754
Net occupancy expense 482 398937 736 455 338
Data processing 321 223643 357 322 134
Advertising and marketing 296 141572 428 276 287
Other 1,799 1,6993,757 4,405 1,958 2,706
----------------- ---------------- ------------------- -----------------
Total noninterest expense $6,354 $4,958$ 12,778 $ 11,177 $ 6,424 $ 6,219
================= ================ =================== =================
Salaries and employee benefits increased 31% to $3.5$6.9 million for the threesix months
ended March 31,June 30, 1997 as compared to $2.5with $5.3 million for the same period of the
prior year. The increase of approximately $1.0$1.6 million is partially the result
of one additional bank (Barrington), twoone additional full-service branch banking
facilities (locatedfacility located in Winnetka, Illinois and Clarendon Hills, Illinois),Illinois and a drive-up banking facility in
Lake Forest that were in the operations of the first quarterhalf of 1997 but that were
not operational during the first quarterhalf of 1996. Barrington accounted for $0.3$0.5
million of the salaries and employee benefits expense in the first quarterhalf of 1997 and the additional branch banking
facilities contributed approximately $0.2 million to the increase.1997.
In addition to the increased staffing to support the new banking facilities, the
growth in deposit and loan accounts at the previously existing banking locations
required additional staffing to maintain our standard of excellent customer service.staffing. Also, contributing to the increase in salaries
were normal salary increases.
Occupancy expenses increased $84,000,$201,000 or 21%27%, for the threesix months ended March
31,June 30,
1997 to $482,000$937,000 from $398,000$736,000 for the same period of 1996, due primarily to the
addition of Barrington and additional branch locations.
The Company performs
significant research into the demographic nature of a location before entering a
new community with a physical banking presence. Management believes the
communities have embraced our commitment to the true community banking concept
as evidenced by the significant growth in deposits subsequent to the opening of
each of these new facilities.
For the threesix months ended March 31,June 30, 1997, data processing expenses increased by
$98,000$286,000 to $321,000,$643,000, or 44%80%, over the first threesix months of 1996. Data processing
expenses are highly dependent on the number of accounts processed by the Banks.
As a result, the increase ofincreases in deposit and loan balances from the year-ago level
of approximately 50%59% and 89%80%, respectively, waswere the primary reason for increase
in this expense category. - 12 -
Additionally, the first threesix months of 1997 included
data processing costs for Barrington which opened in December 1996.
Advertising and marketingMarketing expenses increased to $296,000$572,000 for the first threesix months of 1997
compared to $141,000$428,000 for the first three monthshalf of 1996. Wintrust
considers effective marketing to be a cornerstone of establishing effective
market share in the communities served. The Company's strategy in establishing
new banking locations is to develop community oriented deposit and loan products
to attract its deposit base and achieve a relatively high level of penetration
into the communities' population of households. Accordingly, the continued growth in banking
locations caused the level of marketing expenses to increase. Management
anticipates that similar levels of marketing expense will be incurred in future
quarters as Wintrust continues to establish its base of customers and promotes
the opening of additional banking locations.
Other noninterest expenses increaseddecreased by $100,000,$648,000 or 6%15%, to $1.8$3.8 million for the
threesix months ended March 31,June 30, 1997 from $1.7$4.4 million for the first threesix months of
1996. This category of expenses contains insurance expense, stationary and
supplies expense, postage expense, legal fees, audits and examinations expense,
amortization of
- 12 -
organizational costs, and other sundry expenses. The 6% increasedecrease in this category
is a general increaseprimarily due to a $849,000 accrual for non-recurring expenses in the higher volumesecond
half of accounts
outstanding at1996 related to the banking subsidiaries.merger that resulted in the consolidated Wintrust
entity.
Despite the increases in various noninterest expense categories during the first
three monthshalf of 1997 compared to 1996, Wintrust's ratio of noninterest expenses to total
average assets declined to 3.5%3.3% in 1997 from 4.0% inthe 1996 level of 4.1% excluding
non-recurring merger expenses, reflecting management's commitment to maintaining
low overhead costs while providing superior customer service. Additionally,
Wintrust's net overhead ratio of 2.6%2.7% for the threesix months ended March 31,June 30, 1997 is
approximately the same as Wintrust's peer group. Thus, despite the significant expansion of banking
operations over the last year, the Company has controlled its noninterest
expenses in a fashion that is comparable to bank holding companies in its peer group.
INCOME TAXES
The Company recorded an income tax benefit of $918,000$1.6 million for the first three
monthshalf of
1997, whereas an income tax expense of approximately $82,000$145,000 was recorded in
the same period of 1996. Prior to the merger date of September 1, 1996, each of
the merging companies except Lake Forest had net operating losses and, based
upon the start-up nature of the organization, there was not sufficient evidence
to justify the full realization of the net deferred tax assets generated by
those losses. Accordingly, during 1996, certain valuation allowances were
established against deferred tax assets with the combined result being that a
minimal amount of federal tax expense or benefit was recorded. As the entities
become profitable, the recognition of previously unvalued tax loss benefits are
available, subject to certain limitations, to offset tax expense generated from
profitable operations. The income tax benefit recorded in 1997 reflected
management's determination that certain of the Company's subsidiariessubsidiaries' earnings history
and projected future earnings were sufficient to make a judgment that the
realization of a portion of the net deferred tax assets not previously valued
was more likely than not to occur.
- 13 -
FINANCIAL CONDITION
INTEREST-EARNING ASSETS
Wintrust's consolidated total assets at March 31,June 30, 1997 were $764.6$856.9 million, an
8%a 21%
increase from the prior year-end level of $706.0 million, and a 47%56% increase
from the March 31,June 30, 1996 level of $550.3 million as a result of strong deposit
growth. Total loans at March 31,June 30, 1997 were $566.9$650.1 million, an increase of $74.3$157.5
million, or 15%32%, from year-end, and an increase of $267.1$289.0 million or 89%80% from
the level one year ago. As can be seen from the table below, the growth in the
loan portfolio has been diversified amongst all categories of loans with each
categories' percentage to total earning assets staying relatively constant.
However, the level of premium finance loans in relation to total earning assets
has increased more than other earning assets since the prior year-end. The
increase in premium finance receivables reflects the change to internally
financing First Premium loans by the Company's banking subsidiaries from being
sold through a securitization facility as was done during the first three
quarters of 1996.
At March 31,June 30, 1997, total securities and other money market investments (i.e.
federal funds sold and interest-bearing deposits with banks) were $129.0$123.1
million, down 2%7% from $132.0 million at December 31, 1996, and 27%13% lower than
their year-ago level.level of $142.1 million. The decline in securities and money
market investments is a result of funds being invested in the previously
mentioned growth in the loan portfolio. As of March 31,June 30, 1997, total securities
and money market investments were comprised of 25%18% in U.S. Treasury and
government agency securities, 12%2% in short-term interest-bearing deposits with
banks, 36%46% in overnight federal funds sold, and 27%34% in other debt and equity
securities. As a result of the significant growth in deposit and loans, it has
been Wintrust's policy to maintain its investment portfolio in short-term,
liquid, and diversified high credit quality investments. Wintrust maintained no
trading account securities at March 31,June 30, 1997 or in any of the other previous
reporting periods.
The following table sets forth Wintrust's end of period earning assets by
category and their respective balance and percent of total earning assets.
MARCH 31,JUNE 30, 1997 December 31, 1996 March 31,June 30, 1996
----------------------------- -----------------------------------------------------------
Loans: BALANCE PERCENT Balance Percent Balance Percent
--------------- ------------- -------------------------------------------- --------------
Commercial $199,323and commercial
real estate $221,162 29% $182,403 29% $121,404 26%$150,251 30%
Premium finance 126,543 16 57,453 9 11,988 2
Home equity 91,832102,574 13 87,303 14 59,288 1268,978 14
Indirect auto 98,650 14113,651 15 89,999 15 43,428 962,699 13
Residential real estate 55,087 858,351 7 51,673 8 12,654 3
Premium finance 94,503 14 57,45346,886 9
13,127 3
Other 27,49927,804 4 23,717 4 49,872 1020,291 4
--------------- ------------- -------------------------------------------- --------------
Total loans 566,894 82650,085 84 492,548 79 299,773 63361,093 72
--------------- ------------- -------------------------------------------- --------------
Federal funds sold, money
market deposits and securities 128,971 18123,110 16 131,955 21 176,510 37142,116 28
--------------- ------------- -------------------------------------------- --------------
Total earning assets $695,865$773,195 100% $624,503 100% $476,283$503,209 100%
=============== ============= ============================================ ==============
- 14 -
DEPOSITS
Total deposits at March 31,June 30, 1997 were $682.2$772.2 million or 50%59% higher than the
year-ago level of $455.2$484.3 million and 10%25% higher than the year-end 1996 level of
$618.0 million. The following table sets forth the composition of the deposit
balances by category and those categories' relative percentage of the total
deposits as of the date specified.
MARCH 31,JUNE 30, 1997 December 31, 1996 March 31,June 30, 1996
----------------------------- ----------------------------- -----------------------------
PERCENT Percent Percent
BALANCE OF TOTAL Balance of Total Balance of Total
----------------------------- ----------------------------- -----------------------------
Demand $ 74,850 11%72,137 9% $ 67,164 11% $ 47,41654,686 11%
NOW 59,37767,428 9 57,490 9 40,481 946,011 10
Money market 122,195135,152 18 105,508 17 82,679 1877,913 16
Savings 57,001 856,779 7 63,469 10 51,06155,696 11
Certificates of deposit 368,770 54440,678 57 324,398 53 233,591 51249,954 52
----------------------------- ----------------------------- -----------------------------
Total $ 682,193$772,174 100% $ 618,029 100% $ 455,228$484,260 100%
============================= ============================= =============================
The continued growth in deposit accounts for the threesix months ended March 31,June 30, 1997
is due primarily to the Company's desire tonew markets served, new facilities and increase in
market share in communities they serve and to establishing market share in communities which
were previously lacking a true community managed bank, that is, banks with local
management and boards of directors. Specifically, the opening of Barrington in
December 1996 and its growth in deposits contributed to the increase during
1997. As each of the new banking locations is opened, special deposit account
promotions are offered to the households in those communities. Customers who
open a combination of accounts (generally a combination of an interest-bearing
and a non-interest bearing account) during the initial months of operations are
afforded special privileges as a "founder" depositor of the bank. These
privileges customarily include rights to receive free safe deposit boxes,
favorable loan and deposit rates as compared to stated market rates, and other
selected perquisites. This "founder" account has been highly successful with the
most popular interest-bearing account option being the certificate of deposit
account. The banks continue to aggressively promote their products to the
communities they serve and attempt to meld the competitive products with
superior customer service. The result has been and should continue to be growth
in all deposit categories.served.
SHAREHOLDERS' EQUITY
Shareholders' equity grew to $63.5$65.0 million at March 31,June 30, 1997, from $42.6 million
at December 31, 1996. The primary components of the change in shareholders'
equity are the additional issuance of equity capital through ana common stock
offering of $20.1$20.4 million and the year-to-date net income of approximately $0.7$1.9
million. The proceeds of the stock offering in the first quarter were used to
retire debt and for general corporate purposes.
During the first quarterhalf of 1997, the Company completed its direct subscription and
community offering of its Common Stock. The aggregate sale was 1,377,5121,397,512 shares
of common stock at a price of $15.50 per share, including 400,000420,000 shares which
were underwritten by EVEREN Securities, Inc. The net proceeds (gross proceeds
less issuance costs) from the sale of these shares were approximately $20.1$20.4
million. Also, subsequent
- 15 -
to March 31, 1997, an additional 20,000 shares were sold to EVEREN Securities,
Inc., at a price of $15.50 per share, under an option provided by the Company in
conjunction with the previously underwritten shares.
The following table reflects various consolidated measures of capital at March
31,June
30, 1997 and December 31, 1996:
s
MARCH 31,JUNE 30, December 31,
1997 1996
---------------------- -------------------
Leverage ratio 8.5%7.9% 6.4%
Ending tier 1 capital to risk-adjusted asset ratio 10.1%8.7% 7.3%
Ending total capital to risk-adjusted asset ratio 10.8%9.4% 8.0%
Dividend payout ratio 0.0% 0.0%
The Company's consolidated leverage ratio (Tier 1 capital less
intangibles/average quarterly assets less intangibles) was 8.5% at March 31,7.9% June 30, 1997
which places the Company above the "well capitalized" regulatory level.
Consolidated Tier 1 and total risk-based capital ratios were also above the
"well capitalized" regulatory levels at
10.1%- 15 -
8.7% and 10.8%9.4%, respectively. Based on guidelines established by the Federal
Reserve Bank, a bank holding company is required to maintain a Tier 1 capital to
risk-adjusted asset ratio of 4.0% and a total capital to risk-adjusted asset
ratio of 8.0%. Management is not aware of any known trends, events, regulatory
recommendations or uncertainties that will have any adverse effect on Wintrust's
capital resources.
ASSET QUALITY
Allowance for Possible Loan Losses
- ----------------------------------
A reconciliation of the activity in the balance of the allowance for possible
loan losses for the six and three month periods under review is shown as follows
(dollars in thousands):
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED MARCH 31,
-------------------------------------------JUNE 30,
------------------------------------- --------------------------------------
1997 1996 ------------------ -------------------1997 1996
---------------- ---------------- ----------------- -----------------
Balance at beginning of period $ 3,636 $ 2,763$3,636 $2,763 $4,073 $2,961
Provision for possible loan losses 679 4101,554 893 875 483
Charge-offs (265) (216)(787) (282) (522) (66)
Recoveries 2329 4 ------------------ -------------------6 --
---------------- ---------------- ---------------- ----------------
Balance at March 31 $ 4,073 $ 2,961
================== ===================June 30 $4,432 $3,378 $4,432 $3,378
================ ================ ================ ================
Loans at March 31 $ 566,894 $ 299,773
================== ===================June 30 $650,085 $361,093
================ ================
Allowance as a percentage of loans 0.72% 0.99%
================== ===================0.68% 0.94%
================ ================
Annualized net charge-offs
as a percentage of :
Loans 0.17% 0.28%
================== ===================0.23% 0.15%
================ ================
Annualized provision for possible
loan losses 35.64% 51.71%
================== ===================48.78% 31.13%
================ ================
- 16 -
Management believes that the loan portfolio is well diversified and well
secured, without undue concentration in any specific risk area. Control of loan
quality is continually monitored by management and is reviewed by the Board of
Directors and its Credit Committee on a monthly basis. Independent external
review of the loan portfolio is provided by the examinations conducted by
regulatory authorities, independent public accountants in conjunction with their
annual audit, and an independent loan review performed by an entity engaged by
the Board of Directors. The amount of additions to the allowance for possible
loan losses which are charged to earnings through the provision for possible
loan losses are determined based on a variety of factors, including actual
charge-offs during the year, historical loss experience, delinquent loans, and
an evaluation of current and prospective economic conditions in the market area.
Management believes the allowance for possible loan losses is adequate to cover
any potential losses.
Loan losses related to commercialCommercial insurance premium financing are minimal since
theyloans are generally fully secured by unearned
insurance premiums. If a borrower defaults, First Premium seeks to obtain a
refund of unearned premiums from the insurer. First Premium bears the credit
risk of collections from the insurer. In the event an insurer becomes insolvent
and
- 16 -
unable to pay claims to an insured or refund unearned premiums upon
cancellation of a policy to a finance company, each state provides a state
guaranty fund that will pay such a refund, less a per claim deductible in
certain states. First Premium diversifies its financing activities among a wide
range of brokers and insurers.
Past Due Loans and Non-performing Assets
- ----------------------------------------
The following table presents the Company's non-performing assets as of March 31,June 30,
1997 and December 31, 1996.
MARCHJUNE 30, March 31, December 31,
1997 1997 1996
------------------- ----------------- -------------------
Nonaccrual loans $ 849 $ 977 $ 1,686
Loans past due 90 days or more 969 979 95
Restructured loans - - -
------------------- ----------------- -------------------
Total non-performing loans 1,818 1,956 1,781
Other real estate owned - - -
------------------- ----------------- -------------------
Total non-performing assets $1,818 $ 1,956 $ 1,781
=================== ================= ===================
Total non-performing loans to total loans 0.28% 0.35% 0.36%
Total non-performing assets to total assets 0.21% 0.26% 0.25%
Nonaccrual loans to total loans 0.13% 0.17% 0.34%
As of March 31, 1997, theThe allowance for possible loan losses as a percentage of non-performing loans
was 208%.0.68% as of June 30, 1997, compared to 0.72% at March 31, 1997 and 0.74% at
December 31, 1996. Management believes the allowance for possible loan losses is
adequate to cover any potential losses.
As of March 31,June 30, 1997, two individual credits represent approximately $1.3$0.9 million
of the total non-performing assets. The remaining $0.6$0.9 million of non-performing
assets are generally comprised of insurance premium finance loans, small
consumer and
- 17 -
auto loan delinquencies, loans secured by residential real estate
and commercial loans that are partially secured by residential real estate
properties. Due to
the small numberWith a low level of loans past due loans, collection of the loans is
very manageable and management is vigorously pursuingpursues the full collection of each account.
The recorded investment in loans considered to be impaired under SFAS No. 114,
at March 31,June 30, 1997 and December 31, 1996 was approximated $1.5$0.9 million and $1.4
million, respectively, for which no specific allowance for possible loan losses
was required in accordance with SFAS No. 114.
Potential Problem Loans
- -----------------------
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 problem loan identification system which exhibit a
higher than normal credit risk. However, these loans do not represent
non-performing loans to the Company. Management's review of the total loan
portfolio to identify loans where there is concern that the borrower will not be
able to continue to satisfy present loan repayment terms includes factors such
as review of individual loans, recent loss experience and current economic
conditions. Loans in this category include those with characteristics such as
those past maturity more than 45 days, those that have recent adverse operating
cash flow
- 17 -
or balance sheet trends, or have general risk characteristics that the loan
officer feels might jeopardize the future timely collection of principal and
interest payments. The principal amount of loans in this category as of March 31,June 30,
1997 and December 31, 1996 were approximately $1.3$2.1 million and $1.1 million,
respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Wintrust manages the liquidity position of its banking operations to ensure that
sufficient funds are available to meet customers' needs for loans and deposit
withdrawals. The liquidity to meet the demand is provided by maturing assets,
liquid assets that can be converted to cash, and the ability to attract funds
from external sources. Liquid assets refer to federal funds sold and to
marketable, unpledged securities which can be quickly sold without material loss
of principal.
Interest rate sensitivity is the fluctuation in earnings resulting from changes
in market interest rates. Wintrust continuously monitors not only the
organization's current net interest margin, but also the historical trends of
these margins. In addition, Wintrust also attempts to identify potential adverse
swings in net interest income in future years, as a result of interest rate
movements, by performing computerized simulation analysis of potential interest
rate environments. If a potential adverse swing in net interest margin and/or
net income are identified, Wintrust then would take appropriate actions within
its asset/liability structure to counter these potential adverse situations.
Please refer to the section entitled "Net Interest Income""NET INTEREST INCOME" for further
discussion.
INFLATION
A banking organization's assets and liabilities are primarily monetary. Changes
in the rate of inflation do not have as great an impact on the financial
condition of a bank as do changes in interest rates. Moreover, interest rates do
not necessarily change at the same percentage as does inflation. An analysis of
a banking organization's asset and liability structure provides the best
indication of how a banking organization is positioned to respond to changing
interest rates and maintain profitability.
- 18 -
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128:
- ---------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128).
SFAS No. 128 supersedes APB Opinion 15, "Earnings Per Share," and specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS) for entities with publicly held common stock or potential common stock.
SFAS No. 128 was issued to simplify the computations of EPS and to make the
United States standard more compatible with EPS standards of the International
Accounting Standards Committee. It replaces the presentation of primary and
fully-diluted EPS, respectively. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
- 18 -
Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully-diluted EPS under APB 15.
SFAS No. 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997 and is not expected to have a material
impact on the Company.
Statement of Financial Accounting Standards No. 129:
- -------------------------------------------------------------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" (SFAS No. 129). SFAS No. 129 provides required disclosures for the
capital structure of companies and is effective for financial statements for
periods ending after December 15, 1997. The required disclosures had been
included in a number of separate statements and opinions. As such, the issuance
of SFAS No. 129 is not expected to require significant revision of prior
disclosures.
Statement of Financial Accounting Standards No. 130:
- ---------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130). SFAS No. 130 was issued to address concerns over the practice of
reporting elements of comprehensive income directly in equity. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS No. 130
requires all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed in equal prominence with the other financial statements. The
statement does not require a specific format for that financial statement but
requires that a company display an amount representing total comprehensive
income for the period in that financial statement. SFAS No. 130 is effective for
both interim and annual financial statements for periods beginning after
December 15, 1997. Comparative financial statements provided for earlier periods
are required to be reclassified to reflect the provisions of this statement.
Statement of Financial Accounting Standards No. 131:
- ---------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 was issued in
response to requests from financial statement users for additional and better
segment information. The statement requires a variety of disclosures to better
explain and reconcile segment data so that a user of the financial statements
can be better enabled to understand the information and its limitations within
the context of the consolidated financial statements. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated, unless it is impracticable to do so. SFAS No. 131 need not be applied
to interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
shall be reported in financial statements for interim periods in the second year
of application.
- 19 -
FORWARD -LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Such forward-looking statements may be
deemed to include, among other things, statements relating to anticipated
improvements in financial performance and management's long-term performance
goals, as well as statements relating to the Company's business and growth
strategies, including anticipated internal growth, plans to form additional de
novo banks and new branch offices, and to pursue additional potential
development or acquisition of specialty finance businesses. Actual results could
differ materially from those addressed in the forward-looking statements as a
result of the following factors:
* 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 and branching
operations. Management believes that de novo banks may typically require 18
months to three years of operations before becoming profitable, due to the
impact of organizational and overhead expenses, the startup phase of
generating deposits and the time lag typically involved in redeploying
deposits into attractively priced loans and other higher yielding earning
assets.
* 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.
* Although management believes the allowance for loan losses is adequate to
absorb losses on any existing loans that may become uncollectible, there
can be no assurance that the allowance will prove sufficient to cover
actual loan losses in the future.
* If market interest rates should move contrary to the Bank's position on
interest earning assets and interest bearing liabilities, the "gap" will
work against the Banks and their net interest income may be negatively
affected.
* 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.
* The Company's ability to adapt successfully to technological changes to
compete effectively in the marketplace.
* The economic environment may influence growth in loans and deposits.
- 20 -
PART II
ITEMS 1:
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 2: CHANGE IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES.
- -------------------------------------------------------------------------------
In JanuaryApril 1997, as a result of an exercise of stock options, the Company issued
an aggregate of 16,4112,534 shares of Common Stock of the Company in reliance on the
exemption from registration pursuant to Section 4(2) of the Securities Act. An
aggregate of $95,200$31,500 was received as payment for the exercise price.
ITEMS 3:
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 4: MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
None.(a) The Annual Meeting of Shareholders was held on May 22, 1997.
(c) At the Annual Meeting of Shareholders, the following matters were submitted
to a vote of the shareholders:
(1) The election of seven Class I directors to the Board of Directors to
hold office for a three-year term.
Votes
Director Votes For Against Abstentions
-------- --------- ------- -----------
Alan W. Adams 5,094,859 0 29,275
Howard D. Adams 5,096,164 0 27,970
James E. Mahoney 5,104,369 0 19,765
James B. McCarthy 5,104,069 0 20,065
J. Christopher Reyes 5,094,673 0 29,461
Lemuel H. Tate, Jr. 5,103,869 0 20,265
Edward J. Wehmer 5,104,069 0 20,065
(2) To consider a proposal to approve the Wintrust Financial Corporation
1997 Stock Incentive Plan:
Votes
Votes For Against Abstentions
--------- ------- -----------
4,752,539 332,644 38,951
- 21 -
(3) To consider a proposal to approve the Wintrust Financial Corporation
Employee Stock Purchase Plan:
Votes
Votes For Against Abstentions
--------- ------- -----------
4,865,006 209,707 49,421
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
* Computation of Net Income Per Common Share - Exhibit 11
* Financial Data Schedule - Exhibit 27
(b) Reports on Form 8-K.
---------------------------------------
No reports on Form 8-K were filed by the Company during the quarter ended March
31,June
30, 1997.
- 2022 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINTRUST FINANCIAL CORPORATION
(Registrant)
Date: MayAugust 14, 1997 /s/ Edward J. Wehmer
President & Chief Operating Officer
Date: MayAugust 14, 1997 /s/ David A. Dykstra
Executive Vice President
& Chief Financial Officer
(Principal Accounting Officer)
- 2123 -
EXHIBIT INDEX
Exhibit 11 Computation of Net Income Per Common Share
Exhibit 27 Financial Data Schedule
- 2224 -