<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission File Number 333-4645*
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, 6,515,864 shares, as of November 1,
1996.
_____________
* Registrant became subject to requirements to file periodic reports under
the Securities Exchange Act of 1934 as a result of the registration of its
securities on Form S-4, which registration statement became effective on
July 30, 1996 (Registration No. 333-4645).
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<PAGE> 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____________________ 7-20
PART II. -OTHER INFORMATION
ITEMS 1-3. These items have been omitted from this Form since
they are inapplicable or would contain a negative
response.______________________________________________ 21
ITEM 4. Matters submitted to a Vote of Security Holders__________ 21
ITEM 5. Other information________________________________________ 21
ITEM 6. Exhibits and Reports on Form 8-K_________________________ 22
Signatures_______________________________________________ 23
Exhibit Index____________________________________________ 24
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WINTRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
September 30 December 31 September 30
Assets 1996 1995 1995
------ ------------ ----------- ------------
<S> <C> <C> <C>
Cash and due from banks-noninterest bearing . . . . $ 19,753 $ 12,622 $ 8,069
Federal funds sold. . . . . . . . . . . . . . . . . 52,033 55,812 29,331
Interest-bearing deposits with banks. . . . . . . . 25,100 50,600 37,100
Available-for-sale securities, at market value. . . 69,022 57,888 51,319
Held-to-maturity securities, at amortized cost. . . 5,002 5,002 5,002
Loans . . . . . . . . . . . . . . . . . . . . . . . 414,405 258,231 218,730
Less: Allowance for possible loan losses. . . . . 3,749 2,763 2,224
-------- -------- --------
Net loans . . . . . . . . . . . . . . . . . . . . 410,656 255,468 216,506
Premises and equipment, net . . . . . . . . . . . . 28,410 23,999 19,156
Accrued interest receivable and other assets. . . . 10,818 8,918 9,415
Goodwill and organizational costs . . . . . . . . . 470 581 245
-------- -------- --------
Total assets. . . . . . . . . . . . . . . . . . . . $621,264 $470,890 $376,143
======== ======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits:
Noninterest bearing . . . . . . . . . . . . . . . $ 55,523 $ 45,869 $ 32,997
Interest bearing. . . . . . . . . . . . . . . . . 493,780 359,789 289,519
-------- -------- --------
Total deposits. . . . . . . . . . . . . . . . . 549,303 405,658 322,516
Short-term borrowings . . . . . . . . . . . . . . . 1,812 867 1,132
Notes and loans payable . . . . . . . . . . . . . . 16,554 10,758 13,028
Other liabilities . . . . . . . . . . . . . . . . . 12,810 13,120 10,724
-------- -------- --------
Total liabilities . . . . . . . . . . . . . . . 580,479 430,403 347,400
-------- -------- --------
Shareholders equity
Preferred stock . . . . . . . . . . . . . . . . . 0 503 503
Common stock. . . . . . . . . . . . . . . . . . . 6,516 5,831 4,928
Surplus . . . . . . . . . . . . . . . . . . . . . 51,681 50,053 40,570
Convertible warrants. . . . . . . . . . . . . . . 75 75 75
Retained deficit. . . . . . . . . . . . . . . . . (17,511) (15,990) (17,354)
Unrealized gains on available-for-
sale securities, net of tax . . . . . . . . . . 24 15 21
-------- -------- --------
Total shareholders equity . . . . . . . . . . . 40,785 40,487 28,743
-------- -------- --------
Total liabilities and shareholders equity . . . . . $621,264 $470,890 $376,143
======== ======== ========
</TABLE>
1
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<PAGE>
<TABLE>
WINTRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
"PERIODS ENDED SEPTEMBER 30, 1996 and 1995"
(In thousands except per share data)
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . $27,398 $18,022 $10,174 $6,452
Interest expense. . . . . . . . . . . . . 17,011 11,124 6,232 3,941
------- ------- ------- ------
Net interest income . . . . . . . . . . . 10,387 6,898 3,942 2,511
Provision for possible loan losses. . . . 1,344 770 451 268
------- ------- ------- ------
Net interest income after provision for
possible loan losses. . . . . . . . . . 9,043 6,128 3,491 2,243
------- ------- ------- ------
Noninterest income. . . . . . . . . . . . 5,838 5,604 1,970 1,845
Securities gains, net . . . . . . . . . . 18 0 0 0
------- ------- ------- ------
Total noninterest income. . . . . . . . . 5,856 5,604 1,970 1,845
------- ------- ------- ------
Noninterest expense . . . . . . . . . . . 15,605 10,797 5,339 3,950
Merger related expenses . . . . . . . . . 849 0 0 0
------- ------- ------- ------
Total noninterest expense . . . . . . . . 16,454 10,797 5,339 3,950
------- ------- ------- ------
Income before income taxes. . . . . . . . (1,555) 935 122 138
Income tax expense (benefit). . . . . . . (34) (198) (179) 22
-------- ------- ------- ------
Net income (loss) . . . . . . . . . . . . $(1,521) $ 1,133 $ 301 $ 116
======== ======= ======= ======
Net income (loss) per common share. . . . $ (0.25) $ 0.20 $ 0.04 $ 0.02
======== ======= ======= ======
Weighted average common shares and
common share equivalents outstanding . . 5,992 5,571 6,846 5,665
======= ======= ======= ======
</TABLE>
2
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<PAGE>
<TABLE>
WINTRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
(In thousands)
<CAPTION>
Net
unrealized
gain (loss)
Retained on securities Total
Preferred Common Convertible earnings available shareholders'
stock stock Surplus warrants (deficit) for sale equity
--------- ------ ------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 . . . . . . . . $ 503 $4,745 $38,621 $75 ($18,442) ($136) $25,366
Common stock issuance. . . . . . . . . . . . - 183 1,949 - - - 2,132
Dividends on preferred stock . . . . . . . . - - - - (45) - (45)
Net income . . . . . . . . . . . . . . . . . - - - - 1,133 - 1,133
Change in unrealized gain on securities
available-for-sale, net of tax effect . . . - - - - - 157 157
----- ------ ------- ----- -------- ------ -------
Balance at September 30, 1995 (unaudited). . $503 $4,928 $40,570 $75 ($17,354) $21 $28,743
===== ====== ======= ===== ======== ====== =======
Balance at December 31, 1995 . . . . . . . . $503 $5,831 $50,053 $75 ($15,990) $15 $40,487
Common stock issuance. . . . . . . . . . . . - 567 1,298 - - - 1,865
Conversion of preferred stock. . . . . . . . (503) 122 381 - - - 0
Repurchase of common stock . . . . . . . . . - (4) (44) - - - (48)
Net loss . . . . . . . . . . . . . . . . . . - - - - (1,521) - (1,521)
Cash value of fractional shares. . . . . . . - - (7) - - - (7)
Change in unrealized gain on securities
available-for-sale, net of tax effect. . . - - - - - 9 9
----- ------ ------- ----- -------- ------ -------
Balance at September 30, 1996 (unaudited). . $0 $6,516 $51,681 $75 ($17,511) $24 $40,785
===== ====== ======= ===== ======== ====== =======
</TABLE>
3
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WINTRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months ended September 30,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Operating Activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . $ (1,521) $ 1,133
Adjustments to reconcile net income (loss) to net cash
used for, or provided by, operating activities:
Provision for possible loan losses . . . . . . . . . . . . . 1,344 770
Depreciation and amortization. . . . . . . . . . . . . . . . 1,036 627
Amortization of goodwill and organizational costs. . . . . . 111 304
Deferred income tax benefit. . . . . . . . . . . . . . . . . (34) (198)
Increase in other assets, net. . . . . . . . . . . . . . . . (1,866) (993)
Decrease in other liabilities, net . . . . . . . . . . . . . (301) (325)
--------- ---------
Net Cash (Used for) Provided by Operating Activities . . . . . . (1,231) 1,318
--------- ---------
Investing Activities:
Proceeds from maturities of Available-for-Sale securities. . . 403,342 162,331
Proceeds from sales of Available-for-Sale securities . . . . . 498 0
Purchases of securities. . . . . . . . . . . . . . . . . . . . (414,974) (157,106)
Net decrease in interest bearing deposits. . . . . . . . . . . 25,500 5,099
Net increase in loans. . . . . . . . . . . . . . . . . . . . . (156,532) (24,996)
Purchases of premises and equipment, net . . . . . . . . . . . (5,447) (6,245)
--------- ---------
Net Cash Used for Investing Activities . . . . . . . . . . . . . (147,613) (20,917)
--------- ---------
Financing Activities:
Increase in deposit accounts . . . . . . . . . . . . . . . . . 143,645 100,531
Increase (decrease) in short-term borrowings, net . . . . . . 945 (91,727)
Increase in notes payable. . . . . . . . . . . . . . . . . . . 5,796 10,286
Repurchase of common stock . . . . . . . . . . . . . . . . . . (48) 0
Cash value of fractional shares upon exchange of shares. . . . (7) 0
Issuance of common shares. . . . . . . . . . . . . . . . . . . 1,865 2,132
Cash dividends paid on preferred shares. . . . . . . . . . . . 0 (45)
--------- ---------
Net Cash Provided by Financing Activities. . . . . . . . . . . . 152,196 21,177
--------- ---------
Net Increase in Cash and Cash Equivalents. . . . . . . . . . . . 3,352 1,578
Cash and Cash Equivalents at Beginning of Period . . . . . . . . 68,434 35,822
--------- ---------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . $ 71,786 $ 37,400
========= =========
</TABLE>
4
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WINTRUST FINANCIAL CORPORATION
NOTES TO 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.
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. Operating results for the nine-
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
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
capitalized mortgage servicing rights for impairment by comparing the
recorded book value to the fair value of those rights. Wintrust
prospectively adopted the provisions of SFAS No. 122 as of January 1, 1996.
The impact of adopting SFAS No. 122 was not material to the consolidated
financial statements.
(3) Statement of Financial Accounting Standard No. 114 and No. 118:
--------------------------------------------------------------
Effective January 1, 1995, the Company adopted 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." 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
5
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<PAGE>
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. The adoption of the SFAS No. 114 and SFAS No. 118
had no effect on the Company's nonperforming assets or financial
statements.
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) 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.
(5) Per Common Share Data:
---------------------
Net income per common share is computed by dividing net income available to
common shareholders by the weighted average number of common shares and
common share equivalents outstanding during the respective periods.
6
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<PAGE>
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 September 30, 1996, Wintrust owned four bank
subsidiaries ("Banks"), all of which were 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").
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.
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 six 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, and
Libertyville began banking operations in December 1991, October 1993,
September 1994 and October 1995, respectively. Subsequent to those initial
dates of operations, each of the banks, except Libertyville, 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 brokers on a national basis for commercial customers. Since its
commencement of operations, First 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 segments it serves.
The management of Wintrust presents the following discussion and analysis
of its financial condition as of September 30, 1996 compared with December
31, 1995 and September 30, 1995 and the results of operations for the
periods ending September 30, 1996 and 1995. This discussion should be read
in conjunction with Wintrust's unaudited consolidated financial statements
contained in this report.
7
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<PAGE>
Overview
--------
Wintrust reported net income for the quarter ended September 30, 1996 of
$301,000 compared to 1995's third quarter earnings of $116,000. For the
first nine months of 1996, Wintrust recorded a net loss of approximately
$1.5 million, which includes approximately $850,000 of nonrecurring merger
related expenses. Comparatively, earnings for the first nine months of
1995 were approximately $1.1 million.
The net loss for the first nine months of 1996 excluding the nonrecurring
merger related expenses was approximately $671,000. Significant factors
that contributed to this net loss were:
(1) Wintrust began full service banking operations in (a)
Libertyville, Illinois via a newly chartered de novo bank during October
1995; (b) Glencoe, Illinois in October 1995 via a full service branch
banking facility; (c) Winnetka, Illinois in May 1996 via a full service
branch banking facility; (d) Clarendon Hills, Illinois in August 1996 via a
full service branch banking facility. 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 a full service banking operation, as
has been typical during the first twelve to fifteen months of the Company's
start-up banking operations.
(2) During February 1995, First Premium restructured its
securitization facility which dictated different accounting treatment for
loans sold pursuant to the securitization facility. The new structure
permitted First Premium to record gains on receivables sold to an
independent third party at the time of sale rather than recording the
income over the life of the loan. As a result, a one-time gain of
approximately $763,000 was recorded in February of 1995 when existing loans
were sold to the new securitization facility. Accordingly, earnings in
1995 were positively impacted by the accounting required from the change in
the securitization facility structure; whereas, earnings in 1996 had no
such one-time gain recognition. Also, First Premium incurred approximately
$312,000 in legal fees related to the collection of a significant
nonperforming asset during the first nine months of 1996. The lawsuit
seeks principal, interest, late charges and attorney fees due First Premium
from a variety of defendants and insurance carriers. Management believes
the ultimate result of its legal action in this matter will result in a
favorable settlement to First Premium.
The following table highlights the net income (loss) contribution of
Wintrust's banking and finance subsidiaries, before intercompany
eliminations and before the impact of the nonrecurring merger related
expenses (in thousands):
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Banking subsidiaries....... $ (361) $ 201 $(44) $ 84
Finance subsidiary......... (310) 932 345 32
Merger related expenses.... (850) - - -
------- ------ ---- ----
$(1,521) $1,133 $301 $116
======= ====== ==== ====
</TABLE>
8
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<PAGE>
Total assets grew $150.4 million, or 31.9% to $621.3 million as of
September 30, 1996 compared to December 31, 1995. During the first nine
months of 1996, deposits grew $143.6 million, up 35.4 % from December 31,
1995. Loans increased $156.2 million during the first nine months of 1996,
up 60.5 % from December 31, 1995. Shareholders' equity increased $298,000,
up slightly from December 31, 1995.
The following table sets forth the total assets of Wintrust's banking and
finance subsidiaries, before intercompany eliminations (in thousands):
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Banking subsidiaries.............. $602,258 $451,608 $356,950
Finance subsidiary................ 18,816 18,828 18,731
Parent company and eliminations... 190 454 462
-------- -------- --------
$621,264 $470,890 $376,143
======== ======== ========
</TABLE>
Wintrust operates in two primary business segments (as defined in SFAS No.
14 - "Financial Reporting for Segments of Business Enterprise"), banking
and commercial insurance premium financing. Organizational earnings by
business segment, as presented above, are impacted by allocations of parent
company revenues and expenses such as interest on borrowings and corporate
overhead allocation. The allocations are based on various estimates based
upon assets, revenues and employees. Results by business segments would
change if different methods were applied.
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).
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------- -----------------
1996 1995 1996 1995
---- ---- ---- -----
<S> <C> <C> <C> <C>
Interest income.................. $ 27,398 $ 18,022 $ 10,174 $ 6,452
Taxable equivalent adjustment.... 28 -- 12 --
-------- --------- -------- --------
Tax equivalent interest income... 27,426 18,022 10,186 6,452
Interest expense................. 17,011 11,124 6,232 3,941
-------- -------- -------- --------
Taxable equivalent net
interest income................ $ 10,415 $ 6,898 $ 3,954 $ 2,511
======== ======== ======== ========
Average earning assets........... $489,130 $299,925 $533,179 $331,912
======== ======== ======== ========
Net interest margin.............. 2.84% 3.07% 2.97% 3.03%
==== ==== ==== ====
</TABLE>
9
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Wintrust's net interest margin has remained in a range of 2.84% to 3.07%
during the periods under review. The level of the 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 provide competitive 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.
Next, as de novo banking institutions, Wintrust's subsidiary banks have
been cautious to originate high quality loans as opposed to originating
higher yielding loans that bring more credit risk with them. Also,
Wintrust's 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 determined that this method of investing was prudent given de
novo status of the independent banks.
The growth of the deposit base and the short-term investment portfolio was
also contemplated as an appropriate strategy during the pending merger of
the banks and the finance company. Specifically, the finance company had
previously funded its asset 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' deposit base. As such, subsequent to the consummation of the
merger, First Premium has begun to sell a portion of its loan production to
the banks. The sale of the loans to the banks will enable the consolidated
Wintrust entity to enjoy a larger net interest margin as the high yielding
insurance premium loans will remain on the books of the Company using a
lower overall cost of funds. The Company should begin to realize the
synergistic effect of reducing its reliance on the securitization facility
during the fourth quarter of 1996.
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 nine
month periods ended September 30, 1995 and September 30, 1996. 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):
<TABLE>
<CAPTION>
<S> <C>
Fully tax equivalent net interest income for the nine months ended
September 30, 1995................................................ $ 6,898
Change due to average earning assets fluctuations (volume)........ 4,352
Change due to interest rate fluctuations (rate)................... (512)
Change due to rate/volume fluctuations (mix)...................... (323)
-------
Fully tax equivalent net interest income for the nine months ended
September 30, 1996................................................ $10,415
=======
</TABLE>
10
<PAGE>
<PAGE>
NONINTEREST INCOME
Total noninterest income increased approximately $253,000, or 4.5%, to $5.9
million for the first nine months of 1996, as compared to $5.6 million in
the same period in 1995. For the three months ended September 30, 1996,
total noninterest expenses increased to $2.0 million, or by $125,000 over
the same period of 1995. The following table presents noninterest income
by category (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, Three Months Ended Sept. 30,
--------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fees on mortgage loans sold............ $1,023 $ 503 $ 362 $ 251
Gains on sale of premium finance loans. 2,659 3,551 799 1,026
Loan servicing fees.................... 1,035 782 352 311
Service charges on deposit accounts.... 309 187 124 68
Trust fees............................. 412 281 153 107
Securities gains, net.................. 18 - - -
Other income........................... 400 300 180 82
------ ------ ------ ------
Total noninterest income............... $5,856 $5,604 $1,970 $1,845
====== ====== ====== ======
</TABLE>
Gains on the sale of premium finance loans are dependent upon the total
loans financed and sold into the securitization facility. Total loans
financed at First Premium remained relatively steady at $224 million
compared to $225 million for the first nine months of 1996 and 1995,
respectively. However, as mentioned earlier in this document, during
February of 1995, First Premium restructured its securitization facility
which dictated different accounting treatment for loans sold pursuant to
the securitization facility. The new structure permitted First Premium to
record gains on receivables sold to an independent third party at the time
of sale rather than recording the income over the life of the loan. As a
result, a one-time gain of $763,000 was recorded in February of 1995 when
existing loans were sold to the new securitization facility. Accordingly,
earnings in 1995 were positively impacted by the accounting change;
whereas, earnings in 1996 had no such one-time gain recognition. Without
the one-time gain recognition in 1995, the amount of gains recorded were
relatively stable.
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 doubled from $503,000
for the first nine months of 1995 to $1,023,000 for the first nine months
of 1996. Approximately $306,000 of the increase was generated from North
Shore which only began such activities during 1995 but which had a complete
period of loan sales in 1996. Also, Libertyville Bank, which did not open
until the last quarter of 1995, contributed approximately $125,000 during
the first nine months of 1996. The remaining increase came as a result of
a favorable interest rate environment and the efforts of experienced
lenders at Wintrust's other subsidiary banks.
Loan servicing fees increased to $1,035,000 for the first nine months of
1996 compared to $782,000 for the same period of the prior year. This
increase resulted from an increase in the amount of average managed
insurance premiums receivable at First Premium and a change in structure of
the securitization facility. During the first nine months of 1996, average
managed insurance premiums receivable was $111 million. Due to the change
in the structure of the securitization facility in February 1995 whereby
the loans sold into the securitization facility were treated as sales and
thereby subject to receive a servicing fee, the comparable 1995 period had
11
<PAGE>
<PAGE>
only seven months of service fee income on average managed insurance
premium receivables of $102 million.
Service charges on deposit accounts increased by 65% to $309,000 for the
nine months ended September 30, 1996 from $187,000 for the nine months
ended September 30, 1995. The increase is a direct result of the 70%
increase in deposit balances from September 30, 1995 to September 30, 1996.
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 from $281,000 to $412,000 for the nine months ended
September 30, 1995 and 1996, respectively. In early 1995, the trust
department added new senior management to oversee the trust operations,
investments, administration and business development. The new management
team was responsible for generating additional trust business during the
course of 1995 and 1996. The efforts of this new management team and the
"hands on" 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 1997.
Other noninterest income increased by one-third, or $100,000 from the
comparable nine month periods of 1995 to 1996. The increase is related to
the increase in the number of customers served and approximately $49,000
from a gain on the sale of a parcel of property.
NONINTEREST EXPENSE
Total noninterest expense increased approximately $5.7 million, or 52.4%,
to $16.5 million for the first nine months of 1996, as compared to $10.8
million in the same period of 1995. For the three months ended September
30, 1996, total noninterest expenses increased to $5.3 million, or by $1.4
million over the same period of 1995. The following table presents
noninterest expenses by category (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
Sept. 30, Sept. 30,
----------------------- ---------------------
1996 1995 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries and employee benefits......... $ 8,133 $ 5,395 $2,883 $2,171
Net occupancy expense.................. 1,245 723 449 269
Data processing........................ 732 440 260 166
Advertising and marketing.............. 710 367 282 146
Nonrecurring merger related expenses.. 850 - - -
Other.................................. 4,784 3,872 1,465 1,198
------- ------- ------ ------
Total noninterest expense............ $16,454 $10,797 $5,339 $3,950
======= ======= ====== ======
</TABLE>
Salaries and employee benefits increased to $8.1 million for the nine
months ended September 30, 1996 as compared to $5.4 million for the same
period of the prior year. The increase of $2.7 million is a result of (a)
an increase of approximately $700,000 related to Libertyville which only
had organizational phase salaries in 1995 but which had a fully operational
staff during the first nine months of 1996; (b) an increase of $1.1 million
at North Shore as a result of four banking locations that were operational
in 1996 compared to only one banking location during the first nine months
12
<PAGE>
<PAGE>
of 1995. North Shore opened a full service banking facility in Glencoe,
Illinois and a drive-up/walk-up banking facility in Wilmette, Illinois
during the fourth quarter of 1995 and began organizing a full service
banking facility in Winnetka, Illinois during the first quarter of 1996.
The Winnetka facility began full operations during the second quarter of
1996; (c) Hinsdale opened a new drive-up/walk-up facility in the fourth
quarter of 1995 and opened a full service banking operation in Clarendon
Hills, Illinois in August, 1996. Therefore, at Hinsdale, the first nine
months of 1995 only had staffing at one main banking location whereas the
same period of 1996 had multiple locations requiring staffing. 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
top-notch customer service. Also, contributing to the increase in
salaries were normal salary increases and the addition of certain
additional executive officers during mid-1995 and early 1996 to help
manage the Company's growth.
Occupancy expenses increased to $1.2 million for the nine months ended
September 30, 1996 from $723,000 for the same period of 1995. The Company
had six banking facilities and one finance company office operational as of
September 30, 1996. However, as of September 30, 1996, the number of
banking locations more than doubled to 13 physical locations.
Specifically, the opening of the additional facilities in Glencoe,
Wilmette, Winnetka, Hinsdale, Clarendon Hills and the main bank and drive-
up locations in Libertyville accounted for the majority of the increase in
this expense category. 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 nine months ended September 30, 1996, data processing expenses
increased by $292,000, or 66%, over first nine months of 1995. Data
processing expenses are highly dependent on the number of accounts
processed by the Banks. As a result, the increase of deposit and loan
balances of approximately 70% and 89%, respectively, was the primary reason
for increase in this expense category.
Advertising and marketing expenses increased to $710,000 for the first nine
months of 1996 compared to $367,000 for the first nine months of 1995.
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 increase of seven banking locations during
the past twelve months 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,
specifically the opening of a newly chartered bank in Barrington, Illinois
in December 1996.
Nonrecurring merger related expenses were $850,000 through the first nine
months of 1996. The merger of the five entities as discussed earlier in
this report resulted in various legal expenses, accounting and tax related
expenses, printing, and Securities and Exchange Commission filing expenses,
and other applicable expenses to consummate the merger transaction.
Other noninterest expenses increased by $912,000, or 24%, to $4.8 million
for the nine months ended September 30, 1996 from $3.9 million for the
first nine months of 1995. This category of expenses contains insurance
expense, stationary and supplies expense, postage expense, legal fees,
audits and examinations expense, amortization of organizational costs, and
13
<PAGE>
<PAGE>
other sundry expenses. The 24% increase in this category is a general
increase due to the higher volume of accounts outstanding at the banking
subsidiaries. Additionally, First Premium expensed approximately $312,000
in legal fees related to the collection of a significant nonperforming
asset during the first nine months of 1996 compared to approximately
$78,000 in the same period of 1995. The lawsuit seeks principal,
interest, late charges and attorney fees due First Premium from a variety
of defendants and insurance carriers. Management believes the ultimate
result of its legal action in this matter will result in a favorable
settlement to First Premium.
Despite the increases in various noninterest expense categories during the
first nine months of 1996 compared to 1995, Wintrust's ratio of noninterest
expenses, excluding the merger related costs, to total average assets
declined to 3.9% in 1996 from 4.4% in 1995, reflecting management's
commitment to maintaining low overhead costs while providing superior
customer service. Additionally, Wintrust's net overhead ratio, excluding
the merger related costs, of 2.4% for the nine months ended September 30,
1996 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 $34,000 for the first nine
months of 1996, whereas an income tax benefit of approximately $198,000 was
recorded in the same period of 1995. 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, 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 the tax
loss benefits will be available, subject to certain limitations to offset
tax expense generated from profitable operations.
14
<PAGE>
<PAGE>
FINANCIAL CONDITION
Interest-Earning Assets
Wintrust's consolidated total assets at September 30, 1996 were $621.3
million, a 32% increase from the prior year-end level of $470.9 million,
and a 65% increase from the September 30, 1995 level as a result of strong
deposit growth . Total loans at September 30, 1996 were $414.4 million, an
increase of $156.2 million or 60%, from year-end, and an increase of $195.7
million or 89% from their 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 indirect
automobile loans in relation to total earning assets has increased more
than other earning assets. Wintrust developed a niche business which
provides for select automobile dealers to send applications directly to one
of the subsidiary banks for approval. The loans are secured by a first
lien on the purchased automobile and typically have a term of 36 to 60
months
At September 30, 1996 total securities and other money market investments
(i.e. federal funds sold and interest -bearing deposits with banks) were
$151.2 million, down 11% from $169.3 million at December 31, 1995, but 23%
higher than their year-ago level. As of September 30, 1996, total
securities and money market investments were comprised of 24% in U.S.
Treasury and government agency securities, 17% in short-term interest-
bearing deposits with banks, 34% in overnight federal funds sold, and 25%
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
September 30, 1996 or in any of the other previous reporting periods.
The following table sets forth Wintrust's end of period earning assets by
category as a percent of total earning assets.
<TABLE>
<CAPTION>
Sept. 30, December 31, Sept. 30,
1996 1995 1995
--------- ------------ ---------
<S> <C> <C> <C>
Loans:
Commercial and commercial real estate... 30% 26% 28%
Home equity............................. 14 14 16
Indirect auto loans..................... 14 10 8
Residential real estate................. 9 8 10
Premium finance receivables............. 3 4 4
Other loans............................. 4 4 4
--- --- ---
Total Loans........................ 74 66 70
--- --- ---
Federal funds sold, money
market deposits and securities.......... 26 34 30
--- --- ---
Total..................................... 100% 100% 100%
=== === ===
</TABLE>
15
<PAGE>
<PAGE>
Deposits
Total deposits at September 30, 1996 were $549.3 million or 70% higher than
the year-ago level of $322.5 million and 35% higher than the year-end 1995
level of $405.7 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.
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995 September 30, 1995
------------------ ----------------- ------------------
Percent Percent Percent
Balance of Total Balance of Total Balance of Total
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Demand.................... $ 55,523 10% $ 45,869 11% $ 32,997 10%
NOW....................... 52,658 10 33,685 8 30,088 9
Money market.............. 87,475 16 74,243 18 60,574 19
Savings................... 55,194 10 47,189 12 44,015 14
Certificates of deposit... 298,453 54 204,672 51 154,842 48
-------- --- -------- --- -------- ---
Total..................... $549,303 100% $405,658 100% $322,516 100%
======== === ======== === ======== ===
</TABLE>
The significant growth in deposit accounts for the nine months ended and
the twelve months ended September 30, 1996 is due primarily to the
Company's continuing expansion into communities which were previously
lacking a true community managed bank, that is, banks with local
management and boards of directors. 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.
Shareholders' Equity
Shareholders' equity grew slightly to $40.8 million at September 30, 1996,
from $40.5 million at December 31, 1995. The primary components of the
change in shareholders' equity are the additional issuance of equity
capital of $1.9 million which was offset by the year-to-date net loss of
approximately $1.6 million. No cash dividends were declared on common
stock in either the current or previous reporting periods.
16
<PAGE>
<PAGE>
The following table reflects various consolidated measures of capital at
September 30, 1996 and 1995:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Ending leverage ratio................................ 6.5% 7.6%
Ending tier 1 capital to risk-adjusted asset ratio... 8.9% 9.9%
Ending total capital to risk-adjusted asset ratio.... 9.7% 10.7%
Dividend payout ratio................................ 0.0% 0.0%
</TABLE>
Wintrust's consolidated leverage ratio (Tier 1 capital/total assets less
intangibles) was 6.5% at September 30, 1996 which places the Company above
the "well capitalized" regulatory level. Consolidated Tier 1 and total
risk-based capital were 8.6% and 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% and a total
capital to risk-adjusted asset ratio of 8%. 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 Wintrust's allowance for possible loan
losses for the nine and three month periods under review is shown as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------- ---------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of period......... $ 2,763 $ 1,702 $ 3,378 $ 2,036
Provision for possible loan losses..... 1,344 770 451 268
Charge-offs............................ (374) (248) (95) (80)
Recoveries............................. 16 - 15 -
--------- --------- ------- -------
Balance at September 30................ $ 3,749 $ 2,224 $ 3,749 $ 2,224
========= ========= ======= =======
Loans at September 30.................. $ 414,405 $ 218,730
========= =========
Allowance as a percentage of loans..... 0.90% 1.02%
========= =========
Annualized net charge-offs
as a percentage of:
Total loans............................ 0.12% 0.15%
========= =========
Annualized provision for possible
loan losses.......................... 26.64% 32.21%
========= =========
</TABLE>
17
<PAGE>
<PAGE>
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 commercial insurance premium financing are minimal
since they 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 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 loans past due 90 days or more, including
nonaccrual loans, as of September 30, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Loans past due 90 days or more:
Banking subsidiaries.............. $ 943 $ 805
Finance subsidiary................ 1,238 1,259
------------- ------------
Total non-performing loans...... $ 2,181 $ 2,064
============= ============
</TABLE>
Included in the amount of loans past due above are loans on non-accrual
status of $764,000 and $684,000 at the banking subsidiaries and $1,238,000
at the finance subsidiary as of September 30, 1996 and December 31, 1995,
respectively. As of September 30, 1996, the allowance for possible loan
losses as a percentage of non-performing assets was 172%.
As of September 30, 1996, loans past due more than 90 days at the banking
subsidiaries are comprised of 21 individual credits. Nine of the credits,
amounting to $48,000 are small consumer and auto loan delinquencies; seven
of the past due loans totaling $628,000 are secured by residential real
estate and five of the past due credits, totaling $267,000, are related to
commercial loans that are partially secured by residential real estate
properties. Due to the small number of loans past due, collection of the
loans is very manageable and the appropriate level of attention is devoted
to fully collecting on each credit. Management believes the loans are
sufficiently collateralized.
18
<PAGE>
<PAGE>
At the dates indicated above, virtually all of the finance subsidiary past
due loans relate to one credit that is in litigation. Management is
vigorously pursuing the collection of the account and anticipates full
collection of the recorded amount. Other than collection of this one
account, delinquencies of loans recorded on the balance sheet of the
finance subsidiary are less than $25,000.
The recorded investment in loans considered to be impaired under SFAS No.
114, at September 30, 1996, approximated $2,002,000 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
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 September 30, 1996 was approximately $1,105,000.
Other Real Estate Owned
-----------------------
In addition to the risk elements identified above, Other Real Estate Owned
would provide insight into the historical quality of the loan portfolio.
Wintrust has had no Other Real Estate Owned during any of the reporting
periods.
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" for further discussion.
19
<PAGE>
<PAGE>
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.
SUBSEQUENT EVENTS
In October 1996, Wintrust agreed to purchase a company known as Wolfhoya
Investments, Inc. ("Wolfhoya") from certain officers and directors of
Wintrust and other Wolfhoya management. Wolfhoya's sole business purpose
was organizing a de novo banking operation in Barrington, Illinois, and 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 the top three executive officers to run the de novo
bank. The new bank in Barrington is anticipated to open in late-December
1996, subject to final regulatory approvals. The acquisition is being
accounted for using the purchase method of accounting and the purchase
price consists of approximately 88,000 shares of Wintrust common stock to
be issued by the Company to the shareholders of Wolfhoya. Pro forma
statements related to this transaction have not been included as they are
deemed immaterial.
20
<PAGE>
<PAGE>
PART II
Items 1-3:
These items have been omitted from this Form 10-Q since they are
inapplicable or would contain a negative response.
Item 4: Matters Submitted to a Vote of Security Holders
A Joint Proxy Statement/Prospectus was provided to shareholders in
connection with the solicitation of proxies by the Board of Directors of
North Shore Community Bancorp, Inc., Lake Forest Bancorp, Inc., Hinsdale
Bancorp, Inc., Libertyville Bancorp, Inc., and Crabtree Capital Corporation
(collectively "Constituent Companies") for votes at special meetings of
shareholders for the purpose of considering and voting upon a proposal to
approve the Amended and Restated Agreement and Plan of Reorganization,
dated May 28, 1996 by and among each of the Constituent Companies. The
dates of the special meetings for each of the Constituent Companies were
held between August 27, 1996 and August 30, 1996. Such meeting dates and
other information regarding the proposed matter subject to vote is detailed
in the Joint Proxy Statement/Prospectus which was filed with the Securities
and Exchange Commission on Form S-4 (Commission File No. 333-4645) and is
incorporated herein by reference.
The following table sets forth the number of votes cast for, against or
withheld, as well as the number of abstentions as to the subject matter:
<TABLE>
<CAPTION>
Against Shares with Total
or no returned shares
For Withheld Abstentions Proxy of Record
------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
North Shore Community Bancorp, Inc........ 224,336 3,476 800 25,605 254,217
Lake Forest Bancorp, Inc. ................ 152,304 -- 225 10,831 163,360
Hinsdale Bancorp, Inc. ................... 188,389 5,728 300 12,720 207,137
Libertyville Bancorp, Inc. ............... 205,689 3,000 200 21,040 229,929
Crabtree Capital Corporation.............. 899,059 -- 500 125,706 1,025,265
</TABLE>
Item 5: Other Information
None.
21
<PAGE>
<PAGE>
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.
Wintrust filed a Form 8-K on September 13, 1996. The date of the report
was September 1, 1996 and was filed to report pursuant to Items 2 and 7
that on September 1, 1996, Wintrust Financial Corporation completed its
reorganization pursuant to a definitive reorganization agreement dated as
of May 28, 1996. Financial statements of the companies subject to the
reorganization agreement were filed as follows:
Consolidated Statements of Financial Conditions at December 31, 1995
and 1994, as applicable.
Consolidated Statements of Operations, Changes in Shareholders' Equity
and Cash Flows for each of the years or periods in the three year
period ended December 31, 1995, as applicable.
Wintrust filed a Form 8-K/A on November 7, 1996 pursuant to Item 7 to
amend the report filed on Form 8-K dated September 1, 1996 in order to
provide June 30, 1996 Pro Forma Financial Statements and to provide
financial statements of the companies subject to the reorganization
agreement as follows:
Consolidated Statements of Financial Conditions and Shareholders'
Equity at and for the six-month period ended June 30, 1996.
Consolidated Statements of Operations and Cash Flows for each of the
six month periods ended June 30, 1996 and 1995.
22
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINTRUST FINANCIAL CORPORATION
(Registrant)
Date: November 14, 1996 /s/Edward J. Wehmer
President
Date: November 14, 1996 /s/ David A. Dykstra
Executive Vice President
& Chief Financial Officer
(Principal Accounting Officer)
23
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit 11 Computation of Net Income
Per Common Share
Exhibit 27 Financial Data Schedule
24
<PAGE>
Exhibit 11
<TABLE>
Wintrust Financial Corporation
Computation of Net Income Per Common Share
(in thousands, except per share data)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
____________________ _____________________
<S> <C> <C> <C> <C> <C>
1996 1995 1996 1995
------- ------ ------ ------
Net income (loss)....................... (A) $(1,521) $1,133 $ 301 $ 116
======= ====== ====== ======
Average common shares outstanding....... 5,992 4,900 6,212 4,940
Average common share equivalents (1)... -- 671 634 725
------- ------ ------ ------
Weighted average common shares and
common share equivalents........... (B) 5,992 5,571 6,846 5,665
======= ====== ====== ======
Net income (loss) per average
common share....................... (A/B) $ (0.25) $ 0.20 $ 0.04 $ 0.02
======= ====== ====== ======
</TABLE>
(1) Common share equivalents result from stock options, stock rights and
stock warrants being treated as if they had been exercised and are computed
by application of the treasury stock method. No common share equivalents
were assumed to be outstanding for the nine-month period ended September
30, 1996 because accounting standards require that the computation of
earnings per share shall not give effect to common stock equivalents for
any period in which their inclusion would have the effect decreasing the
loss per share amount otherwise computed.
25
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the interim
unaudited financial statements of Wintrust Financial Corporation for the nine
months ended September 30, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001015328
<NAME> WINTRUST FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 19,753
<INT-BEARING-DEPOSITS> 25,100
<FED-FUNDS-SOLD> 52,033
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,022
<INVESTMENTS-CARRYING> 5,022
<INVESTMENTS-MARKET> 4,875
<LOANS> 414,405
<ALLOWANCE> 3,749
<TOTAL-ASSETS> 621,264
<DEPOSITS> 549,303
<SHORT-TERM> 1,812
<LIABILITIES-OTHER> 12,810
<LONG-TERM> 16,554
0
0
<COMMON> 6,516
<OTHER-SE> 34,269
<TOTAL-LIABILITIES-AND-EQUITY> 621,264
<INTEREST-LOAN> 21,045
<INTEREST-INVEST> 6,353
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 27,398
<INTEREST-DEPOSIT> 16,000
<INTEREST-EXPENSE> 17,011
<INTEREST-INCOME-NET> 10,387
<LOAN-LOSSES> 1,344
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 16,454
<INCOME-PRETAX> (1,555)
<INCOME-PRE-EXTRAORDINARY> (1,521)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,521)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
<YIELD-ACTUAL> 2.84
<LOANS-NON> 2,002
<LOANS-PAST> 2,181
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,105
<ALLOWANCE-OPEN> 2,763
<CHARGE-OFFS> 374
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 3,749
<ALLOWANCE-DOMESTIC> 2,489
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,260
</TABLE>
