UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
0-21923
Commission File Number
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:
COMMON STOCK, NO PAR VALUE
Securities registered pursuant to Section 12(g) of the Act
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $101,858,000 as of March 21, 1997. As of March 21,
1997, the registrant had outstanding 7,997,359 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Shareholder's Report for the year ended December 31, 1996
are incorporated by reference into Parts I and II hereof and portions of the
Proxy Statement for the Company's Annual Meeting of Shareholders to be held on
May 22, 1997 are incorporated by reference into Part III.
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TABLE OF CONTENTS
PART I
Page
ITEM 1. Business.................................................... 1
ITEM 2. Properties.................................................. 21
ITEM 3. Legal Proceedings........................................... 22
ITEM 4. Submission of Matters to Vote of Security Holders........... 22
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 23
ITEM 6. Selected Financial Data..................................... 24
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 25
ITEM 8. Financial Statements and Supplementary Data................. 25
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 25
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 25
ITEM 11. Executive Compensation ..................................... 25
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management ........................................ 25
ITEM 13. Certain Relationships and Related Transactions.............. 26
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ................................... 26
Signatures.................................................. 31
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PART I.
ITEM 1. BUSINESS
Wintrust Financial Corporation, an Illinois Corporation (the "Company"), is a
financial services holding company headquartered in Lake Forest, Illinois, with
total assets of approximately $700 million at December 31, 1996. The Company
engages in community banking and specialty finance through its operating
subsidiaries: North Shore Community Bank and Trust Company ("North Shore Bank");
Lake Forest Bank and Trust Company ("Lake Forest Bank"); Hinsdale Bank and Trust
Company ("Hinsdale Bank"); Libertyville Bank and Trust Company ("Libertyville
Bank"); Barrington Bank and Trust Company, N.A. ("Barrington Bank"); and First
Premium Services, Inc. ("First Premium").
Through its banking subsidiaries, Lake Forest Bank, Hinsdale Bank, North Shore
Bank, Libertyville Bank and Barrington Bank (collectively, the "Banks"), the
Company provides community-oriented, personal and commercial banking services in
affluent suburbs of Chicago, Illinois. Through First Premium, the Company is in
the business of originating commercial insurance premium finance loans on a
national basis, a portion of which are purchased by the Banks.
Effective September 1, 1996, pursuant to the terms of a reorganization agreement
dated as of May 28, 1996, which was approved by shareholders of all of the
parties, the Company completed a reorganization transaction to combine the
separate activities of the holding companies of each of the Company's operating
subsidiaries (other than Barrington Bank which was opened in December 1996). As
a result of the transaction, the Company (formerly known as North Shore
Community Bancorp, Inc., the name of which was changed to Wintrust Financial
Corporation in connection with the reorganization) became the parent holding
company of each of the separate businesses, and the shareholders and warrant
holders of each of the separate holding companies exchanged their shares for
Common Stock and their warrants for a combination of shares of Common Stock and
Warrants of the Company (the "Reorganization"). The Reorganization was accounted
for as a pooling-of-interests transaction and, accordingly, the Company's
financial statements have been restated on a combined and consolidated basis to
give retroactive effect to the combined operations throughout the reported
historical periods.
Prior to the Reorganization, each of the Banks shared the services of the
persons now serving as the Company's five senior executive officers, who
allocated their time among the different entities. As a larger, combined
financial services company, the Company expects to benefit from greater access
to financial and managerial resources while maintaining its commitment to
localized decision-making and to its community banking philosophy. Management
also believes the Company is positioned to compete more effectively with other
larger and more diversified banks, bank holding companies and other financial
services companies as it pursues its growth strategy through additional branch
openings and de novo bank formations, potential acquisitions of specialized
finance companies and other expansion.
BANKING SUBSIDIARIES
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The Company provides banking and financial services to individuals, small
businesses, local governmental units and institutional clients residing
primarily in the Banks' local service areas. These services include traditional
demand, NOW, money market, savings and time deposit accounts, as well as a
number of innovative deposit products targeted to specific market segments.
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The Banks offer home equity, home mortgage, real estate and commercial loans,
safe deposit facilities, trust services and other innovative and traditional
services specially tailored to meet the needs of customers in their market
areas.
Each of the Banks was founded as a de novo banking organization (i.e., started
new) within the last six years. The organizational efforts began in 1991, when a
group of experienced bankers and local business people identified an unfilled
niche in the Chicago metropolitan area retail banking market. As large banks
acquired smaller ones and personal service was subjected to consolidation
strategies, the opportunity increased in affluent suburbs for locally owned and
operated, highly personal service-oriented banks. As a result, Lake Forest Bank
was founded in December 1991 to service the Lake Forest and Lake Bluff
communities. The Lake Bluff branch was opened in 1994. In 1993, Hinsdale Bank
was opened to service the communities of Hinsdale and Burr Ridge. Its Clarendon
Hills branch was opened in 1996. In 1994, North Shore Community Bank was started
in order to service Wilmette and Kenilworth. A Glencoe branch was opened in
1995, and a Winnetka branch was opened in 1996 to service Winnetka and
Northfield. In 1995, Libertyville Bank was opened to service Libertyville,
Vernon Hills and Mundelein. In December 1996, Barrington Bank was opened to
service the Barrington/Inverness areas. All Banks are insured by the Federal
Deposit Insurance Company ("FDIC") and are subject to regulation, supervision
and regular examination by the Illinois State Director of Financial Institutions
and the Federal Reserve Bank.
NON-BANKING SUBSIDIARIES
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First Premium commenced operations approximately six years ago and is
headquartered in Deerfield, Illinois. Based on limited industry data available
in certain state regulatory filings and First Premium management's experience in
and knowledge of the premium finance industry, management estimates that, ranked
by loan origination volume, First Premium is one of the top 10 premium finance
companies operating in the United States. Loans are originated by First
Premium's own sales force, working with medium and large insurance agents and
brokers throughout the United States. Insurance premiums are financed primarily
for commercial customers' purchase of property and casualty insurance.
First Premium is licensed or otherwise qualified to do business as an insurance
premium finance company in 45 states and the District of Columbia, and has
applied for licenses in three additional states. Virtually all of its
outstanding loans are commercial accounts.
COMPETITION
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The Company competes in the commercial banking industry through its
subsidiaries, North Shore Bank, Lake Forest Bank, Hinsdale Bank, Libertyville
Bank and Barrington Bank, in the communities each serves. The commercial banking
industry is highly competitive, and the Banks face strong direct competition for
deposits, loans, and other financial-related services. The Banks compete
directly in Cook, DuPage and Lake counties with other commercial banks, thrifts,
credit unions, stockbrokers, and the finance divisions of automobile companies.
Some of these competitors are local, while others are statewide or nationwide.
The Banks have developed a community banking and marketing strategy. In keeping
with this strategy, the Banks provide highly personalized and responsive service
characteristic of locally-owned and managed institutions. As such, the Banks
compete for deposits principally by offering depositors a variety of deposit
programs, convenient office locations, hours and other services, and for loan
originations primarily through the interest rates and loan fees they charge, the
efficiency and quality of services they provide to borrowers
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and the variety of their loan products. Some of the financial institutions and
financial services organizations with which the Banks compete are not subject to
the same degree of regulation as that imposed on bank holding companies,
Illinois banking corporations and national banking associations. In addition,
the larger banking organizations have significantly greater resources than those
that will be available to the Banks. As a result, such competitors have
advantages over the Banks in providing certain non-deposit services.
First Premium encounters intense competition from numerous other firms,
including a number of national commercial premium finance companies, companies
affiliated with insurance carriers, independent insurance brokers who offer
premium finance services, banks and other lending institutions. Some of First
Premium's competitors are larger and have greater financial and other resources
and are better known than First Premium. In addition, there are few, if any,
barriers to entry into this industry in the event other firms, particularly
insurance carriers and their affiliates, seek to compete in this market.
First Premium believes that it offers better service and more flexibility with
regard to late payments and policy cancellations than affiliates of insurance
carriers, banks and other lending institutions. First Premium competes with
these entities by emphasizing a high level of knowledge of the insurance
industry, flexibility in structuring financing transactions, and the timely
purchase of qualifying contracts. First Premium believes that its commitment to
account service also distinguishes it from its competitors. It is First
Premium's policy to notify the insurance agent when an insured is in default and
to assist in collection, if requested by the agent. To the extent that
affiliates of insurance carriers, banks, and other lending institutions add
greater service and flexibility to their financing practices in the future, the
Company's operations could be adversely affected. There can be no assurance that
First Premium will be able to continue to compete successfully in its markets.
EMPLOYEES
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At December 31, 1996, the Company and subsidiaries employed a total of 226
full-time-equivalent persons, consisting of 73 executives, management and
supervisory personnel and 153 clerical employees. The Company and the Banks
provide their employees with comprehensive medical and dental plans, life
insurance plans, and 401(k) plans. The Company considers its relationship with
employees to be good.
SUPERVISION AND REGULATION
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Bank holding companies and banks are extensively regulated under federal and
state law. References under this heading to applicable statutes or regulations
are brief summaries of portions thereof which do not purport to be complete and
which are qualified in their entirety by reference to those statutes and
regulations. Any change in applicable laws or regulations may have a material
adverse effect on the business of commercial banks and bank holding companies,
including the Company and the Banks. However, management is not aware of any
current recommendations by any regulatory authority which, if implemented, would
have or would be reasonably likely to have a material effect on liquidity,
capital resources, or operations of the Company or the Banks.
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BANK HOLDING COMPANY REGULATION
The Company and each of its bank holding company subsidiaries, Lake Forest,
Hinsdale and Libertyville, are registered as "bank holding companies" with the
Federal Reserve and, accordingly, are subject to supervision by the Federal
Reserve under the Bank Holding Company Act (the Bank Holding Company Act and the
regulations issued thereunder, are collectively the "BHC Act"). The Company is
required to file with the Federal Reserve periodic reports and such additional
information as the Federal Reserve may require pursuant to the BHC Act. The
Federal Reserve examines the Company and may examine the Banks.
The BHC Act requires prior Federal Reserve approval for, among other things, the
acquisition by a bank holding company of direct or indirect ownership or control
of more than five percent of the voting shares or substantially all the assets
of any bank or bank holding company, or for a merger or consolidation of a bank
holding company with another bank holding company. With certain exceptions, the
BHC Act prohibits a bank holding company from acquiring direct or indirect
ownership or control of voting shares of any company which is not a bank or bank
holding company and from engaging directly or indirectly in any activity other
than banking or managing or controlling banks or performing services for its
authorized subsidiaries. A bank holding company may, however, engage in or
acquire an interest in a company that engages in activities which the Federal
Reserve has determined, by regulation or order, to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto,
such as owning and operating the premium finance business conducted by First
Premium. Under the BHC Act and Federal Reserve regulations, the Company and the
Banks are prohibited from engaging in certain tie-in arrangements in connection
with an extension of credit, lease, sale of property, or furnishing of services.
Any person, including associates and affiliates of and groups acting in concert
with such person, who purchases or subscribes for five percent or more of the
Company's Common Stock may be required to obtain prior approval of the Illinois
Commissioner and the Federal Reserve. Under the Illinois Banking Act, any person
who thereafter acquires stock of the Company such that its interest exceeds ten
percent of the Company, may be required to obtain the prior approval of the
Illinois Commissioner and under the Change in Bank Control Act, a person may be
required to obtain the prior regulatory approval of the FDIC or OCC, in the case
of Barrington Bank, and the Federal Reserve before acquiring the power to
directly or indirectly direct the management, operations or policies of the
Company or the Banks or before acquiring control of 25 percent or more of any
class of the Company's or Banks' outstanding voting stock. In addition, any
Company, partnership, trust or organized group that acquires a controlling
interest in the Company or the Banks may have to obtain approval of the Federal
Reserve to become a bank holding company and thereafter be subject to regulation
as such.
It is the policy of the Federal Reserve that the Company is expected to act as a
source of financial strength to the Banks and to commit resources to support the
Banks. The Federal Reserve takes the position that in implementing this policy,
it may require the Company to provide such support when the Company otherwise
would not consider itself able to do so.
The Federal Reserve has adopted risk-based capital requirements for assessing
bank holding company capital adequacy. These standards define regulatory capital
and establish minimum capital standards in relation to assets and off-balance
sheet exposures, as adjusted for credit risks. The Federal Reserve's risk-
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based guidelines apply on a consolidated basis for bank holding companies with
consolidated assets of $150 million or more and on a "bank-only" basis for bank
holding companies with consolidated assets of less than $150 million, subject to
certain terms and conditions. Under the Federal Reserve's risk-based guidelines,
capital is classified into two categories. For bank holding companies, Tier 1 or
"core" capital consists of common shareholders' equity, perpetual preferred
stock (subject to certain limitations) and minority interests in the common
equity accounts of consolidated subsidiaries, and is reduced by goodwill,
certain other intangible assets and certain investments in other Companies
("Tier 1 Capital"). Tier 2 capital consists of the allowance for loan and lease
losses (subject to certain conditions and limitations), perpetual preferred
stock, "hybrid capital instruments," perpetual debt and mandatory convertible
debt securities, and term subordinated debt and intermediate-term preferred
stock.
Under the Federal Reserve's capital guidelines, bank holding companies are
required to maintain a minimum ratio of qualifying capital to risk-weighted
assets of 8.0%, of which at least 4.0% must be in the form of Tier 1 Capital.
The Federal Reserve also requires a minimum leverage ratio of Tier 1 Capital to
total assets of 3.0%, except that bank holding companies not rated in the
highest category under the regulatory rating system are required to maintain a
leverage ratio of 1.0% to 2.0% above such minimum. The 3.0% Tier 1 Capital to
total assets ratio constitutes the minimum leverage standard for bank holding
companies, and will be used in conjunction with the risk-based ratio in
determining the overall capital adequacy of banking organizations. In addition,
the Federal Reserve continues to consider the Tier 1 leverage ratio in
evaluating proposals for expansion or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that the
foregoing standards are supervisory minimums and that banking organizations
generally are expected to operate well above the minimum ratios. These
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels.
BANK REGULATION
Under Illinois law, each of North Shore Bank, Lake Forest Bank, Hinsdale Bank
and Libertyville Bank are subject to supervision and examination by the Illinois
Commissioner. As an affiliate of these Banks, the Company is also subject to
examination by the Illinois Commissioner. Barrington Bank is subject to
supervision and examination by the OCC pursuant to the National Bank Act and
regulations promulgated thereunder. Each of the Banks is a member of the Federal
Reserve Bank and as such is also subject to examination by the Federal Reserve.
The deposits of the Banks are insured by the Bank Insurance Fund under the
provisions of the Federal Deposit Insurance Act (the "FDIA"), and the Banks are,
therefore, also subject to supervision and examination by the FDIC. The FDIC
requires that the appropriate federal regulatory authority (the Federal Reserve
Bank and/or the FDIC in the case of Lake Forest Bank, North Shore Bank, Hinsdale
Bank and Libertyville Bank, or the OCC, in the case of Barrington Bank) approve
any merger and/or consolidation by or with an insured bank, as well as the
establishment or relocation of any bank or branch office. The FDIC also
supervises compliance with the provisions of federal law and regulations which
place restrictions on loans by FDIC-insured banks to their directors, executive
officers and other controlling persons.
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Furthermore, banks are affected by the credit policies of other monetary
authorities, including the Federal Reserve, which regulate the national supply
of bank credit. Such regulation influences overall growth of bank loans,
investments, and deposits and may also affect interest rates charged on loans
and paid on deposits. The monetary policies of the Federal Reserve have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future.
All banks located in Illinois have traditionally been restricted as to the
number and geographic location of branches which they may establish. The
Illinois Banking Act was amended in June 1993, however, to eliminate such
branching restrictions. Accordingly, banks located in Illinois are now permitted
to establish branches anywhere in Illinois without regard to the location of
other banks' main offices or the number of branches previously maintained by the
bank establishing the branch.
FINANCIAL INSTITUTION REGULATION GENERALLY
Transactions with Affiliates. Transactions between a bank and its holding
company or other affiliates are subject to various restrictions imposed by state
and federal regulatory agencies. Such transactions include loans and other
extensions of credit, purchases of securities and other assets, and payments of
fees or other distributions. In general, these restrictions limit the amount of
transactions between an institution and an affiliate of such institution, as
well as the aggregate amount of transactions between an institution and all of
its affiliates, and require transactions with affiliates to be on terms
comparable to those for transactions with unaffiliated entities.
Dividend Limitations. As a holding company, the Company is primarily dependent
upon dividend distributions from its operating subsidiaries for its income.
Federal and state statutes and regulations impose restrictions on the payment of
dividends by the Company and the Banks.
Federal Reserve policy provides that a bank holding company should not pay
dividends unless (i) the bank holding company's net income over the prior year
is sufficient to fully fund the dividends and (ii) the prospective rate of
earnings retention appears consistent with the capital needs, asset quality and
overall financial condition of the bank holding company and its subsidiaries.
Illinois law also places certain limitations on the ability of the Company to
pay dividends. For example, the Company may not pay dividends to its
shareholders if, after giving effect to the dividend, the Company would not be
able to pay its debts as they become due. Since a major source of the Company's
revenue is dividends the Company receives and expects to receive from the Banks,
the Company's ability to pay dividends is likely to be dependent on the amount
of dividends paid by the Banks. No assurance can be given that the Banks will,
in any circumstances, pay dividends to the Company.
As Illinois state-chartered banks, none of Lake Forest Bank, North
Shore Bank, Hinsdale Bank nor Libertyville Bank may pay dividends in an amount
greater than its current net profits after deducting losses and bad debts out of
undivided profits provided that its surplus equals or exceeds its capital. For
the purpose of determining the amount of dividends that an Illinois bank may
pay, bad debts are defined as debts upon which interest is past due and unpaid
for a period of six months or more unless such debts are well-secured and in the
process of collection. Furthermore, federal regulations also prohibit any
Federal Reserve member bank, including each of the Banks, from declaring
dividends in any calendar year in excess of its net profit for the year plus the
retained net profits for the preceding two years. Similarly, as a
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national association, Barrington Bank may not declare dividends in any year in
excess of its net profit for the year plus the retained net profits for the
preceding two years. Furthermore, the OCC may, after notice and opportunity for
hearing, prohibit the payment of a dividend by a national bank if it determines
that such payment would constitute an unsafe or unsound practice.
In addition to the foregoing, the ability of the Company and the Banks
to pay dividends may be affected by the various minimum capital requirements and
the capital and non-capital standards established under the Federal Deposit
Insurance Company Improvements Act of 1991 ("FDICIA"), as described below. The
right of the Company, its shareholders and its creditors to participate in any
distribution of the assets or earnings of its subsidiaries is further subject to
the prior claims of creditors of the respective subsidiaries.
Standards for Safety and Soundness. The FDIA, as amended by FDICIA and the
Riegle Community Development and Regulatory Improvement Act of 1994 requires the
Federal Reserve, together with the other federal bank regulatory agencies, to
prescribe standards of safety and soundness, by regulations or guidelines,
relating generally to operations and management, asset growth, asset quality,
earnings, stock valuation, and compensation. The Federal Reserve, the OCC and
the federal bank regulatory agencies have adopted, effective August 9, 1995, a
set of guidelines prescribing safety and soundness standards pursuant to FDICIA,
as amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, and compensation,
fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as
an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director or principal shareholder. In addition,
each of the Federal Reserve and the OCC adopted regulations that authorize, but
do not require, the Federal Reserve or the OCC, as the case may be, to order an
institution that has been given notice by the Federal Reserve or the OCC, as the
case may be, that it is not satisfying any of such safety and soundness
standards to submit a compliance plan. If, after being so notified, an
institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the Federal Reserve
or the OCC, as the case may be, must issue an order directing action to correct
the deficiency and may issue an order directing other actions of the types to
which an undercapitalized association is subject under the "prompt corrective
action" provisions of FDICIA. If an institution fails to comply with such an
order, the Federal Reserve or the OCC, as the case may be, may seek to enforce
such order in judicial proceedings and to impose civil money penalties. The
Federal Reserve, the OCC and the other federal bank regulatory agencies also
proposed guidelines for asset quality and earnings standards.
A range of other provisions in FDICIA include requirements applicable to closure
of branches; additional disclosures to depositors with respect to terms and
interest rates applicable to deposit accounts; uniform regulations for
extensions of credit secured by real estate; restrictions on activities of and
investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of
off-balance sheet items and supplemental disclosure of estimated fair market
value of assets and liabilities in financial statements filed with the banking
regulators; increased penalties in making or failing to file assessment reports
with the FDIC; greater restrictions on extensions of credit to directors,
officers and principal shareholders; and increased reporting requirements on
agricultural loans and loans to small businesses.
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In August, 1995, the Federal Reserve, OCC, FDIC and other federal banking
agencies published a final rule modifying their existing risk-based capital
standards to provide for consideration of interest rate risk when assessing the
capital adequacy of a bank. Under the final rule, the Federal Reserve, the OCC
and the FDIC must explicitly include a bank's exposure to declines in the
economic value of its capital due to changes in interest rates as a factor in
evaluating a bank's capital adequacy. The Federal Reserve, the FDIC, the OCC and
other federal banking agencies also have adopted a joint agency policy statement
providing guidance to banks for managing interest rate risk. The policy
statement emphasizes the importance of adequate oversight by management and a
sound risk management process. The assessment of interest rate risk management
made by the banks' examiners will be incorporated into the banks' overall risk
management rating and used to determine the effectiveness of management.
Prompt Corrective Action. FDICIA requires the federal banking regulators,
including the Federal Reserve, the OCC and the FDIC, to take prompt corrective
action with respect to depository institutions that fall below certain capital
standards and prohibits any depository institution from making any capital
distribution that would cause it to be undercapitalized. Institutions that are
not adequately capitalized may be subject to a variety of supervisory actions
including, but not limited to, restrictions on growth, investment activities,
capital distributions and affiliate transactions and will be required to submit
a capital restoration plan which, to be accepted by the regulators, must be
guaranteed in part by any company having control of the institution (such as the
Company). In other respects, FDICIA provides for enhanced supervisory authority,
including greater authority for the appointment of a conservator or receiver for
under-capitalized institutions. The capital-based prompt corrective action
provisions of FDICIA and their implementing regulations apply to FDIC-insured
depository institutions. However, federal banking agencies have indicated that,
in regulating bank holding companies, the agencies may take appropriate action
at the holding company level based on their assessment of the effectiveness of
supervisory actions imposed upon subsidiary insured depository institutions
pursuant to the prompt corrective action provisions of FDICIA.
Insurance of Deposit Accounts. Under FDICIA, as an FDIC-insured institution,
each of the Banks is required to pay deposit insurance premiums based on the
risk it poses to the insurance fund. The FDIC has authority to raise or lower
assessment rates on insured deposits in order to achieve certain designated
reserve ratios in the insurance funds and to impose special additional
assessments. The FDIC recently amended the risk-based assessment system and on
December 11, 1995, adopted a new assessment rate schedule for BIF insured
deposits. The new assessment rate schedule, effective with respect to the
semiannual premium assessment beginning January 1, 1996, provides for an
assessment range of zero to 0.27% (subject to a $2,000 minimum) of insured
deposits depending on capital and supervisory factors. Each depository
institution is assigned to one of three capital groups: "well capitalized,"
"adequately capitalized" or "less than adequately capitalized." Within each
capital group, institutions are assigned to one of three supervisory subgroups:
"healthy," "supervisory concern" or "substantial supervisory concern."
Accordingly, there are nine combinations of capital groups and supervisory
subgroups to which varying assessment rates would be applicable. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned.
During 1996, the Banks, other than Barrington Bank, were assessed at an average
annual rate of the statutory minimum of $2,000. Deposit insurance may be
terminated by the FDIC upon a finding that an institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC.
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The management of each of the Banks does not know any practice, condition or
violation that might lead to termination of deposit insurance.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 enacted on
September 30, 1996 provides that beginning with semi-annual periods after
December 31, 1996, deposits insured by the Bank Insurance Fund ("BIF") will also
be assessed to pay interest on the bonds (the "FICO Bonds") issued in the late
1980s by the Financing Company to recapitalize the now defunct Federal Savings &
Loan Insurance Company. For purposes of the assessments to pay interest on the
FICO Bonds, BIF deposits will be assessed at a rate of 20.0% of the assessment
rate applicable to SAIF deposits until December 31, 1999. After the earlier of
December 31, 1999 or the date on which the last savings association ceases to
exist, full pro rata sharing of FICO assessments will begin. It has been
estimated that the rates of assessment for the payment of interest on the FICO
Bonds will be approximately 1.3 basis points for BIF-assessable deposits and
approximately 6.4 basis points for SAIF-assessable deposits. The payment of the
assessment to pay interest on the FICO Bonds should not materially affect the
Banks.
Federal Reserve System. The Banks are subject to Federal Reserve regulations
requiring depository institutions to maintain non-interest-earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts). The Federal Reserve regulations generally require 3.0% reserves on
the first $51.3 million of transaction accounts plus 10.0% on the remainder. The
first $4.3 million of otherwise reservable balances (subject to adjustments by
the Federal Reserve) are exempted from the reserve requirements. The Banks are
in compliance with the foregoing requirements.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), a
financial institution has a continuing and affirmative obligation, consistent
with the safe and sound operation of such institution, to help meet the credit
needs of its entire community, including low- and moderate-income neighborhoods.
The CRA does not establish specific lending requirements or programs for
financial institutions nor does it limit an institution's discretion to develop
the types of products and services that it believes are best suited to its
particular community, consistent with the CRA. The CRA requires each federal
banking agency, in connection with its examination of a financial institution,
to assess and assign one of four ratings to the institution's record of meeting
the credit needs of its community and to take such record into account in its
evaluation of certain applications by the institution, including applications
for charters, branches and other deposit facilities, relocations, mergers,
consolidations, acquisitions of assets or assumptions of liabilities, and
savings and loan holding company acquisitions. The CRA also requires that all
institutions make public disclosure of their CRA ratings. Each of the Banks
received "satisfactory" ratings from the FDIC on their most recent CRA
performance evaluations. As of the date of this report, Barrington Bank has not
undergone a regulatory CRA performance evaluation.
In April 1995, the Federal Reserve, the OCC and other federal banking agencies
adopted amendments revising their CRA regulations. Among other things, the
amended CRA regulations substitute for the prior process-based assessment
factors a new evaluation system that would rate an institution based on its
actual performance in meeting community needs. In particular, the proposed
system would focus on three tests: (i) a lending test, to evaluate the
institution's record of making loans in its assessment areas; (ii) an investment
test, to evaluate the institution's record of investing in community development
projects, affordable housing, and programs benefiting low or moderate income
individuals and businesses; and (iii) a service test, to evaluate the
institution's delivery of services through its branches, ATMs and other offices.
- 9 -
<PAGE>
The amended CRA regulations also clarify how an institution's CRA performance
would be considered in the application process.
Brokered Deposits. Well-capitalized institutions are not subject to limitations
on brokered deposits, while an adequately capitalized institution is able to
accept, renew or rollover brokered deposits only with a waiver from the FDIC and
subject to certain restrictions on the yield paid on such deposits.
Undercapitalized institutions are not permitted to accept brokered deposits.
Each of the Banks is eligible under the statutory standard to accept brokered
deposits and may use this funding source from time to time when management deems
it appropriate from an asset/liability management perspective.
Enforcement Actions. Federal and state statutes and regulations provide
financial institution regulatory agencies with great flexibility to undertake
enforcement action against an institution that fails to comply with regulatory
requirements, particularly capital requirements. Possible enforcement actions
range from the imposition of a capital plan and capital directive to
receivership, conservatorship or the termination of deposit insurance.
Interstate Banking and Branching Legislation. On September 29, 1994, the
Riegle-Neal Interstate Banking and Efficiency Act of 1994 (the "Interstate
Banking Act") was enacted. Under the Interstate Banking Act, adequately
capitalized and adequately managed bank holding companies will be allowed to
acquire banks across state lines subject to certain limitations. In addition,
under the Interstate Banking Act, beginning on June 1, 1997, banks will be
permitted to merge with one another across state lines and thereby create a main
bank with branches in separate states. After establishing branches in a state
through an interstate merger transaction, a bank could establish and acquire
additional branches at any location in the state where any bank involved in the
interstate merger could have established or acquired branches under applicable
federal and state law.
Under the Interstate Banking Act, states may adopt legislation permitting
interstate mergers before June 1, 1997. Alternatively, states may adopt
legislation before June 1, 1997, subject to certain conditions, opting out of
interstate branching. Illinois adopted legislation, effective September 29,
1995, permitting interstate mergers beginning on June 1, 1997. It is anticipated
that this interstate merger and branching ability will increase competition and
further consolidate the financial institutions industry.
MONETARY POLICY AND ECONOMIC CONDITIONS
The earnings of banks and bank holding companies are affected by general
economic conditions and also by the fiscal and monetary policies of federal
regulatory agencies, including the Federal Reserve. Through open market
transactions, variations in the discount rate and the establishment of reserve
requirements, the Federal Reserve exerts considerable influence over the cost
and availability of funds obtainable for lending or investing.
The above monetary and fiscal policies and resulting changes in interest rates
have affected the operating results of all commercial banks in the past and are
expected to do so in the future. The Banks and their respective holding
companies cannot fully predict the nature or the extent of any effects which
fiscal or monetary policies may have on their business and earnings.
- 10 -
<PAGE>
SUPPLEMENTAL STATISTICAL DATA
Pages 1, 25 and 26 of the Annual Report to Shareholders and pages 11-21 of this
Report contain supplemental statistical data as required by The Exchange Act
Industry Guide 3 which is incorporated into Regulation S-K of the Securities and
Exchange Acts. This data should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto, and Management's Discussion
and Analysis which are contained in its 1996 Annual Report to Shareholders filed
herewith as Exhibit 13.1 and incorporated herein by reference.
ASSET-LIABILITY MANAGEMENT
As a continuing part of its financial strategy, the Company attempts to manage
the impact of fluctuations in market interest rates on its net interest income.
This effort entails providing a reasonable balance between interest rate risk,
credit risk, liquidity risk and maintenance of yield. Asset-liability management
policies are established and monitored by management in conjunction with the
boards of directors of the Banks, subject to general oversight by the Company's
Board of Directors. The policy establishes guidelines for acceptable limits on
the sensitivity of the market value of assets and liabilities to changes in
interest rates.
An institution with more assets than liabilities repricing over a given time
frame is considered asset sensitive and will generally benefit from rising
rates. The table on the following page illustrates the Company's estimated
interest rate sensitivity and periodic and cumulative gap positions as
calculated as of December 31, 1996.
- 11 -
<PAGE>
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
-----------------------------
0-90 91-365 1-5 OVER 5 TOTAL
-----
DAYS DAYS YEARS YEARS
---- ---- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Loans................................ $228,471 $132,812 $104,638 $26,627 $492,548
Securities........................... 56,606 6,028 10,233 1,521 74,388
Interest-bearing bank deposits....... 2,478 16,254 - - 18,732
Federal funds sold................... 38,835 - - - 38,835
Other................................ - - - 81,534 81,534
---------------- -------------- --------------- --------------- ---------------
Total assets....................... $326,390 $155,094 $114,871 $109,682 $706,037
---------------- -------------- --------------- --------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
NOW.................................. $57,490 $ - $ - $ - $57,490
Savings and money market............. 168,976 - - - 168,976
Time deposits........................ 171,686 102,630 49,235 848 324,399
Short term borrowings................ 7,058 - - - 7,058
Notes payable........................ 22,057 - - - 22,057
Other................................ - - - 126,057 126,057
---------------- -------------- --------------- --------------- ---------------
Total liabilities and $427,267 $102,630 $49,235 $126,905 $706,037
shareholders' equity..........
---------------- -------------- --------------- --------------- ---------------
Rate sensitive assets (RSA)............. $326,390 $481,484 $596,355 $706,037
Rate sensitive liabilities (RSL)........ 427,267 529,897 579,132 706,037
---------------- -------------- --------------- ---------------
Cumulative gap $(100,877) $17,223
(GAP = RSA - RSL)..................... $(48,413) $ -
---------------- -------------- --------------- ---------------
Cumulative RSA/RSL...................... 0.76 0.91 1.03
Cumulative RSA/Total assets............. 0.46 0.68 0.84
Cumulative RSL/Total assets............. 0.61 0.75 0.82
GAP/Total assets........................ (14)% (7)% 2%
GAP/RSA................................. (31)% (10)% 3%
</TABLE>
- 12 -
<PAGE>
While the gap position illustrated above is a useful tool that management can
assess for general positioning of the Company's and its subsidiaries' balance
sheets, management uses an additional measurement tool to evaluate its
asset/liability sensitivity which determines exposure to changes in interest
rates by measuring the percentage change in net income due to changes in rates
over a two-year time horizon. Management measures such percentage change
assuming an instantaneous permanent parallel shift in the yield curve of 200
basis points, both upward and downward. Utilizing this measurement concept, the
interest rate risk of the Company, expressed as a percentage change in net
income over a two-year time horizon due to changes in interest rates, at
December 31, 1996, is as follows:
+200 BASIS -200 BASIS
POINTS POINTS
------ ------
Percentage change in net income due
to an immediate 200 basis point
change in interest rates over a
two-year time horizon..... 23.0% (13.3)%
--------------- --------------
SECURITIES PORTFOLIO
Tables presenting the carrying amounts and gross unrealized gains and losses for
securities held-to-maturity and available-for-sale at December 31, 1996 and 1995
(in thousands) are included by reference to page 12 and page 13 of the 1996
Annual Report to Shareholders and are incorporated herein by reference.
Maturities of securities as of December 31, 1996 by maturity distribution are as
follows (in thousands):
<TABLE>
<CAPTION>
Within From 1 From 5 After Federal
1 to 5 to 10 10 Reserve
Year years Year years Bank Stock Total
------------ ----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $ 9,689 $ 5,001 $ - $ - N/A $ 14,690
Federal agency obligations 19,641 - - - N/A 19,641
Municipal 317 - - - N/A 317
Other 32,989 5,230 - - N/A 38,219
Federal Reserve Bank stock N/A N/A N/A N/A 1,521 1,521
------------ ----------- ------------ ---------- ------------ ------------
Total $62,636 $10,231 $ - $ - $1,521 $74,388
------------ ----------- ------------ ---------- ------------ ------------
</TABLE>
The weighted average yield for each range of maturities of securities is shown
below as of December 31, 1996:
<TABLE>
<CAPTION>
Within From 1 From 5 After Federal
1 to 5 to 10 10 Reserve
Year years Year years Bank Stock Total
------------ ----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations 5.55% - - - - 5.55%
Federal agency obligations 5.47% - - - - 5.47%
Municipal 6.06% - - - - 6.06%
Other 5.71% 5.85% - - - 5.73%
Federal Reserve Bank stock - - - - 6.00% 6.00%
<FN>
* Yields on tax-advantaged securities reflect a tax equivalent adjustment based
on a marginal corporate tax rate of 34% in 1996.
</FN>
</TABLE>
- 13 -
<PAGE>
Securities of a Single Issuer
- -----------------------------
There were no securities of any single issuer which had book value in excess of
ten percent of shareholders' equity at December 31, 1996.
LOAN PORTFOLIO
Classification of Loans
- -----------------------
The following table shows the Company's loan portfolio by category for the five
previous fiscal years (in thousands):
<TABLE>
<CAPTION>
December 31 1996 1995 1994 1993 1992
- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial/commercial real estate $182,403 $101,271 $ 45,587 $13,642 $ 4,659
Home equity 87,303 54,592 26,244 13,090 6,351
Indirect auto 91,212 38,831 - - -
Residential real estate 51,673 37,074 26,188 14,095 9,020
Installment 23,716 12,524 4,865 6,193 5,642
Premium finance 59,240 15,703 93,349 63,534 23,383
--------------- ------------- -------------- -------------- -------------
495,547 259,995 196,233 110,554 49,055
Less: Unearned finance charges 2,999 1,764 2,251 1,278 528
--------------- ------------- -------------- -------------- -------------
Total $492,548 $258,231 $193,982 $109,276 $48,527
=============== ============= ============== ============== =============
</TABLE>
Commercial and commercial real estate loans. The commercial loan component is
comprised primarily of commercial real estate loans, lines of credit for working
capital purposes, and term loans for the acquisition of equipment. Commercial
real estate is predominantly owner occupied and secured by a first mortgage lien
and assignment of rents on the property. Equipment loans are fully amortized
over 24 to 60 months and secured by titles and/or U.C.C. filings. Working
capital lines are renewable annually and supported by business assets, personal
guarantees and often some sort of additional collateral. Commercial business
lending is generally considered to involve a higher degree of risk than
traditional bank lending. The vast majority of commercial loans are made within
the Banks' immediate market areas. The increase can be attributed to an emphasis
on business development calling programs and superior servicing of existing
commercial loan customers which has increased referrals.
In addition to the home mortgages originated by the Banks' lending officers, the
Company participates in mortgage warehouse lending by providing interim funding
to unaffiliated mortgage brokers to finance residential mortgages originated by
such brokers for sale into the secondary market. The Company's loans to the
mortgage brokers are secured by the business assets of the mortgage companies as
well as the underlying mortgages, the majority of which are funded by the
Company on a loan-by-loan basis after they have been pre-approved for purchase
by third party end lenders who forward payment directly to the Company upon
their acceptance of final loan documentation. In addition, the Company may also
provide interim financing for packages of mortgage loans on a bulk basis in
circumstances where the mortgage brokers desire to competitively bid a number of
mortgages for sale as a package in the secondary market. Typically, the Company
will serve as sole funding source for its mortgage warehouse lending customers
under short-term revolving credit agreements. Amounts advanced with respect to
any particular mortgages
- 14 -
<PAGE>
are usually required to be repaid within 15 days. The Company has developed
strong relationships with a number of mortgage brokers and is seeking to expand
its customer base for this niche business.
The following table classifies the commercial loan portfolio category at
December 31, 1996 by date at which the loans mature:
<TABLE>
<CAPTION>
FROM ONE
ONE YEAR TO FIVE AFTER
OR LESS YEARS FIVE YEARS TOTAL
------- ----- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans and commercial
real estate loans................ 115,349 55,469 7,586 178,404
Commercial paper................... 3,999 - - 3,999
Premium finance loans.............. 57,453 - - 57,453
</TABLE>
Of those loans maturing after one year, $59.8 million have fixed rates.
Home equity loans. The Company's home equity loan products are generally
structured as lines of credit secured by first or second position mortgage liens
on the underlying property with loan-to-value ratios not exceeding 80%,
including prior liens, if any. The Banks' home equity loans feature competitive
rate structures and fee arrangements. In addition, the Banks periodically offer
promotional home equity loan products as part of their marketing strategy often
featuring lower introductory rates.
Indirect auto loans. As part of its strategy to pursue specialized earning asset
niches to augment loan generation within the Banks' target markets, the Company
finances fixed rate automobile loans funded indirectly through unaffiliated
automobile dealers. As of December 31, 1996, indirect auto loans comprised
approximately 79.4% of the Company's consumer loan portfolio. Indirect
automobile loans are secured by new and used automobiles and are generated by a
network of automobile dealers located in the Chicago area with which the Company
has established relationships. These credits generally have an original maturity
of 36 to 60 months and the average actual maturity is estimated to be
approximately 37 months. The risk associated with this portfolio is diversified
amongst many individual borrowers. Management continually monitors the dealer
relationships and the Banks are not dependent on any one dealer as a source of
such loans. Like other consumer loans, the indirect auto loans are subject to
the Banks' stringent credit standards.
Residential real estate mortgages. The residential real estate category includes
one- to four-family adjustable rate mortgages that have repricing terms
generally from one to three years, construction loans to individuals, and bridge
financing loans for qualifying customers. The adjustable rate mortgages are
often non-agency conforming, may have terms based on differing indexes, and
relate to properties located principally in the Chicago metropolitan area or
vacation homes owned by local residents. Adjustable-rate mortgage loans
decrease, but do not eliminate, the risks associated with changes in interest
rates. Because periodic and lifetime caps limit the interest rate adjustments,
the value of adjustable-rate mortgage loans fluctuates inversely with changes in
interest rates. In addition, as interest rates increase, the required payments
by the borrower increases, thus increasing the potential for default. The
Company does not generally originate loans for its own portfolio with long-term
fixed rates due to interest rate risk considerations. However, the Banks do
accommodate customer requests for fixed rate loans by originating
- 15 -
<PAGE>
and selling the loans into the secondary market, in connection with which the
Company receives servicing fee income.
Premium finance loans. The Company internally originates premium
finance loans at First Premium which generally sells them to the Banks or funds
the loans through asset securitization facilities. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources." All premium finance loans, however financed, are subject to
the Company's stringent credit standards, and substantially all such loans are
made to commercial customers.
The Company rarely finances consumer insurance premiums, which are regarded by
management as riskier loans.
First Premium offers financing of approximately 80% of an insurance
premium primarily to commercial purchasers of property and casualty and
liability insurance who desire to pay insurance premiums on an installment
basis. The premium finance loan allows the insured to spread the cost of the
insurance policy over time. First Premium markets its financial services
primarily by establishing and maintaining relationships with medium and large
insurance agents and brokers and by offering a high degree of service and
innovative products. Senior management is significantly involved in First
Premium's marketing efforts, currently focused almost exclusively on commercial
accounts which it believes provide higher returns at lower risk. Loans are
originated by First Premium's own sales force by working with insurance agents
and brokers throughout the United States. As of December 31, 1996, First Premium
had the necessary licensing and other regulatory approvals to do business in 45
states and the District of Columbia and has applied for licenses in three
additional states.
In financing insurance premiums, the Company does not assume the risk
of loss normally borne by insurance carriers. Typically the insured buys an
insurance policy from an independent insurance agent or broker who offers
financing through First Premium. The insured makes a down payment of
approximately 15% to 25% of the total premium and signs a premium finance
agreement with First Premium for the balance due, which amount First Premium
disburses directly to the insurance carrier or its agents to satisfy the unpaid
premium amount. As the insurer earns the premium ratably over the life of the
policy, the unearned portion of the premium secures payment of the balance due
to First Premium by the insured. Under the terms of the Company's standard form
of financing contract, the Company has the power to cancel the insurance policy
if there is a default in the payment on the finance contract and to collect the
unearned portion of the premium from the insurance carrier. In the event of
cancellation of a policy, the cash returned in payment of the unearned premium
by the insurer should be sufficient to cover the loan balance and generally the
interest and other charges due as well.
Other. Included in other loans is a wide variety of personal and
consumer loans to individuals. The Banks have been originating consumer loans in
recent years in order to provide a wider range of financial services to their
customers. Consumer loans generally have shorter terms and higher interest rates
than mortgage loans but generally involve more credit risk than mortgage loans
due to the type and nature of the collateral.
The Company had no loans to businesses or governments of foreign countries at
any time during the reporting periods.
- 16 -
<PAGE>
<TABLE>
<CAPTION>
RISK ELEMENTS IN THE LOAN PORTFOLIO
Nonaccrual, Past Due and Restructured Loans
- -------------------------------------------
Nonaccrual loans at December 31 are as follows (in thousands):
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans . . . . . . . . . . . $1,686 $1,778 $ 4 $ 4 $ 44
Loans past due 90 days or more . . 95 142 16 - 88
Restructured loans . . . . . . . . . . - - - - -
--------------- --------------- --------------- --------------- ----------------
Total non-performing loans . . 1,781 1,920 20 4 132
Other real estate owned . . . . . . . - - - - -
Total non performing assets . . $1,781 $1,920 $ 20 $ 4 $ 132
--------------- --------------- --------------- --------------- ----------------
Total non-performing loans to
total loans . . 0.36% 0.74% 0.01% -% 0.27%
Total non-performing assets to
total assets . . 0.25% 0.41% 0.01% -% 0.16%
Nonaccrual loans to total loans 0.34% 0.69% -% -% 0.09%
</TABLE>
It is the policy of the Company to discontinue the accrual of interest income on
any loan for which there is a reasonable doubt as to the payment of interest or
principal. Nonaccrual loans are returned to an accrual status when the financial
position of the borrower indicates there is no longer any reasonable doubt as to
the payment of principal or interest. Other than those loans indicated above,
the Company had no significant loans (1) for which the terms had been
renegotiated, or (2) for which there were serious doubts as to the ability of
the borrower to comply with repayment terms.
Other Real Estate Owned. The Company did not have any Other Real Estate Owned at
the end of any of the reporting periods.
Potential Problem Loans
- -----------------------
In addition to those loans disclosed under "Nonaccrual, Past Due and
Restructured Loans", 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
December 31, 1996 and 1995 were approximately $1.1 million and $604,000,
respectively. Loans in this category generally include loans that were
classified for regulatory purposes. At December 31, 1996, there were no
significant loans which were classified by any bank regulatory agency that are
not included in the aforementioned potential
- 17 -
<PAGE>
problem loans, nonaccrual, past due and restructured loans. At December 31,
1996, the Company was not a lender for any highly-leveraged transactions.
Loan Concentrations
- -------------------
Loan concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities which would cause
them to be similarly impacted by economic or other conditions. At December 31,
1996, the Company had no concentrations of loans exceeding 10% of total loans,
except for indirect auto and premium finance loans as discussed above.
Foreign Loans
- -------------
The Company had no loans to businesses or governments of foreign countries at
any time during the reporting periods.
- 18 -
<PAGE>
<TABLE>
<CAPTION>
Analysis of the Allowance for Possible Loan Losses (in thousands)
- -----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period ........................ $2,763 $1,702 $1,357 $ 961 $ 818
Loans charged-off
- -----------------
Residential real estate ............................. - - - - -
Commercial and commercial real estate ............... (22) - (20) - -
Home equity ......................................... (140) (25) - - -
Premium finance ..................................... (207) (247) (40) (5) -
Financing leases .................................... (583) (109) (205) (728) (965)
Indirect auto ....................................... (123) - - - -
Other loans ......................................... (28) (18) - - -
------------------------------ --------------- ------------- -----------
Total loans charged-offs .......................... (1,103) (399) (265) (733) (965)
------------------------------ --------------- ------------- -----------
Recoveries
- ----------
Residential real estate ............................. - - - - -
Commercial and commercial real estate ............... - - - - -
Home equity ......................................... - - - - -
Premium finance ..................................... 24 30 3 2 -
Financing leases .................................... - - - - -
Indirect auto ....................................... - - - - -
.
Other loans ......................................... 17 - - - -
------------------------------ --------------- ------------- -----------
Total recoveries ................................. 41 30 3 2 -
------------------------------ --------------- ------------- -----------
Net loans charged-off ............................... (1,062) (369) (262) (731) (965)
------------------------------ --------------- ------------- -----------
Reduction due to subsidiary sold .................... - - (8)
Provision for possible loan losses .................. 1,935 1,430 607 1,127 1,116
------------------------------ --------------- ------------- -----------
Balance at the end of period ........................ $3,636 $2,763 $1,702 $1,357 $ 961
============================== =============== ============= ===========
Average total loans ................................. $347,076 $183,614 $148,209 $79,052 $40,528
============================== =============== ============= ===========
Net loans charged-off to average total loans ........ 0.31% 0.20% 0.18% 0.92% 2.38%
============================== =============== ============= ===========
</TABLE>
Both the provision and the allowance are based on an analysis of individual
credits, prior and current loss experience, overall growth in the portfolio,
current economic conditions, and other factors. An allocation of the ending
allowance for loan losses by major loan type is presented below (in thousands):
- 19 -
<PAGE>
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
- -------------------------------------------
DECEMBER 31, 1996 December 31, 1995
----------------------------------- -------------------------------
% OF LOANS % of loans
IN EACH in each
CATEGORY TO category to
AMOUNT TOTAL LOANS Amount total loans
--------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Residential real estate ........................ $ 34 10% $ 26 14%
Commercial and commercial real estate .......... 996 37 1,044 39
Home equity .................................... 402 18 282 21
Premium finance ................................ 288 12 281 6
Indirect auto .................................. 432 18 190 15
Other loans .................................... 128 5 49 5
Unallocated .................................... 1,356 - 891 -
--------------- ------------------ -------------- ---------------
Total ........................................ $3,636 100% $2,763 100%
=============== ================== ============== ===============
</TABLE>
The above allocation is made for analytical purposes. Prior to 1995, management
did not perform a specific allocation of the allowance for possible loan losses
by category. It is not anticipated that charge-offs during the year ending
December 31, 1997 will exceed the amount allocated to any individual category of
loan. For further review of the loan loss provision and the allowance for
possible loan losses reference is made to pages 34 and 35 of Management's
Discussion and Analysis of Financial Statements of the 1996 Annual Report to
Shareholders filed herewith as Exhibit 13.1, and incorporated herein by
reference.
DEPOSITS
The following table sets forth the scheduled maturities of time deposits in
denominations of $100,000 or more at December 31, 1996 (in thousands):
Maturing within 3 months ................................ $ 60,755
After 3 but within 6 months ............................. 32,534
After 6 but within 12 months ............................ 44,145
After 12 months ......................................... 22,234
--------------
Total ................................................. $159,668
==============
- 20 -
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to the Company's equity
and assets:
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Return on average total assets (0.17)% 0.40% (0.88)%
Return on average common shareholders' equity (2.33)% 4.66% (12.20)%
Dividend payout ratio 0.00% 0.00% 0.00%
Average equity to average total assets 7.4% 8.6% 7.2%
Ending total risk based capital ratio 8.0% 11.9% 9.6%
Leverage ratio 6.4% 8.5% 7.1%
</TABLE>
SHORT-TERM BORROWINGS
The information required in connection with Short-Term Borrowings is contained
under the caption "Analysis of Financial Condition - Short-Term Borrowings" in
the 1996 Annual Report to Shareholders filed herewith as Exhibit 13.1, and is
incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's executive offices are located in the main bank facility of Lake
Forest Bank. Lake Forest Bank has five physical banking locations. Lake Forest
Bank's main bank facility is located at 727 N. Bank Lane, Lake Forest, Illinois,
and is a three story, 18,000 square foot brick building. Lake Forest Bank
constructed a drive-in, walk-up banking facility on land leased from the City of
Lake Forest on the corner of Bank Lane and Wisconsin Avenue in Lake Forest,
approximately one block north of the main banking facility. Lake Forest Bank
also leases a 1,200 square foot, full service banking facility at 103 East
Scranton Avenue in Lake Bluff and a 2,100 square foot, full service banking
facility on the west side of Lake Forest, Illinois at 810 South Waukegan Road.
Lake Forest maintains automated teller machines at each of its locations except
the 810 South Waukegan Road facility. A drive-in and walk-up banking facility
was opened in the first quarter of 1997 at 911 S. Telegraph Road in the West
Lake Forest Train Station. Lake Forest Bank has no offsite automated teller
machines
North Shore Bank currently has four physical banking locations. North Shore Bank
owns the main bank facility, a one story brick building that is located at 1145
Wilmette Avenue in downtown Wilmette, Illinois. North Shore bank also owns a
newly constructed 9,600 square foot drive-in, walk-up banking facility at 720
12th Street, approximately one block west of the main banking facility. North
Shore Bank leases a full service banking facility at 362 Park Avenue in Glencoe,
Illinois. Additionally, during May, 1996, North Shore Bank opened a branch
banking facility in Winnetka, Illinois where it leases approximately 4,000
square feet. North Shore bank maintains automated teller machines at each of its
locations, except Glencoe and Winnetka. North Shore has no offsite automated
teller machines.
- 21 -
<PAGE>
Hinsdale Bank currently has three physical banking locations. Hinsdale Bank owns
its main bank facility, a two story brick building located at 25 East First
Street in downtown Hinsdale, Illinois. Hinsdale Bank constructed a 1,000 square
foot drive-in, walk-up banking facility at 130 West Chestnut, approximately two
blocks west of the main banking facility. Hinsdale Bank maintains automated
teller machines at both of its locations. Hinsdale Bank has no offsite automated
teller machines. Hinsdale Bank also has a building in Clarendon Hills which has
approximately 6,000 square feet. Clarendon Hills Bank, a branch of Hinsdale
Bank, currently occupies approximately 2,000 square feet as a full service
banking facility and leases the remainder of the space to unrelated parties.
Libertyville Bank currently has two physical banking locations. Libertyville
Bank owns the main bank facility, which is a 13,000 square foot two story brick
building located at 507 North Milwaukee Avenue in downtown Libertyville,
Illinois. Libertyville Bank also owns a 2,500 square foot drive-in, walk-up
banking facility at 201 Hurlburt Court, approximately five blocks southeast of
the main banking facility. Libertyville Bank maintains automated teller machines
at both of its locations. Libertyville Bank has no offsite automated teller
machines.
Barrington Bank currently has one physical banking location, a 2,860 square foot
space which it is leasing. The building is located at 202 South Cook Street in
Barrington, Illinois. This location will serve as a temporary facility for the
Bank until such time as its permanent facility is completed. Barrington Bank has
purchased property located at 201 South Hough in Barrington and has designed for
new construction a 15,000 square foot frame structure with an attached
drive-through facility. This building will serve as Barrington Bank's main bank
facility when construction is completed, currently scheduled for late 1997.
First Premium's offices are located at 520 Lake Cook Road, Suite 300, Deerfield,
Illinois 60015. First Premium leases approximately 12,000 square feet of office
space at a cost of $27,000 per month under a eight-year and nine month lease
expiring in the year 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries from time to time are subject to pending and
threatened legal action and proceedings arising in the normal course of
business. Since the Banks act as depositories of funds, they are from time to
time named as defendants in various lawsuits (such as garnishment proceedings)
involving claims to the ownership of funds in particular accounts. Any such
litigation currently pending is incidental to such Bank's business and, based on
information currently available to management, management believes the outcome
of such actions or proceedings will not have a material adverse effect on the
operations or financial condition of the Company or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
- 22 -
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Other than certain restricted shares, the majority of the Common Stock is freely
tradable by persons other than those who are currently affiliates of the
Company. At December 31, 1996, the principal market for the Company's Common
Stock was the over-the-counter (OTC) market where bid and asked prices were
quoted on the OTC Bulletin Board. However, on March 13, 1997 the common stock
began trading on The Nasdaq National Market under the symbol WTFC. Prior to the
Company's listing on The Nasdaq National Market there had not been active
trading in the Common Stock. Prior to the Company's Reorganization in September,
1996, there was no established public market for the shares of the Company's
predecessor companies.
The table below sets forth the high and low per share bid prices quoted
for the Common Stock during the fourth quarter of 1996, the first full quarterly
period for which there has been limited trading in the Common Stock. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions. Furthermore, for the period from October 1, 1996 to October 18,
1996, bids for the Common Stock quotations were being maintained by only one
market maker.
BID
---
1996 HIGH LOW
---- ---- ---
Fourth quarter $15.62 $12.50
The low bid price for the fourth quarter was quoted during the period at the
beginning of the quarter when there was only one market maker maintaining
quotations on the OTC Bulletin Board.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
- ---------------------------------------------
As of March 21, 1997 there were approximately 2,189 holders of record of the
Company's common stock which has no par value.
DIVIDENDS ON COMMON STOCK
- -------------------------
The Company has not previously paid dividends on its common stock but rather has
retained earnings to facilitate growth of the Company. Because the Company's
consolidated net income consists largely of net income of the Banks and First
Premium, the Company's ability to pay dividends depends upon its receipt of
dividends from the Banks and First Premium. The Banks' ability to pay dividends
is regulated by banking statutes. See "Financial Institution Regulation
Generally - Dividend Limitations" on page 6 of this Report.
- 23 -
<PAGE>
In addition, each of North Shore Bank, Libertyville Bank and Barrington Bank is
subject to additional restrictions prohibiting the payment of dividends by a de
novo bank in its first three years of operations. The de novo periods will end
for North Shore Bank, Libertyville Bank and Barrington Bank in September 1997,
October 1998 and December 1999, respectively. In addition, the payment of
dividends may be restricted under certain financial covenants in the Company's
revolving line of credit.
The declaration of dividends is at the discretion of the Company's Board of
Directors and depends upon earnings, capital requirements, regulatory
limitations, tax considerations, the operating and financial condition of the
Company and other factors. Reference is made to note 13 of the 1996 Annual
Report to Shareholders, attached hereto as Exhibit 13.1, which is incorporated
herein by reference for a description of the restrictions on the ability of
certain subsidiaries to transfer funds to the Company in the form of dividends.
RECENT SALES OF UNREGISTERED SECURITIES.
- ----------------------------------------
In December 1996, options to purchase 34,622 shares of the Company's Common
Stock were granted pursuant to an employee stock option plan to a limited number
of key employees. Such options were issued in reliance on the exemption from
registration pursuant to Section 4(2) of the Securities Act.
In December 1996, in connection with the Company's acquisition of Wolfhoya
Investments, Inc. ("Wolfhoya"), the Company issued an aggregate of 87,556 shares
of Common Stock to the shareholders of Wolfhoya, all of whom are directors or
officers of the Company or its subsidiaries, in reliance on the exemption from
registration pursuant to Section 4(2) of the Securities Act. As part of such
acquisition, each outstanding warrant to purchase shares of common stock of
Wolfhoya was adjusted in accordance with its terms to represent the right to
purchase an appropriately adjusted number of shares of Common Stock of the
Company. An aggregate of 16,838 Warrants were received by the former
shareholders of Wolfhoya as a result of that transaction, not involving the sale
of securities by the Company. Options that were granted by Wolfhoya prior to its
acquisition by the Company in the fourth quarter of 1996 were also adjusted in
connection with such acquisition into options to purchase 68,534 shares of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Certain information required in response to this item is contained in the Annual
Report to Shareholders under the caption "Selected Financial Highlights" and is
incorporated herein by reference. The Company's preferred stock for the last
five years are presented as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Net income (loss) from continuing
operations $ (973) 1,514 (2,000) (3,146) (5,837)
Net income (loss) from continuing
operations per common share $ (0.16) 0.24 (0.50) (1.07) (2.63)
Preferred stock $ - 503 503 503 503
Cash dividends declared per common share $ - - - - -
</TABLE>
- 24 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required in response to this item is contained in the Annual
Report to Shareholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and is incorporated herein by
reference. The discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and supplementary data contained in the Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this item is contained in the Annual
Report to Shareholders under the caption "Consolidated Financial Statements,"
and is incorporated herein by reference. Also, refer to Item 14 of this Report
for the Index to Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item will be contained in the
Company's definitive Proxy Statement (the "Proxy Statement") for its Annual
Meeting of Shareholders to be held May 22, 1997 under the caption "Management"
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item will be contained in the
Company's Proxy Statement under the caption "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners and
management is incorporated by reference to the section "Principal Shareholders"
in the Proxy Statement for the Annual Meeting of Shareholders to be held on May
22, 1997.
- 25 -
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item will be contained in the Proxy
Statement under the caption "Certain Transactions," and is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1., 2. Financial Statements and Schedules
----------------------------------
The Consolidated Financial Statements are incorporated by reference to
the following pages from the 1996 Annual Report to Shareholders,
attached hereto as Exhibit 13.1:
Page
Consolidated Statements of Condition 6
Consolidated Statements of Income 7
Consolidated Statements of Changes in Shareholders'
Equity 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10-22
Independent Auditors' Report 22
No schedules are required to be filed with this report.
3. Exhibits (Exhibits marked with a "*" denote management contracts
--------
or compensatory plans or arrangements)
3.1 Amended and Restated Articles of Incorporation of Wintrust
Financial Corporation (incorporated by reference to Exhibit 3.1
of the Company's Form S-1 Registration Statement (No 333-18699)
filed with the Securities and Exchange Commission on December 24,
1996).
3.2 By-laws of Wintrust Financial Corporation (incorporated by
reference to pages AC-1 to AC-16 of Amendment No. 1 to
Registrant's Form S-4 Registration Statement (No. 333-4645) filed
with the Securities and Exchange Commission on July 22, 1996).
10.1 $25 Million Revolving Loan Agreement between LaSalle National
Bank and Wintrust Financial Corporation, dated September 1, 1996
(incorporated by reference to Exhibit 10.1 of the Company's Form
S-1 Registration Statement (No 333-18699) filed with the
Securities and Exchange Commission on December 24, 1996).
- 26 -
<PAGE>
10.2 Form of Wintrust Financial Corporation Warrant Agreement
(incorporated by reference to Exhibit 10.29 to Amendment No. 1 to
Registrant's Form S-4 Registration Statement (No. 333-4645),
filed with the Securities and Exchange Commission on July 22,
1996).*
10.3 Hinsdale Bancorp, Inc. 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form
S-4 Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).*
10.4 Lake Forest Bancorp, Inc. 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form
S-4 Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).*
10.5 Lake Forest Bancorp, Inc. 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form
S-4 Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).*
10.6 Libertyville Bancorp, Inc. 1995 Stock Option Plan (incorporated
by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's
Form S-4 Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).*
10.7 North Shore Community Bancorp, Inc. 1994 Stock Options Plan
(incorporated by reference to Exhibit 10.6 to Amendment No. 1 to
Registrant's Form S-4 Registration Statement (No. 333-4645) filed
with the Securities and Exchange Commission on July 22, 1996).*
10.8 Crabtree Capital Corporation 1987 Stock Option Plan (incorporated
by reference to Exhibit 10.6 to Amendment No. 1 to Registrant's
Form S-4 Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).*
10.9 The Credit Life Companies, Incorporated 1987 Stock Option Plan
(incorporated by reference to Exhibit 10.6 to Amendment No. 1 to
Registrant's Form S-4 Registration Statement (No. 333-4645) filed
with the Securities and Exchange Commission on July 22, 1996).*
10.10 First Premium Services, Inc. 1992 Stock Option Plan
(incorporated by reference to Exhibit 10.6 to Amendment No. 1 to
Registrant's Form S-4 Registration Statement (No. 333-4645) filed
with the Securities and Exchange Commission on July 22, 1996).*
10.11 Wolfhoya Investments, Inc. 1995 Stock Option Plan (Barrington
Bank and Trust Company Stock Option Plan) (incorporated by
reference to Exhibit 10.11 of the Company's Form S-1 Registration
Statement (No 333-18699) filed with the Securities and Exchange
Commission on December 24, 1996).*
10.12 North Shore Community Bancorp, Inc. 1993 Stock Rights Plan
(incorporated by reference to Exhibit 10.6 to Amendment No. 1 to
Registrant's Form S-4 Registration Statement (No. 333-4645) filed
with the Securities and Exchange Commission on July 22, 1996).*
- 27 -
<PAGE>
10.13 Crabtree Capital Corporation 1990 Stock Purchase Plan
(incorporated by reference to Exhibit 10.6 to Amendment No. 1 to
Registrant's Form S-4 Registration Statement (No. 333-4645) filed
with the Securities and Exchange Commission on July 22, 1996).*
10.14 Phantom Stock Agreement between Lake Forest Bancorp, Inc. and
Edward J. Wehmer (incorporated by reference to Exhibit 10.6 to
Amendment No. 1 to Registrant's Form S-4 Registration Statement
(No. 333-4645) filed with the Securities and Exchange Commission
on July 22, 1996).*
10.15 Phantom Stock Agreement between Libertyville Bancorp, Inc. and
Edward J. Wehmer (incorporated by reference to Exhibit 10.6 to
Amendment No. 1 to Registrant's Form S-4 Registration Statement
(No. 333-4645) filed with the Securities and Exchange Commission
on July 22, 1996).*
10.16 Phantom Stock Agreement between North Shore Community Bancorp,
Inc. and Anne M. Adams (incorporated by reference to Exhibit 10.6
to Amendment No. 1 to Registrant's Form S-4 Registration
Statement (No. 333-4645) filed with the Securities and Exchange
Commission on July 22, 1996).*
10.17 Form of Warrant Agreement relating to the right to purchase
shares of North Shore Community Bancorp, Inc. (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form
S-4 Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).
10.18 Lake Forest Bank & Trust Company Lease for drive-up facility
located at the corner of Bank Lane & Wisconsin Avenue, Lake
Forest, Illinois, dated December 11, 1992 (incorporated by
reference to Exhibit 10.6 to Amendment No. 1 to Registrant's Form
S-4 Registration Statement (No. 333-4645) filed with the
Securities and Exchange Commission on July 22, 1996).
10.19 Lake Forest Bank & Trust Company Lease for banking facility
located at 810 South Waukegan Road, Lake Forest, Illinois
(incorporated by reference to Exhibit 10.6 to Amendment No. 1 to
Registrant's Form S-4 Registration Statement (No. 333-4645) filed
with the Securities and Exchange Commission on July 22, 1996).
10.20 Lake Forest Bank & Trust Company Lease for banking facility
located at 666 North Western Avenue, Lake Forest, Illinois, dated
July 19, 1991 and Amendment (incorporated by reference to Exhibit
10.6 to Amendment No. 1 to Registrant's Form S-4 Registration
Statement (No. 333-4645) filed with the Securities and Exchange
Commission on July 22, 1996).
10.21 Lake Forest Bank & Trust Company Lease for banking facility
located at 103 East Scranton Avenue, Lake Bluff, Illinois, dated
November 1, 1994 (incorporated by reference to Exhibit 10.6 to
Amendment No. 1 to Registrant's Form S-4 Registration Statement
(No. 333-4645) filed with the Securities and Exchange Commission
on July 22, 1996).
- 28 -
<PAGE>
10.22 North Shore Bank & Trust Company Lease for banking facility
located at 362 Park Avenue, Glencoe, Illinois, dated July 27,
1995 (incorporated by reference to Exhibit 10.6 to Amendment No.
1 to Registrant's Form S-4 Registration Statement (No. 333-4645)
filed with the Securities and Exchange Commission on July 22,
1996).
10.23 North Shore Bank & Trust Company Lease for banking facility
located at 794 Oak Street, Winnetka, Illinois, dated June 16,
1995 (incorporated by reference to Exhibit 10.6 to Amendment No.
1 to Registrant's Form S-4 Registration Statement (No. 333-4645)
filed with the Securities and Exchange Commission on July 22,
1996).
10.24 Barrington Bank and Trust Company Lease for property located at
202A South Cook Street, Barrington, Illinois, dated December 29,
1995 (incorporated by reference to Exhibit 10.24 of the Company's
Form S-1 Registration Statement (No 333-18699) filed with the
Securities and Exchange Commission on December 24, 1996).
10.25 Real Estate Contract by and between Wolfhoya Investments, Inc.
and Amoco Oil Company, dated March 25, 1996, and amended as of
__________, 1996, relating to the purchase of property located at
201 South Hough, Barrington, Illinois (incorporated by reference
to Exhibit 10.25 of the Company's Form S-1 Registration Statement
(No 333-18699) filed with the Securities and Exchange Commission
on December 24, 1996).
10.26 Form of Employment Agreement (entered into between the Company
and each of Howard D. Adams, Chairman and Chief Executive
Officer, and Edward J. Wehmer, President) (incorporated by
reference to Exhibit 10.26 of the Company's Form S-1 Registration
Statement (No 333-18699) filed with the Securities and Exchange
Commission on December 24, 1996).*
10.27 First Premium Services, Inc. Lease, as amended, for corporate
offices located at Lake Cook Road, Deerfield, Illinois
(incorporated by reference to Exhibit 10.27 to Amendment No. 1 of
the Company's Form S-1 Registration Statement (No 333-18699)
filed with the Securities and Exchange Commission on January 24,
1997).
10.28 Lake Forest Bank & Trust Company Lease for drive-up and walk-up
facility located at 911 South Telegraph Road, Lake Forest,
Illinois, dated November 7, 1996 (incorporated by reference to
Exhibit 10.28 to Amendment No. 1 of the Company's Form S-1
Registration Statement (No 333-18699) filed with the Securities
and Exchange Commission on January 24, 1997).
10.29 First Amendment to Loan Agreement between Wintrust Financial
Corporation and LaSalle National Bank, Dated March 1, 1997.
13.1 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 of the Company's Form S-1 Registration Statement (No
333-18699) filed with the Securities and Exchange Commission on
December 24, 1996).
27.1 Financial Data Schedule.
- 29 -
<PAGE>
(b) Reports on Form 8-K
A report on Form 8-K/A, dated September 1, 1996 was filed with the
Commission on November 7, 1996. The report was filed to include the
required proforma financial information (Item 7.a) relating to the
Company's reorganization transaction which was not available at the
time of the initial filing on Form 8-K.
- 30 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WINTRUST FINANCIAL CORPORATION
HOWARD D. ADAMS HOWARD D. ADAMS March 21, 1997
------------------------------------
Chief Executive Officer
DAVID A. DYKSTRA DAVID A. DYKSTRA March 21, 1997
------------------------------------
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
HOWARD D. ADAMS HOWARD D. ADAMS March 21, 1997
------------------------------------
Chairman of the Board of Directors
EDWARD J. WEHMER EDWARD J. WEHMER March 21, 1997
------------------------------------
President and Director
ALAN W. ADAMS ALAN W. ADAMS March 21, 1997
------------------------------------
Director
JOSEPH ALAIMO JOSEPH ALAIMO March 21, 1997
------------------------------------
Director
PETER CRIST PETER CRIST March 21, 1997
------------------------------------
Director
MAURICE F. DUNNE, JR. MAURICE F. DUNNE, JR. March 21, 1997
------------------------------------
Director
EUGENE HOTCHKISS III EUGENE HOTCHKISS III March 21, 1997
------------------------------------
Director
JAMES KNOLLENBERG JAMES KNOLLENBERG March 21, 1997
------------------------------------
Director
- 31 -
<PAGE>
JOHN S. LILLARD JOHN S. LILLARD March 21, 1997
------------------------------------
Director
JAMES E. MAHONEY JAMES E. MAHONEY March 21, 1997
------------------------------------
Director
JAMES B. MCCARTHY JAMES B. MCCARTHY March 21, 1997
------------------------------------
Director
MARQUERITE SAVARD MCKENNA MARQUERITE SAVARD MCKENNA March 21, 1997
------------------------------------
Director
ALBIN F. MOSCHNER ALBIN F. MOSCHNER March 21, 1997
------------------------------------
Director
HOLLIS W. RADEMACHER HOLLIS W. RADEMACHER March 21, 1997
------------------------------------
Director
J. CHRISTOPHER REYES J. CHRISTOPHER REYES March 21, 1997
------------------------------------
Director
JOHN N. SCHAPER JOHN N. SCHAPER March 21, 1997
------------------------------------
Director
JOHN J. SCHORNACK JOHN J. SCHORNACK March 21, 1997
------------------------------------
Director
JANE R. STEIN JANE R. STEIN March 21, 1997
------------------------------------
Director
KATHERINE V. SYLVESTER KATHERINE V. SYLVESTER March 21, 1997
------------------------------------
Director
LEMUEL H. TATE, JR. LEMUEL H. TATE, JR. March 21, 1997
------------------------------------
Director
LARRY WRIGHT LARRY WRIGHT March 21, 1997
------------------------------------
Director
- 32 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL HIGHLIGHTS
=============================================================================================================================
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA
(AT END OF PERIOD):
Total assets $ 706,037 $ 470,890 $ 354,158 $ 188,590 $ 82,864
Total deposits 618,029 405,658 221,985 98,264 42,996
Total loans 492,548 258,231 193,982 109,276 48,527
Notes payable and subordinated debt 22,057 10,758 6,905 4,837 16,050
Total shareholders' equity 42,620 40,487 25,366 17,227 11,291
- -----------------------------------------------------------------------------------------------------------------------------
SELECTED STATEMENT OF OPERATIONS DATA:
Net interest income $ 14,882 $ 9,700 $ 7,873 $ 4,355 $ 2,328
Net income (loss)(2) (973) 1,497 (2,236) (3,339) (5,735)
Net income (loss) per common share (1) (0.16) 0.24 (0.56) (1.14) (2.59)
- -----------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin 2.91% 2.96% 3.35% 3.83% 3.85%
Net interest spread 2.40% 2.41% 3.07% 3.30% 2.87%
Non-interest income to average assets 1.34% 2.36% 0.57% 0.89% 1.05%
Non-interest expense to average assets(1) 4.05% 4.37% 4.14% 5.84% 10.77%
Net overhead ratio(1) 2.71% 2.01% 3.57% 4.95% 9.72%
Return on average assets(1) (0.17)% 0.40% (0.88)% (2.60)% (7.91)%
Return on average equity(1) (2.33)% 4.66% (12.20)% (25.40)% (46.01)%
Loan-to-deposit ratio 79.7% 63.7% 87.4% 111.2% 112.9%
Average interest-earning assets to
average interest-bearing liabilities 110.73% 111.37% 106.61% 115.42% 116.93%
Asset Quality Ratios:
Non-performing loans to total loans 0.36% 0.74% 0.01% 0.00% 0.27%
Non-performing assets to total assets 0.25% 0.41% 0.01% 0.00% 0.16%
Allowance for possible loan losses to:
Total loans 0.74% 1.07% 0.88% 1.24% 1.98%
Non-performing loans 204.15% 143.91% N/M N/M N/M
Other Data at end of period:
Number of:
Bank subsidiaries 5 4 3 2 1
Banking offices 14 11 5 3 1
<FN>
Note: For 1993 through 1996, reflects results of those Banks then in
operation or in organization, results of finance and leasing
subsidiary operations (some of which have since been curtailed) and
results of discontinued operations. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." For 1992,
reflects first full-year of Lake Forest Bank operations and results of
finance and lease subsidiary operations (some of which have since been
curtailed, sold or discontinued).
(1) For the year ended December 31, 1996, the Company recorded
nonrecurring merger-related expenses of $891,000.
</FN>
</TABLE>
- 1 -
<PAGE>
DEAR SHAREHOLDERS,
Greetings to those of you who've been with us for so many years (actually,
most of you can count those many years on one hand). And a special "Welcome to
the family!" to all you new Wintrust shareholders. You joined us just in time
for a historic event.
We are pleased to present the very first Wintrust Financial Corporation
Annual Report.
1996 WAS A VERY BUSY YEAR.
We've expanded almost all our Banks' facilities and added new branches.
We've added new services and products, too. And in Barrington, we even added a
whole new bank in late December.
But the busiest business we conducted all year took place in September when
the parent companies of all our then existing banks, Lake Forest Bank & Trust,
Hinsdale Bank & Trust, North Shore Community Bank & Trust, Libertyville Bank &
Trust, and of First Premium Services, Inc. were reorganized under Wintrust
Financial Corporation.
This reorganization continues the sharing of the marketing, technology and
finance functions. They'll also be able to combine their asset/liability
management. It'll be easier for the new company to raise capital. First Premium
can take advantage of the Banks' lower cost of funds to finance its loans. And
all of us shareholders now have greater stock liquidity.
The restructuring was overwhelmingly approved by shareholders. Everybody's stock
was exchanged for shares of Wintrust at a agreed-upon ratios. After this
transaction, we had over 1,000 shareholders, and we officially became a publicly
traded company.
THE BEST CHANGE IS THE ONE WE DIDN'T MAKE.
We strongly believe that the key to our Banks' success, past and future, lies
in real local control and management. It's the main reason our present customers
chose us over our larger competitors. It's also why new customers will come to
us. So we worked especially hard to design operations that allow each bank to
preserve its independence and keep its community connections.
Our local boards of directors will all stay in place. And each bank will
continue to operate separately and to make decisions locally.
This will never change. It is the heart and soul of community banking,
Wintrust style.
WERE LOCALLY CONTROLLED AND OPERATED.
In addition to First Premium, Wintrust Financial currently operates five de novo
community banks in fifteen locations serving nineteen affluent suburban Chicago
markets, and we have over $700 million in assets. Our markets include the
communities of Lake Forest, Lake Bluff, Hinsdale, Clarendon Hills, Western
Springs, Burr Ridge, Wilmette, Glencoe, Winnetka, Kenilworth, Libertyville,
Mundelein, Vernon Hills, Barrington, Barrington Hills, Lake Barrington, North
and South Barrington and Inverness.
**** GRAPH OMITTED ****
This graph depicts a fair and accruate representation of the growth in year-
end asset and deposit balances for 1992 through 1996.
Each of the Banks is controlled by a strong, hands-on, local board ranging
in number from 15 to 22 members. The make-up of these boards includes local
business, religious and community leaders, both men and women, and a wide range
of talents and ages.
Each Bank is managed by a team of talented, professional bankers who average
more than 20 years experience in the banking business and who are deeply
involved in their local communities. Their experience and knowledge are key to
their Bank's success. But just as important, and what sets them apart from their
colleagues in other banks, is their enthusiasm for, and their belief in,
community banking.
WARM WELCOMES AND A CUSTOMER FOCUS.
The large number of new customers each of our Banks signed up as soon as
they opened their doors reflects the great desire that so many people have for
community banking.
We admit that we've had help from some of our larger bank competitors. Their
big bank behavior and extra fees have often sent customers away from their
costly teller lines and into our friendly, community banks. But we made sure
that when they came to us, they got the different kind of banking that they were
looking for.
The important lesson here is that we can't forget what our customers want,
need and deserve, or they will leave us, too. We must work hard to always be the
bank that helps customers, that takes good care of them and their money, that
provides loans when they need them.
COMMUNITY BANKING, WINTRUST STYLE.
Wintrust Financial has developed a relatively unique approach to de
novo community banking. Our key business strategies include:
- 2 -
<PAGE>
o Maintaining local decision-making authority
o Employing fewer, but more highly qualified and productive individuals
o Providing a high level of personal and professional bank services
o Utilizing aggressive marketing of innovative deposit and loan products
customized to the local market needs
o Building a portfolio of high quality loans
o Augmenting the loan portfolio with selected loans from specialized
asset niches
o Expanding personal trust services
o Pursuing new distribution methods for our premium finance business
o Taking advantage of synergies between First Premium and the Banks
o Continuing to differentiate our company from competition with innovative
marketing
BUT FOR GOLIATH, WHO'D KNOW ABOUT DAVID?
Our competitors are the large regional and multi-national banks. They also
include sizable local competitors. We relish this competition. In marketing each
of our community banks, we often use a "David versus Goliath" approach. We've
discovered that talking about their "bigness" helps us dramatize the many real
advantages of our smallness. And it gets right to the heart of why people should
move their deposit accounts and loans to our Banks.
**** GRAPH OMITTED ****
This graph depicts a fair and accruate representation of the growth in year-
end loan balances for 1992 trhough 1996.
SIGNIFICANT GROWTH IN 1996.
In April, North Shore Community Bank and Trust opened a new facility in
Winnetka. In August, Hinsdale Bank & Trust opened Clarendon Hills Bank. And our
fifth bank, Barrington Bank & Trust, was introduced in December. Additionally,
construction was begun on an expanded main bank facility in Hinsdale and our new
Drive-Thru in West Lake Forest.
We believed that our exceptional customer service and competitive products
were worth crowing about, so crow we did. Throughout the year, aggressive
marketing campaigns underlined the benefits of our kind of community banking.
That and the dedication of each and every staff member has contributed to the
core deposit growth of our company. Our Banks increased deposits by a whopping
52% (+$212 million) during 1996.
**** GRAPH OMITTED ****
This graph depicts a fair and accruate representation of the growth in the
number of banking offices at each year-end for 1992 through 1996.
The growth in deposits was the primary reason for the increase in our
year-end assets to about $700 million. That's up about 50% from the end of 1995.
More than $700 million in assets? Only open since late 1991? Wow. It really does
show our communities' acceptance of the kind of banking we're giving them.
Our lending staffs continue to introduce community oriented loan products and
the results are beginning to show. Our loan portfolio grew to approximately $493
million in 1996 from $258 million in 1995. We've also supplemented our loan
portfolio with a few specialized loan products. The two most significant
specialized loan areas are the commercial insurance premium finance loans
originated by First Premium and top quality automobile loans originated by our
Hinsdale Bank. These accounted for about $97 million of the 1996 loan growth.
Your management and boards of directors are committed to strong credit quality,
and we have originated only top quality loans.
FUTURE GROWTH VERSUS FASTER PROFITS.
Our eyes are definitely turned toward the future. We'll be investing in
additional facilities, and continuing to hire experienced, top level managers.
We'll also be expanding into additional markets and running aggressive marketing
campaigns to grow market share.
Over the past few years, this has led to differences in our earnings pattern
compared to other established community banks. Our relatively high growth rates
came with temporarily high overhead ratios. These reflect the necessary start-up
investment in human resources, marketing and facilities to create de novo banks
and to open additional branches.
Also, upon entering new markets, we tend to offer highly competitive deposit
and loan interest rates. This has helped us achieve market share. More
importantly, it's helped us build a strong customer base in each of our markets.
But, understandably, it has not allowed us to achieve our long-term interest
margin goals as quickly as we could have if we hadn't been as aggressive.
All of our expansion activities have suppressed faster, opportunistic
earnings. However, as the Company matures, the organization and start-up costs
associated with future bank and branch openings will not have as significant an
impact on earnings. (Also, 1996 earnings were impacted by about $900,000 of
non-recurring merger expenses.)
We strongly believe the early investments we've made in developing our young
franchise, combined with the strength gained by placing the Banks and First
Premium under one parent company,
- 3 -
<PAGE>
will result in favorable returns to our
shareholders and customers as Wintrust matures.
To that end, our long term financial goals are simple:
o Net interest margin of 4 - 4 1/2%
o Net overhead ratio of 1 1/2 - 2%
o Return of assets of 1 1/4 - 1 1/2 %
o Return on equity of 20 -25%
TWO KEY STRATEGIES.
In order to ensure our future profitability, we must increase our net
interest margins and reduce our overhead ratios. This will be accomplished 1) by
growing our earning asset niches and 2) by bringing our young Banks' overhead in
line by growing deposits and loans to fit that overhead.
A community bank can't do this without going outside its customer base. A
typical community bank, by its very nature, can depend on its local customers
for only about half of its loan potential. Because of the extra 50% that's
available, we've looked for profitable earning assets that will help us realize
the full potential of our combined loan capacity. Indirect auto loans (high
quality "A" paper), secured mortgage warehousing, and premium finance are some
of the earning asset niches that the Company is now successfully pursuing.
FIRST PREMIUM, AN IMPORTANT PART OF OUR FUTURE.
First Premium is the only non-bank member of our Company. On the surface,
their business is very simple. They provide short term, secured loans to pay
insurance premiums (hence, the name) for businesses across the country.
Companies use this type of loan to smooth out their cash flow.
Of course, that's only the surface. Underneath, it gets a bit more
complicated. There's the necessity for lots of very smart money management. And
very personal customer contact. And lightning fast communication and decisions.
And highly competitive rates. And truly innovative products and systems. Like
the Banks, First Premium has an experienced management team with many years in
the premium finance business. And they do their job, on the surface and below
it, very well.
First Premium, also a de novo organization, is in its sixth year of operation
and, again like our banks, has done very well in a very short time. With
national loan volume of about $300 million in 1996, it has grown to be one of
the ten largest premium finance companies in the U.S.
THE RESULTS ARE IN.
Our "Subscription and Community Offering" has been successfully completed.
We've added over 1,500 new shareholders, most of whom live in the communities
served by our Banks. Interest in the offering was high, with approximately 1.38
million shares sold verses our 1.3 million share goal. And you can now find out
how your stock is doing by looking up Wintrust Financial Corporation in the
Nasdaq National Market listings (WTFC).
**** GRAPH OMITTED ****
This graph depicts a fair and accruate representation of the growth in year-
end shareholders' equity for 1992 throught 1996, and an estimate of pro-forma
equity based on the results of the recent common stock offering.
We raised $21.4 million in capital which we'll use to reduce debt and to fund
expansion. It'll also help us to maintain our aggressive pursuit of market share
growth and allow us to open new community banks in select suburban Chicago
markets while the community bank window of opportunity is open. In the future,
we plan to fund growth through internal profitability and additional borrowing.
WE'VE MADE NO SMALL PLANS.
1997 brings fresh challenges to Wintrust Financial. We'll be constructing new
banking facilities in Lake Forest, Hinsdale and Wilmette, and opening new
branches for at least two of our banks. We hope to also open Wintrust bank #6 in
late 1997. First Premium is targeted to grow by increasing our customer base and
expanding market share with current customers. We will also be seeking
shareholder approval to revamp our employee stock option plans. We would like to
merge existing stock option plans for the Banks and First Premium and would like
to allocate additional shares to keep the interests of our employees aligned
with those of the Company.
SIC PARVIS MAGNA.
"Great things from small beginnings..."
Yours truly,
Howard D. Adams
Chairman & Chief Executives Officer
Edward J. Wehmer
President
P.S. The annual meeting of Wintrust Financial Corporation's shareholders is set
for the evening of May 22, 1997. Please save the date.
- 4 -
<PAGE>
**** MAP OMITTED ****
This page has a fair and accurate representation of the locations of the
company's locations as presented on a map of the Chicago area.
- 5 -
<PAGE>
CONSOLIDATED STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995
--------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks-noninterest bearing $ 36,581 12,622
Federal funds sold 38,835 55,812
Interest-bearing deposits with banks 18,732 50,600
Available-for-Sale securities, at fair value 69,387 57,887
Held-to-Maturity securities, at amortized cost, fair value of $4,913
and $4,959 in 1996 and 1995, respectively. 5,001 5,002
Loans, net of unearned income 492,548 258,231
Less: Allowance for possible loan losses 3,636 2,763
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 488,912 255,468
Premises and equipment, net 30,277 23,999
Accrued interest receivable and other assets 16,426 8,919
Goodwill and organizational costs 1,886 581
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 706,037 470,890
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 67,164 $45,869
Interest bearing 550,865 359,789
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 618,029 405,658
Short-term borrowings 7,058 867
Notes payable 22,057 10,758
Other liabilities 16,273 13,120
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 663,417 430,403
===========================================================================================================================
Shareholders' equity
Preferred stock, 20,000,000 shares authorized; no shares issued and
outstanding at December 31, 1996, and 113,063
issued and outstanding at December 31, 1995 - 503
Common stock, no par value; $1.00 stated value; 30,000,000 shares authorized;
6,603,436 and 5,830,866 issued and outstanding at December 31,
1996 and 1995, respectively 6,603 5,831
Surplus 52,871 50,053
Common stock rights - -
Common stock warrants 100 75
Retained deficit (16,963) (15,990)
Net unrealized gains on Available-for-Sale
securities, net of tax 9 15
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 42,620 40,487
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 706,037 470,890
===========================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
- 6 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 30,631 17,028 13,617
Interest-bearing deposits with banks 1,588 3,194 1,290
Federal funds sold 2,491 2,048 791
Securities 4,327 3,202 2,046
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 39,037 25,472 17,744
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 22,760 14,090 5,498
Interest on short-term borrowings and notes payable 1,395 1,682 4,373
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 24,155 15,772 9,871
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 14,882 9,700 7,873
Provision for possible loan losses 1,935 1,430 607
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 12,947 8,270 7,266
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Gain on sale of loans 3,078 4,421 -
Loan servicing fees 1,442 1,101 -
Fees on loans sold 1,393 850 399
Trust fees 522 399 202
Service charges on deposit accounts 468 196 112
Securities gains, net 18 - 21
Gain on settlement of contingencies (note 14) - 735 -
Other 611 842 752
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 7,532 8,544 1,486
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 11,551 8,011 5,319
Occupancy, net 2,264 1,520 1,165
Data processing 1,014 624 335
Marketing 1,102 682 288
Amortization of deferred financing fees 542 768 641
Merger related expenses 891 - -
Other 5,398 4,207 3,004
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 22,762 15,812 10,752
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes (2,283) 1,002 (2,000)
Income tax benefit (1,310) (512) -
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from continuing operations (973) 1,514 (2,000)
Loss from operations of discontinued subsidiaries - (17) (236)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (973) 1,497 (2,236)
===========================================================================================================================
NET INCOME (LOSS) PER COMMON SHARE $ (0.16) 0.24 (0.56)
===========================================================================================================================
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS 6,134 6,153 4,035
===========================================================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
- 7 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
NET
NOTES UNREALIZED
RECEIVABLE GAIN (LOSS)
FROM OFFICERS COMMON RETAINEDON SECURITIES TOTAL
PREFERRED COMMON FROM SALE OF STOCK EARNING AVAILABLE SHAREHOLDERS'
STOCK STOCK SURPLUS COMMON STOCK WARRANTS (DEFICIT) FOR SALE EQUITY
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 503 3,610 30,275 (58) 50 (17,169) 16 17,227
Payment of note receivable from Officer from
sale of common stock - - - 58 - - - 58
Issuance of common stock, net of issuance costs - 1,016 8,965 - - - - 9,981
Issuance of preferred stock 500 - - - - - - 500
Issuance of warrant to acquire common stock - - - - 25 - - 25
Conversion of preferred stock to common stock (500) 119 381 - - - - -
Dividends on preferred stock - - - - - (37) - (37)
Allocation of undivided profit - - (1,000) - - 1,000 - -
Net loss - - - - - (2,236) - (2,236)
Change in net unrealized gain on securities
available-for-sale, net of tax effect - - - - - - (152) (152)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 503 4,745 38,621 - 75 (18,442) (136) 25,366
Common stock issuance - 1,086 12,432 - - - - 13,518
Dividends on preferred stock - - - - - (45) - (45)
Allocation of undivided profit - - (1,000) - - 1,000 - -
Net income - - - - - 1,497 - 1,497
Change in unrealized loss on securities
available-for-sale, net of tax effect - - - - - - 151 151
- ----------------------------------------------------------------------------------------------------------------------------------
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 - - - - -
Repurchase of common stock - (4) (44) - - - - (48)
Purchase of Wolfhoya Investments, Inc. - 87 1,190 - 25 - - 1,302
Net loss - - - - - (973) - (973)
Cash payment of fractional shares - - (7) - - - - (7)
Change in net unrealized gain on securities
available-for-sale, net of tax effect - - - - - - (6) (6)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $ - 6,603 52,871 - 100 (16,963) 9 42,620
=================================================================================================================================+
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
- 8 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31 ,
---------------------------------------------
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (973) 1,514 (2,000)
Adjustments to reconcile net income (loss) to net cash
used for, or provided by, operating activities:
Provision for possible loan losses 1,935 1,430 607
Depreciation and amortization 2,104 1,811 1,124
Deferred income tax benefit (1,455) (331) -
Gain on sale of investment securities, net (18) - (21)
Net accretion/amortization of investment securities (1,924) (390) (97)
Net loss of discontinued operations - (17) (236)
Decrease in net assets of discontinued operations - 1,875 666
Increase in other assets, net (5,273) (4,813) (1,809)
Decrease in other liabilities, net 2,285 1,907 6,533
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (3,319) 2,986 4,767
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of Available-for-Sale securities 308,424 80,234 8,900
Proceeds from sales of Available-for-Sale securities 498 5,006 4,944
Proceeds from maturities of Held-to-Maturity securities - 64,766 31,320
Purchases of securities (318,497) (150,805) (78,972)
Net decrease (increase) in interest bearing deposits 31,868 (8,401) (29,000)
Net increase in loans (235,420) (62,649) (85,764)
Other - - (131)
Purchase of Wolfhaya Investments, Inc., net of cash acquired (318) - -
Purchases of premises and equipment, net (7,925) (11,409) (6,334)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (221,370) (83,258) (155,037)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts 212,371 183,673 123,721
Increase (decrease) in short-term borrowings, net 6,191 (4,849) 70
Commercial paper notes originated - 310,040 1,051,245
Commercial paper notes principal repaid - (393,020) (1,027,677)
Proceeds from notes payable 22,057 5,822 4,542
Repayment of notes payable (10,758) (1,998) (2,500)
Other, net - (257) 58
Repurchase of common stock (48) - -
Cash value of fractional shares upon exchange of shares (7) - -
Issuance of common stock 1,865 13,518 9,980
Issuance of preferred stock - - 500
Issuance of common stock warrants - - 25
Cash dividends paid on preferred shares - (45) (37)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 231,671 112,884 159,927
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,982 32,612 9,657
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 68,434 35,822 26,165
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 75,416 68,434 35,822
===========================================================================================================================
Supplemental disclosures of cash flow information-cash paid during the year for:
Interest paid $ 23,874 14,880 6,225
Income taxes paid $ 138 - -
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
- 9 -
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wintrust Financial Corporation ("Wintrust" or "Company") is a multi-bank holding
company currently engaged in the business of providing financial services
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"). First Premium is
a wholly owned subsidiary of Crabtree Capital Corporation ("Crabtree"). As of
December 31, 1996, Wintrust owned five 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"), and Barrington Bank & Trust Company ("Barrington").
The consolidated Wintrust entity was formed on September 1, 1996 through a
merger transaction (the "Reorganization") 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 the preparation of the consolidated financial statements, management is
required to make certain estimates and assumptions that affect the reported
amounts contained in the consolidated financial statements. Management believes
that the estimates made are reasonable; however, changes in estimates may be
required if economic or other conditions change significantly beyond
management's expectations.
Principles of Consolidation
The consolidated financial statements of Wintrust have been prepared in
conformity with generally accepted accounting principles and prevailing
practices of the banking industry. All material intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Securities
The Company classifies securities in one of three categories: trading,
held-to-maturity, or available-for-sale. Trading securities are bought
principally for the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability and
positive intent to hold the security until maturity. All other securities are
classified as available-for-sale as they may be sold prior to maturity.
Held-to-maturity securities are stated at amortized cost which represents actual
cost adjusted for amortization of premium and accretion of discount using
methods that generally approximate the effective interest method.
Available-for-sale securities are stated at fair value. Unrealized gains and
losses on available-for-sale securities, net of related taxes, are excluded from
earnings and reported as a separate component of shareholders' equity until
realized.
Trading account securities are stated at fair value; however, the Company did
not maintain any trading account securities in 1996, 1995, or 1994.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings,
resulting in the establishment of a new cost basis for the security. Dividend
and interest income are recognized when earned. Realized gains and losses for
securities classified as available-for-sale and held-to-maturity are included in
noninterest income and are derived using the specific identification method for
determining the cost of securities sold.
Loans and Allowance for Possible Loan Losses
Loans are recorded at the principal amount outstanding. Interest income is
recognized when earned. The Company receives loan fees for loans originated, as
well as for loan referrals. Fees and costs associated with loans originated by
the Company are generally deferred and amortized over the life of the loan as an
adjustment of yield using the interest method. Loan fees for referrals are
recognized as income when received.
Finance charges on premium finance receivables are earned over the term of the
loan based on actual funds outstanding, beginning with the funding date, using a
method which approximates the effective yield actuarial method.
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.
The allowance for possible loan losses is maintained at a level adequate to
provide for possible loan losses. In estimating possible losses, the Company
recognizes impaired loans. A loan is
- 10 -
<PAGE>
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 are generally considered by the Company to be commercial and commercial
real estate loans that are 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.
Mortgage Servicing Rights
On January 1, 1996, the Company adopted Financial Accounting Standards Board
Statement No. 122, "Accounting for Mortgage Servicing Rights, an amendment to
FASB Statement No. 65" (SFAS No. 122). SFAS No. 122 provides guidance for the
recognition of mortgage servicing rights as a separate asset when servicing
mortgage loans for others, regardless of how those rights are acquired. Also,
SFAS No. 122 requires the measurement of impairment of those servicing rights
based upon the difference between the carrying amount of the servicing rights
and their current fair value with a valuation allowance utilized to account for
the difference. The impact of the adoption of SFAS No. 122 was not material to
the Company.
Serviced Premium Finance Receivables
Beginning in February, 1995, First Premium began selling its premium finance
receivables to a wholly owned subsidiary, First Premium Financing Corporation
("FPFIN") which in turn sold the receivables to an independent third party who
issued commercial paper to fund the purchase ("Commercial Paper Issuer"). FPFIN
is a bankruptcy remote subsidiary established to facilitate the sale to the
independent third party. First Premium retains servicing rights in connection
with the sales of receivables. First Premium recognizes the contractual
servicing and management fee income over the term of the receivables as it is
earned. In addition, any excess income earned by the Commercial Paper Issuer
above that which is required to fund interest on its outstanding commercial
paper and provide for normal servicing to First Premium is payable as additional
servicing ("Excess Servicing"). Excess Servicing income over the expected life
of the receivables sold is estimated by First Premium at the time of each sale
and recorded as a sales gain receivable on the financial statements of First
Premium.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. For financial reporting purposes depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets ranging from three to ten years for equipment and the useful life
or life of the lease for premises and leasehold improvements. Additions to
premises are capitalized. Maintenance and repairs are charged to expense as
incurred.
Long-lived Assets and Long-lived Assets to be Disposed of
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of," which requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The impairment is measured based on the present value of expected
future cash flows from the use of the asset and its eventual disposition. If the
expected future cash flows are less than the carrying amount of the asset, an
impairment loss is recognized based on current fair values. As the Company
regularly reviews its long-lived assets for impairment and adjusts the carrying
amounts as appropriate, the adoption of this statement did not have a material
impact on the consolidated financial statements of the Company.
Intangible Assets
Goodwill, representing the cost in excess of the fair value of net assets
acquired is primarily amortized on a straight-line basis over a period of 15
years.
Deferred organizational costs consist primarily of professional fees and other
start-up costs and are being amortized over 5 years.
Trust Assets
Assets held in fiduciary or agency capacity for customers are not included in
the consolidated financial statements as such are not assets of Wintrust or its
subsidiaries. Fee income is recognized on an accrual basis for financial
reporting purposes.
Income Taxes
Beginning September 1, 1996, Wintrust became eligible to file consolidated
Federal and state income tax returns. The subsidiaries provide for income taxes
on a separate return basis and remit to Wintrust amounts determined to be
currently payable.
Prior to the Reorganization on September 1, 1996, Lake Forest, Hinsdale,
Libertyville, North Shore, and First Premium and their respective holding
companies each filed separate consolidated Federal and state income tax returns.
- 11 -
<PAGE>
Tax benefits attributable to losses are recognized and allocated to the extent
that such losses can be utilized in the consolidated return.
Wintrust and subsidiaries record income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Cash Equivalents
For purposes of the consolidated statement of cash flows, Wintrust considers all
cash on hand, cash items in the process of collection, amounts due from
correspondent banks and federal funds sold to be cash equivalents.
Earnings per Share
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. Because no active
market for the Company's stock existed during the three years ended December 31,
1996, estimates of market value based on limited trading volume were used to
determine the dilutive effects of the outstanding stock options, stock rights
and stock warrants.
Discontinued Operations
The Company has presented as discontinued operations, the results of operations
and loss on sale of certain insurance operating subsidiaries. Information
regarding the results of operations are not presented as they are not deemed
material by management.
Stock Option Plans
As of December 31, 1996, the Company adopted the disclosure requirements of
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation." The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized by the Company for its plans. Further
disclosures are presented in note 12.
(2) SECURITIES
The following tables present carrying amounts and gross unrealized gains and
losses for the securities held-to-maturity and available-for-sale at December
31, 1996 and 1995 (in thousands). These tables are by contractual maturity which
may differ from actual maturities because borrowers may have the right to call
or repay obligations with or without call or prepayment penalties.
========================================================================
DECEMBER 31, 1996
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------
Held-to-maturity:
U.S. Treasury - due
in one to five years $ 5,001 - (88) 4,913
--------------------------------------------
Available-for-sale:
U.S. Treasury - due in
one year or less 9,688 3 (2) 9,689
Federal agencies - due in
one year or less 19,642 4 (5) 19,641
Municipals - due in
one year or less 317 - - 317
Corporate notes - due in
one year or less 32,986 5 (2) 32,989
Corporate notes - due in
one to five years 5,216 19 (5) 5,230
Federal Reserve Bank stock 1,521 - - 1,521
--------------------------------------------
Total securities
available-for-sale 69,370 31 (14) 69,387
--------------------------------------------
Total securities $74,371 31 (102) 74,300
========================================================================
- 12 -
<PAGE>
========================================================================
DECEMBER 31, 1995
--------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------
Held-to-maturity:
U.S. Treasury - due
in one to five years $ 5,002 - (43) 4,959
--------------------------------------------
Available-for-sale:
U.S. Treasury - due in
one year or less 5,520 9 - 5,529
Federal agencies - due in
one year or less 23,197 - (17) 23,180
Federal agencies - due in
one to five years 2,503 - (12) 2,491
Corporate notes - due in
one year or less 15,594 16 (3) 15,607
Corporate notes - due in
one to five years 10,125 39 (9) 10,155
Federal Reserve Bank stock 925 - - 925
--------------------------------------------
Total securities
available-for-sale 57,864 64 (41) 57,887
--------------------------------------------
Total securities $62,866 64 (84) 62,846
========================================================================
In 1996, 1995 and 1994, Wintrust had gross realized gains on sales of
available-for-sale securities of $18,000, $200 and $21,000, respectively.
Wintrust had no realized losses on sales of securities in 1996, 1995 and 1994.
Proceeds from sales of available-for-sale securities during 1996, 1995 and 1994
were $498,000, $5,006,000 and $4,944,000, respectively. At December 31, 1996 and
1995, securities having a carrying value of $52,658,000 and $29,240,000,
respectively, were pledged as collateral for securities sold under agreement to
repurchase, public deposits, and trust deposits. The Company had no securities
sold under agreement to repurchase at December 31, 1996 and 1995.
The Financial Accounting Standards Board's (FASB's) issuance of A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt &
Equity Securities, permitted the transfer of securities from the
Held-to-Maturity classification to the Available-for-Sale classification during
the period from November 15, 1995 to December 31, 1995, with no recognition of
any related unrealized gain or loss in current earnings. On December 29, 1995,
the amortized cost and net unrealized gain of Wintrust's portfolio of securities
held-to-maturity transferred to the securities available-for-sale classification
were $59,356,000 and $334,000, respectively.
(3) LOANS
A summary of the loan portfolio by category at December 31, 1996 and 1995 is as
follows (in thousands):
================================================================
1996 1995
------------------------
Commercial and commercial real estate $ 182,403 101,271
Home equity 87,303 54,592
Residential 51,673 37,074
Premium finance 59,240 15,703
Indirect auto 91,211 38,831
Installment 23,717 12,524
------------------------
495,547 259,995
Less: Unearned finance charges 2,999 1,764
------------------------
Total loans $ 492,548 258,231
================================================================
Certain officers and directors of Wintrust and its subsidiaries and certain
corporations and individuals related to such persons borrowed funds from the
Banks. These loans totaling $9,992,000 and $4,430,000 at December 31, 1996 and
1995, respectively, were made at substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other borrowers.
(4) ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the allowance for possible loan losses for years ending December
31, 1996, 1995 and 1994 is as follows (in thousands):
=================================================================
1996 1995 1994
----------------------------
Allowance at beginning of period$ 2,763 1,702 1,357
Provision 1,935 1,430 607
Charge-offs-continuing operations (520) (290) (60)
Charge-offs-discontinued operations (583) (109) (205)
Recoveries 41 30 3
----------------------------
Allowance at end of period $ 3,636 2,763 1,702
=================================================================
The provision for possible loan losses is charged to operations, and recognized
loan losses (recoveries) are charged (credited) to the allowance. At December
31, 1996, 1995 and 1994, non-accrual loans had a carrying value of $1,686,000,
$1,778,000 and $4,000, respectively.
At December 31, 1996 and 1995, loans that were considered to be impaired totaled
$1,444,000 and $1,736,000, respectively, for which no specific allowance for
loan losses was required as of and for the years then ended. The average balance
- 13 -
<PAGE>
of impaired loans during 1996 and 1995 was approximately $1,322,000 and
$930,000, respectively. All of the impaired loans are included in the nonaccrual
loan amount listed above. Management evaluated the value of the loans primarily
by using the fair value of the collateral. Interest income foregone on these
loans during 1996 and 1995 was not material.
(5) SERVICED RECEIVABLES AND SECURITIZATION FACILITY
Receivables sold and serviced by First Premium were $52,070,000 and $101,871,000
at December 31, 1996 and 1995, respectively. The receivables are sold pursuant
to a securitization facility established February 2, 1995. Unamortized deferred
costs associated with this facility amounted to approximately $80,000 and
$461,000 at December 31, 1996 and 1995, respectively.
The securitization facility is an independent vehicle into which $200 million of
receivables may be sold and funded by the Commercial Paper Issuer, subject to
certain terms and conditions. In connection with this facility, First Premium
formed a wholly owned, bankruptcy remote subsidiary, FPFIN, to purchase the
receivables from First Premium and simultaneously sell the receivables to the
Commercial Paper Issuer. All the receivable sales are without recourse. The sale
of loans to the Commercial Paper Issuer were accounted for as sales and,
accordingly, the loans are not included in the consolidated financial position
of the Company. FPFIN recognizes a gain at the time of each sale based on its
estimate of excess servicing, as defined in Note 1, to be earned over the life
of the receivables sold. All of FPFIN's accounts are maintained by First Premium
and consolidated in the financial statements.
Also, pursuant to the Sales and Servicing Agreement, First Premium is required
to maintain facility collateral at an amount equal to 105.5% of commercial paper
outstanding. The amount of this overcollateralization is recorded as loans on
the Company's consolidated financial statements and was $4,854,000 and
$6,630,000 at December 31, 1996 and December 31, 1995, respectively.
Subsequent to the Reoganization on September 1, 1996, the premium finance loan
originations have generally been sold to the Banks and consequently remain as an
asset of the Company. Accordingly, the assets serviced by First Premium in the
securitization facility are being reduced as the existing loans are repaid.
(6) PREMISES AND EQUIPMENT, NET
A summary of premises and equipment at December 31, 1996 and 1995 is as follows
(in thousands):
===========================================================
1996 1995
-----------------------
Land $ 4,426 4,159
Buildings and improvements 22,024 16,422
Furniture and equipment 7,263 5,308
-----------------------
33,713 25,889
Less accumulated depreciation
and amortization 3,436 1,890
-----------------------
Premises and equipment, net $ 30,277 23,999
===========================================================
(7) TIME DEPOSITS
Certificates of deposit in amounts of $100,000 or more approximated $159,668,000
and $93,618,000, respectively, at December 31, 1996 and 1995. Interest expense
related to these deposits approximated $4,270,000, $2,769,000 and $955,000 for
the periods ended December 31, 1996, 1995 and 1994, respectively.
(8) COMMERCIAL PAPER
Prior to the formation of its current securitization facility on February 2,
1995, First Premium sold its premium finance receivables to First Premium
Funding Corporation ("FPFC"), a special purpose corporation nominally
capitalized by a third party, which issued commercial paper to fund its
purchases. The commercial paper notes had maturities of 1 to 270 days, and were
secured by the premium finance receivables. Due to the nominal third party
capitalization of FPFC, the Company's consolidated financial statements include
the results of operations and financial position of FPFC, including the related
commercial paper.
The table below sets forth information concerning outstanding commercial paper
and its related cost. These amounts are computed using the average daily
balances during the period from January 1, 1995 through February 2, 1995.
=============================================================
JANUARY 1, 1995
THROUGH
FEBRUARY 2, 1995
----------------
Average amount outstanding $81,015,757
Maximum month-end amount
outstanding during the period $85,000,000
Average yield at:
End of period 6.10%
During the period 5.96%
=============================================================
- 14 -
<PAGE>
A party provided credit enhancement ("Credit Enhancer") for commercial paper
issued by FPFC. The Credit Enhancer also provided temporary liquidity to FPFC.
As an incentive for the Credit Enhancer to participate in the facility, First
Premium issued warrants to purchase its common stock and a subordinated
promissory note with a face value of $557,000 to the Credit Enhancer. In
conjunction with the Reorganization, the Credit Enhancer exchanged its warrants
to acquire First Premium stock for Wintrust common stock. The exercise price for
the warrants were contributed to Wintrust by the warrant holder and the proceeds
thereof were used to retire the subordinated promissory note held by the Credit
Enhancer.
(9) NOTES AND LOANS PAYABLE
A summary of notes and loans payable at December 31, 1996 and 1995, is as
follows (in thousands):
===========================================================
1996 1995
-----------------------
Revolving credit lines - secured
Company $ 22,057 -
Banking subsidiaries - 5,552
Premium finance subsidiary - 200
Revolving credit line - unsecured - 1,700
Subordinated notes payable - 1,992
Note payable, other - 1,314
-----------------------
$ 22,057 10,758
===========================================================
Effective September 1, 1996, the Company entered into a $25 million revolving
credit line, which bears interest at a floating rate equal to, at the Company's
option, either the lender's prime rate or the London Inter-Bank Offered Rate
plus 1.50%. This revolving credit line has a maturity date of September 1, 1997,
and is secured by the stock of the subsidiary bank holding companies and the
subsidiary banks, other than Barrington (see note 21). On March 18, 1997, the
Company reduced the outstanding debt to approximately $2.5 million by utilizing
the proceeds from the common stock offering (see note 22).
Subsequent to the Reorganization, each of the following referenced notes and
loans payable were retired.
Revolving credit lines - secured, premium finance subsidiary, represented
amounts outstanding under a revolving loan agreement used to fund
overcollateralization requirements for the securitization facility. The credit
line provided a lien and first security interest in the retained premium finance
receivables as well as restrictions on maintenance of various operating ratios
and tangible net worth. The credit line provided financing up to a maximum of
$13 million with interest charged at prime or prime plus 1.5% depending upon the
extent of funds borrowed.
Revolving credit lines - secured, banking subsidiaries, represented various
financing arrangements to meet operating needs. These arrangements were 100%
secured by the common stock of the banks and interest was changed at prime rate
with commitment fees of 1/4 of 1% per annum on amounts undrawn.
Revolving credit line - unsecured represented amounts outstanding under a $2.0
million loan arrangement. This loan was guaranteed by a shareholder of the
Company.
Subordinated notes represented $1.5 million due to a shareholder and $492,000
representing advances from the Credit Enhancer of the securitization facility.
The $1.5 million note had interest charged at prime plus 0.5% to 1.5%. The note
was repaid at the option of the holder through exercise of stock warrants issued
in connection with the subordinated note.
Notes payable - other consisted principally of amounts borrowed to fund the
purchase of banking subsidiary real estate and to cover initial start-up
expenses. This note had interest charged at 9% per annum.
(10) LEASE EXPENSE AND OBLIGATIONS
Gross rental expense for all operating leases was $659,000, $554,000 and
$497,000, in 1996, 1995 and 1994, respectively. Lease commitments are primarily
for office space. Minimum gross rental commitments and minimum gross rental
income as of December 31, 1996 for all noncancelable leases are as follows (in
thousands):
===========================================================
MINIMUM MINIMUM
GROSS GROSS
RENTAL RENTAL
EXPENSE INCOME
----------------------
1997 $ 649 59
1998 681 158
1999 705 158
2000 589 158
2001 464 158
2002 and thereafter 981 320
----------------------
Total minimum future rentals $ 4,069 1,011
===========================================================
(11) INCOME TAXES
Wintrust had no Federal or state income tax expense in each of the years in the
three-year period ended December 31, 1996. In 1996 and 1995, the Company
recorded a tax benefit of $1.3 million and $512,000, respectively, as management
determined that the realization of certain deferred tax assets not previously
recorded would more likely than not be recognized.
The components of the 1996 income tax benefit were a current income tax expense
of approximately $145,000 and a deferred income tax benefit of approximately
$1,455,000. In 1995, the benefit recorded was all a deferred income tax benefit.
Income taxes for 1996, 1995 and 1994 differ from the expected tax expense for
those years (computed by applying the
- 15 -
<PAGE>
applicable statutory U.S. Federal income
tax rate of 34% to income before income taxes) as follows (in thousands):
=======================================================================
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
----------------------------
Computed "expected" income
tax expense (benefit) $ (776) 341 (679)
Increase (decrease) in tax resulting from:
Change in the beginning-of-the-year
balance of the valuation allowance
for deferred tax assets (853) (698) 684
Merger costs 305 - -
Other, net 14 (155) (5)
----------------------------
Income tax benefit $(1,310) (512) -
=======================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1996 and 1995 are
presented below (in thousands):
================================================================
1996 1995
---------------------
Deferred tax assets:
Allowance for possible loan losses$ 791 503
Startup costs 291 425
Federal net operating loss carryforward 9,535 8,685
State net operating loss carryforward 1,667 1,496
Deferred compensation 263 -
Other, net 146 396
---------------------
Total gross deferred tax assets 12,693 11,505
Valuation allowance 8,137 8,990
---------------------
Total net deferred tax assets 4,556 2,515
- ----------------------------------------------------------------
Deferred tax liabilities:
Premises and equipment, due to
differences in depreciation 186 313
Accrual to cash adjustment 1,232 1,218
Unrealized gain on available-for-sale
securities 8 114
Other, net 1,434 521
---------------------
Total gross deferred tax liabilities 2,860 2,166
---------------------
Net deferred tax assets $ 1,696 349
================================================================
During 1994, realization of deferred tax assets was uncertain due to the lack of
an adequate earnings history for Wintrust and its subsidiaries. As a result, in
1994, a valuation allowance was established for the portion of the gross
deferred tax assets not offset by deferred tax liabilities. During 1995 and
1996, management determined that a valuation allowance should only be
established for a portion of the deferred tax asset. This determination was made
based upon the profitability attained by certain of the operating subsidiaries
during 1995 and future earnings estimates. As such, management established a
valuation allowance as indicated in the table above.
At December 31, 1996, Wintrust and its subsidiaries had Federal net operating
losses of approximately $28,044,000 and state net operating losses of
approximately $23,231,000. Such amounts are available for carryforward to offset
future taxable income and expire in 2000-2010. Utilization of the net operating
losses are subject to certain statutory limitations. Additionally, the federal
net operating losses of the predecessor companies prior to the Reorganization
are only available to be utilized by the respective companies that generated the
losses.
(12) COMPENSATION PLANS
Wintrust, Lake Forest Bancorp, Inc., Hinsdale Bancorp, Inc., Libertyville
Bancorp, Inc., Crabtree Capital Corporation and First Premium Services, Inc.
have adopted various stock option plans (Plans) which provide options to
purchase shares of Wintrust's common stock at the fair market value of the stock
on the date the option is granted. The Plans permit the grant of incentive stock
options, nonqualified stock options, and restricted stock. Collectively, the
Plans cover substantially all employees of Wintrust. The incentive and
nonqualified options expire at such time as the Stock Option Committee shall
determine at the time of grant, however, in no case shall they be exercisable
later than ten years after the grant. Under the subsidiary bank holding
companies' Plans, the options generally vest at a rate of 10% in the first year
subsequent to the grant, 10% in the second year subsequent to the grant, and
continue to vest in 20% increments in years in which the respective subsidiary
bank holding companies attain certain profitability levels. All of the Crabtree
and First Premium options were or became fully vested during 1996.
A summary of the aggregate activity of the Plans for 1996, 1995 and 1994 is as
follows:
==========================================================================
COMMON RANGE OF WEIGHTED AVERAGE
SHARES STRIKE PRICES STRIKE PRICE
--------------------------------------------
Outstanding at
December 31, 1993 523,129 $ 5.80-$21.13 $ 7.80
Granted 253,059 $ 7.75-$9.69 $ 9.06
Exercised 1,935 $ 7.24 $ 7.24
Forfeited or canceled 22,249 $ 7.24 $ 7.24
--------------------------------------------
Outstanding at
December 31, 1994 752,004 $ 5.80-$21.13 $ 8.23
Granted 168,029 $ 9.30-$14.53 $ 11.56
Exercised 11,250 $ 7.75 $ 7.75
Forfeited or canceled 2,418 $ 7.75-$9.30 $ 8.37
--------------------------------------------
Outstanding at
December 31, 1995 906,365 $ 5.80-$21.13 $ 8.85
Granted 309,573 $11.37-$15.25 $ 13.75
Exercised 13,690 $ 6.31-$9.69 $ 8.27
Forfeited or canceled 52,924 $ 6.31-$21.13 $ 10.81
--------------------------------------------
Outstanding at
December 31, 1996 1,149,324 $ 5.80-$21.13 $ 10.10
==========================================================================
- 16 -
<PAGE>
At December 31, 1996, the weighted-average remaining contractual life of
outstanding options was 7.0 years. Additionally, at December 31, 1996 and 1995,
the number of options exercisable was 659,627 and 489,928, respectively, and the
weighted-average per share exercise price of those options was $8.62 and $8.08,
respectively.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized for its stock
option plans. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the date of grant for awards under the
stock option plans consistent with the method of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(Statement No. 123), the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below (dollars in thousands):
===================================================================
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
-----------------------
Net income As reported $(973) 1,497
Pro forma (1,455) 1,456
Primary earnings per share As reported $(0.16) 0.24
Pro forma (0.24) 0.24
===================================================================
The fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants during the years ended December 31, 1996 and 1995, respectively: dividend
yield of 0% for each period; expected volatility of 20% for each period; risk
free rate of return of 6.4% and 6.6%; and, expected life of 10 years for each
period.
Under the provisions of Statement No. 123, pro forma net income reflects only
options granted in 1996 and 1995. Therefore, the full impact of calculating
compensation cost for stock options under Statement No. 123 is not reflected in
the pro forma net income amounts presented above because compensation cost is
reflected over the options' vesting period and compensation cost for options
granted prior to January 1, 1995 is not considered.
Wintrust and its subsidiaries also provide 401(k) Retirement Savings Plans
(401(k) Plans). The 401(k) Plans cover all employees meeting certain eligibility
requirements. Contributions by employees are made through salary reductions at
their direction, limited to $9,500 annually. Employer contributions to the
401(k) Plans are made at the employer's discretion. Generally, participants
completing 501 hours of service are eligible to share in an allocation of
employer contributions. The Company's expense for the employer contributions to
the 401(k) Plans was $37,457, $32,718, and $22,986 in 1996, 1995 and 1994,
respectively.
The Company does not currently offer other postretirement benefits such as
health care or other pension plans.
(13) REGULATORY MATTERS
Banking laws place restrictions upon the amount of dividends which can be paid
to Wintrust by the Banks. Based on these laws, the Banks could, subject to
minimum capital requirements, declare dividends to Wintrust without obtaining
regulatory approval in an amount not exceeding (a) undivided profits, and (b)
the amount of net income reduced by dividends paid for the current and prior two
years. No cash dividends were paid to Wintrust by the Banks during the years
ended December 31, 1996, 1995 and 1994.
The Banks are also required by the Federal Reserve Act to maintain reserves
against deposits. Reserves are held either in the form of vault cash or balances
maintained with the Federal Reserve Bank and are based on the average daily
deposit balances and statutory reserve ratios prescribed by the type of deposit
account. At December 31, 1996 and 1995, reserve balances of approximately
$2,512,000 and $1,663,000, respectively, were required.
The Company and the Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Banks must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company's and the Banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
requires the Company and the Banks to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined). Management believes, as of
December 31, 1996, that the Company and the Banks meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996 the most recent notification from the Banks' primary
federal regulator categorized the Banks as either well capitalized or adequately
capitalized under the reg
- 17 -
<PAGE>
ulatory framework for prompt corrective action. To be categorized as adequately
capitalized, the Banks must maintain minimum total risk-based, Tier 1
risk-based, Tier 1 leverage ratios as set forth in the table. The Company's and
the Banks' actual capital amounts and ratios as of December 31, 1996 are also
presented in the table (dollars in thousands).
==========================================================
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
TO BE ADEQUATELY
CAPITALIZED BY
ACTUAL REGULATORY DEFINITION
------------------------------------------
AMOUNT RATIO AMOUNT RATIO
------------------------------------------
Consolidated $44,361 8.0% $44,338 8.0%
Lake Forest 17,303 8.7 15,995 8.0
Hinsdale 13,343 9.6 11,062 8.0
North Shore 14,983 11.7 10,288 8.0
Libertyville 8,606 13.6 5,047 8.0
==========================================================
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
TO BE ADEQUATELY
CAPITALIZED BY
ACTUAL REGULATORY DEFINITION
------------------------------------------
AMOUNT RATIO AMOUNT RATIO
------------------------------------------
Consolidated $40,725 7.3% $22,169 4.0%
Lake Forest 16,022 8.0 7,997 4.0
Hinsdale 12,463 9.0 5,531 4.0
North Shore 14,184 11.0 5,144 4.0
Libertyville 8,256 13.1 2,523 4.0
==========================================================
TIER 1 CAPITAL (TO AVERAGE QUARTERLY ASSETS):
TO BE ADEQUATELY
CAPITALIZED BY
ACTUAL REGULATORY DEFINITION
------------------------------------------
AMOUNT RATIO AMOUNT RATIO
------------------------------------------
Consolidated $40,725 6.4% $25,421 4.0%
Lake Forest 16,022 6.2 10,281 4.0
Hinsdale 12,463 8.2 6,063 4.0
North Shore 14,184 9.1 6,249 4.0
Libertyville 8,256 11.7 2,827 4.0
==========================================================
The ratios required for the Banks to be "well capitalized" by regulatory
definition are 10.0%, 6.0%, and 5.0% for the Total Capital-to-Risk Weighted
Assets, Tier 1 Capital-to-Risk Weighted Assets and Tier 1 Capital-to-Quarterly
Assets ratios, respectively.
Barrington Bank, which is "well capitalized" in all capital categories is not
presented above. That Bank's ratios are not meaningful because it opened during
the last few weeks of 1996.
Subsequent to December 31, 1996, the Company raised additional capital through a
public offering of its common stock (see note 22).
(14) COMMITMENTS AND CONTINGENCIES
In connection with a purchase agreement for a subsidiary of Crabtree, a
provision was made for additional contingent consideration pending the outcome
of certain tax litigation and other contingencies of that subsidiary. If such
contingencies were favorably resolved, Crabtree would have been required to
contribute up to $3,450,000 to the subsidiary. This additional capital
contribution was fully reserved for in the Company's financial statements in
1987. In early 1995, the last remaining contingency under the purchase agreement
was satisfied and in March, 1995, the subsidiary made a formal request of
Crabtree for the maximum amount of the contribution. Crabtree disputed the
amounts owed and in September, 1995, Crabtree reached a settlement with the
subsidiary. Under the terms of the settlement agreement, Crabtree effectively
bought out the minority shareholders of the subsidiary by having the subsidiary
repurchase all of its stock held by the minority shareholders. A purchase price
was negotiated which included a deemed capital contribution by Crabtree of $1.7
million. As a result of this settlement, a gain of $735,000 was recorded in
1995.
In the ordinary course of business, there are various other legal proceedings
pending against the Company. Management considers that the aggregate
liabilities, if any, resulting from such actions would not have a material
adverse effect on the financial position of the Company.
- 18 -
<PAGE>
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures about Fair
Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The following table presents the carrying
amounts and estimated fair values of Wintrust's financial instruments at
December 31, 1996 and 1995 (in thousands).
<TABLE>
<CAPTION>
==========================================================================================================================
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
-------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and demand balances from banks $ 36,581 36,581 12,622 12,622
Federal funds sold 38,835 38,835 55,812 55,812
Interest-bearing deposits at banks 18,732 18,732 50,600 50,600
Held-to-maturity securities 5,001 4,913 5,002 4,959
Available-for-sale securities 69,387 69,387 57,887 57,887
Loans 492,548 492,741 258,231 258,424
Allowance for possible loan losses (3,636) - (2,763) -
Accrued interest receivable 4,034 4,034 2,742 2,742
Financial liabilities:
Non-maturity deposits 293,630 293,630 200,986 200,986
Deposits with stated maturities 324,399 325,380 204,672 206,170
Notes payable 22,057 22,057 10,758 10,758
Short-term borrowings 7,058 7,058 867 867
Accrued interest payable 930 930 649 649
==========================================================================================================================
</TABLE>
Cash and demand balances from banks and Federal funds sold: The carrying value
of cash and demand balances from banks approximates fair value due to the short
maturity of those instruments.
Interest-bearing deposits at banks and securities: Fair values of these
instruments are based on quoted market prices, when available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable assets.
Loans: Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are analyzed by type such as commercial, residential real
estate, etc. Each category is further segmented into fixed and variable interest
rate terms.
For variable-rate loans that reprice frequently, estimated fair values are based
on carrying values. The fair value of residential real estate loans is based on
secondary market sources for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value for other loans is estimated
by discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate
inherent in the loan.
Accrued interest receivable and accrued interest payable: The carrying value of
accrued interest receivable and accrued interest payable approximates market
value due to the relatively short period of time to expected realization.
Deposit liabilities: The fair value of deposits with no stated maturity, such as
non-interest bearing deposits, savings, NOW accounts and money market accounts,
is equal to the amount payable on demand as of year-end (i.e. the carrying
value). The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate is estimated using the rates
currently in effect for deposits of similar remaining maturities.
Notes payable and short-term borrowings: The carrying value of notes payable and
short-term borrowings approximate fair value due to the relatively short period
of time to maturity or repricing.
Commitments to extend credit and standby letters of credit: The fair value of
commitments to extend credit is based on fees currently charged to enter into
similar arrangements, the remaining term of the agreement, the present
creditworthiness of the counterparty, and the difference between current
interest rates and committed interest rates on the commitments. Because most of
Wintrust's commitment agreements were recently entered into and/or contain
variable interest rates, the carrying value of Wintrust's commitments to extend
credit approximates fair value. The fair value of letters of credit is based on
fees currently charged for similar arrangements.
- 19 -
<PAGE>
(16) RELATED-PARTY TRANSACTIONS
During 1994, 1995 and a portion of 1996, Crabtree's bank debt was guaranteed by
a significant shareholder and principal officer of the Company. Crabtree agreed
to pay a fee to this individual for the guarantee at a rate of 1.5% of the
balance of the debt guaranteed. These transactions resulted in expense of
$22,087, $32,973 and $29,840 in 1996, 1995 and 1994, respectively, and are
included in other expense on the Company's consolidated statements of
operations.
(17) RIGHTS AND WARRANTS TO ACQUIRE COMMON STOCK
The Company maintains a stock rights plan that entitles the holder to purchase
one share of the Company's common stock at purchase prices ranging from $7.75 to
$11.62 per share. The plan was adopted on December 1, 1993 and expires on
December 1, 2003. The plan provides for the issuance of a total of 103,236 such
rights. All of the stock rights under the plan have been awarded. As of December
31, 1996, none of the stock rights have been exercised.
The Company has also issued warrants to acquire common stock. The warrants
entitle the holder to purchase one share of the Company's common stock at
purchase prices ranging, at December 31, 1996, from $14.85 to $15.00 per share.
There were 155,430 outstanding warrants to acquire common stock at December 31,
1996 with expirations dates ranging from December, 2002 through November, 2005.
(18) BUSINESS COMBINATION
On September 1, 1996, Wintrust Financial Corporation (formerly known as North
Shore Community Bancorp, Inc.) issued approximately 5.3 million shares of common
stock and approximately 122,000 warrants to acquire common stock in exchange for
all outstanding common stock and warrants, if applicable, of Lake Forest
Bancorp, Inc., Hinsdale Bancorp, Inc., Libertyville Bancorp, Inc. and Crabtree
Capital Corporation based upon exchange ratios approved by shareholders of each
of the companies. The combination was accounted for under the pooling of
interests method.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below (in thousands).
========================================================================
EIGHT MONTHS YEARS
ENDED ENDED
AUGUST 31, DECEMBER 31,
---------------------------------
1996 1995 1994
---------------------------------
Net interest income:
Lake Forest Bancorp, Inc. $ 3,648 4,431 2,877
Hinsdale Bancorp, Inc. 2,380 2,067 573
North Shore Community Bancorp, Inc. 2,140 1,746 184
Libertyville Bancorp, Inc. 875 157 -
Crabtree Capital Corporation 366 1,299 4,239
---------------------------------
Consolidated $ 9,409 9,700 7,873
- ------------------------------------------------------------------------
Other noninterest income:
Lake Forest Bancorp, Inc. $ 726 1,115 649
Hinsdale Bancorp, Inc. 507 572 237
North Shore Community Bancorp, Inc. 429 264 36
Libertyville Bancorp, Inc. 132 21 -
Crabtree Capital Corporation 3,352 6,572 564
---------------------------------
Consolidated $ 5,146 8,544 1,486
- ------------------------------------------------------------------------
Net income (loss):
Lake Forest Bancorp, Inc. $ 545 1,015 508
Hinsdale Bancorp, Inc. 29 420 (893)
North Shore Community Bancorp, Inc. (901) (862) (896)
Libertyville Bancorp, Inc. (862) (958) -
Crabtree Capital Corporation (727) 1,882 (955)
---------------------------------
Consolidated $(1,916) 1,497 (2,236)
========================================================================
(19) ACQUISITION
On October 24, 1996, the Board of Directors approved the acquisition of Wolfhoya
Investments, Inc. ("Wolfhoya"), a company organized prior to the reorganization
of the Company (see note 18) by certain directors and executive officers of the
Company for purposes of organizing a de novo bank in Barrington, Illinois. Also,
on October 24, 1996, an Agreement and Plan of Merger by and between Wintrust
Financial Corporation and Wolfhoya Investments, Inc. was executed. The Company
issued an aggregate of 87,556 shares of Common Stock to complete the acquisition
which was accounted for under the purchase method and, accordingly, the results
of operations are included in the Consolidated Statements of Operations from the
date of acquisition. In addition, there were outstanding common stock warrants
and stock options of Wolfhoya that, as a result of the transaction, converted by
their terms into Warrants to purchase 16,838 shares and Options to purchase
68,534 shares of Common Stock of the Company, all at the adjusted exercise price
of $14.85 per share. As part of the transaction, the Company assumed
approximately $502,000 of Wolfhoya's outstanding debt which amount was
refinanced under the Company's revolving line of credit. Barrington Bank and
Trust Company, the de novo bank which Wolfhoya began organizing, opened for
business on December 19, 1996.
- 20 -
<PAGE>
(20) WINTRUST FINANCIAL CORPORATION
(Parent Company Only)
The Company's condensed balance sheets as of December 31, 1996 and 1995, and the
related condensed statements of operations and cash flows for the three years
ended December 31, 1996 are as follows (in thousands, except per share data):
===================================================================
WINTRUST FINANCIAL CORPORATION (Parent Company Only)
BALANCE SHEET DATA
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
------------------------
ASSETS
Cash $ 63 1,113
Investment in subsidiaries 62,262 39,162
Due from subsidiary 785 -
Other assets 1,834 212
------------------------
Total assets $ 64,944 40,487
- -------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 267 -
Notes payable 22,057 -
Shareholders' equity 42,620 40,487
------------------------
Total liabilities and shareholders' equity $ 64,944 40,487
===================================================================
WINTRUST FINANCIAL CORPORATION (Parent Company Only)
STATEMENTS OF OPERATION DATA
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------------------------
INCOME
Interest income $ 3 - 26
Other income - - 19
-------------------------
Total income 3 - 45
EXPENSES
Interest expense 383 - 12
Salaries and employee benefits 107 - 243
Merger 173 - -
Other 213 56 95
Goodwill and organizational cost
amortization 26 14 9
-------------------------
Total expenses 902 70 359
-------------------------
Loss before income taxes and equity
in undistributed net income (loss)
of subsidiaries (899) (70) (314)
Income tax benefit (257) - -
-------------------------
Loss before equity in undistributed
net income (loss) of subsidiaries (642) (70) (314)
Equity in undistributed net income
(loss) of subsidiaries (331) 1,567 (1,922)
-------------------------
Net income (loss) $ (973) 1,497 (2,236)
-------------------------
Net income (loss) per
common share $ (0.16) 0.24 (0.56)
=================================================================
WINTRUST FINANCIAL CORPORATION (Parent Company Only)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
----------------------------
Operating activities:
Net income (loss) $ (973) 1,497 (2,236)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Amortization of goodwill and
organizational costs 26 14 9
Deferred income tax benefit (257) - -
Decrease in other assets 64 92 120
Increase in other liabilities 267 - -
Equity in undistributed net income
(loss) of subsidiaries (331) 1,567 (1,922)
----------------------------
Net cash provided by (used for)
operating activities (1,204) 3,170 (4,029)
----------------------------
Investing activities:
Capital infusions to
subsidiaries (22,610) (16,557) (5,471)
Purchase of Wolfhoya Investments,
Inc., net of cash acquired (318) - -
----------------------------
Net cash used for investing
activities (22,928) (16,557) (5,471)
----------------------------
Financing activities:
Common stock issuance, net 1,858 13,518 9,981
Preferred stock issuance - - 500
Dividends on preferred stock - (45) (37)
Issuance of common stock warrants - - 25
Repurchase of common stock (48) - -
Increase in notes payable 22,057 - -
Advances to subsidiaries (785) - -
Other - - 58
----------------------------
Net cash provided by financing
activities 23,082 13,473 10,527
----------------------------
Net (decrease) increase in cash (1,050) 86 1,027
Cash at beginning of year 1,113 1,027 -
----------------------------
Cash at end of year $ 63 1,113 1,027
=================================================================
- 21 -
<PAGE>
(21) NET INCOME (LOSS) PER AVERAGE COMMON SHARE
The following table sets forth the number of shares and the net income used to
determine net income per common share for 1996, 1995, and 1994 (in thousands,
except per share data):
================================================================
1996 1995 1994
-------------------------
Net income (loss) available for
common shareholders (A) $ (973) 1,452 (2,273)
-------------------------
Average common shares outstanding 6134 5,315 4,035
Average common share equivalents - 838 -
-------------------------
Weighted average common shares
and common share equivalents (B) 6,134 6,153 4,035
-------------------------
Net income (loss) per average
common share (A/B) $ (0.16) 0.24 (0.56)
================================================================
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 years ended December 31, 1996, and December
31, 1994, 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 of decreasing the loss per share
amount otherwise computed.
(22) SUBSEQUENT EVENT - COMMON STOCK OFFERING
Effective March 18, 1997, the Company completed its offering of common stock
whereby an aggregate of 1,377,512 shares of the common stock were sold at a
price of $15.50 per share. Of the total shares sold, 977,512 shares were sold
through a direct subscription and community offering by the Company. The
remaining 400,000 shares were underwritten by EVEREN Securities, Inc. In
addition, the Company has granted EVEREN Securities, Inc. a 30-day option to
purchase up to an additional 60,000 shares upon the same terms.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wintrust Financial Corporation:
We have audited the accompanying consolidated statements of condition of
Wintrust Financial Corporation and subsidiaries (the "Company") as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for each of the years in the
three year period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. Separate financial statements of Crabtree
Capital Corporation and subsidiaries included the 1995 consolidated statement of
condition and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the years in the two year
period ended December 31, 1995, were audited by other auditors whose report
dated May 20, 1996, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Wintrust Financial Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 18, 1997
- 22 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected Financial
Highlights" and the Company's Consolidated Financial Statements and Notes
thereto. In addition to historical information, the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those anticipated in
these forward-looking statements.
GENERAL
The profitability of the Company's operations depends primarily on its net
interest income, provision for possible loan losses, non-interest income, and
non-interest expense. Net interest income is the difference between the income
the Company receives on its loan and investment portfolios and its cost of
funds, which consists of interest paid on deposits and borrowings. The provision
for possible loan losses reflects the cost of credit risk in the Company's loan
portfolio. Non-interest income consists of gains on sales of loans, loan
servicing fees, fees on loans sold, trust fees, and miscellaneous fees and
income. Non-interest expense includes salaries and employee benefits as well as
occupancy, data processing, marketing, and other expenses. Non-interest expense
also includes amortization of deferred financing fees and, in 1996, certain
non-recurring merger-related expenses.
Net interest income is dependent on the amounts and yields of interest-earning
assets as compared to the amounts and rates on interest-bearing liabilities. Net
interest income is sensitive to changes in market rates of interest and the
Company's asset/liability management procedures in coping with such changes. The
provision for loan losses is dependent on increases in the loan portfolio,
management's assessment of the collectibility of the loan portfolio, as well as
economic and market factors. Gain on sale of loans and loan servicing fees
relate principally to the Company's historical practice of selling insurance
premium finance loans originated into the secondary market through a
securitization facility. The Company's current strategy is to retain more
premium finance loans in the Banks' loan portfolios. As a result, the Company
expects in the future to report relatively higher net interest income as a
result of retaining these relatively higher-yielding assets in the Company's
portfolio and relatively lower gains on sale of insurance premium finance loans
and related loan servicing fee income. Fees on loans sold relate to the
Company's practice of originating long-term fixed-rate mortgage loans for sale
into the secondary market in order to satisfy customer demand for such loans
while avoiding the interest-rate risk associated with holding long-term
fixed-rate mortgages in the Banks' portfolios. These fees are highly dependent
on the volume of real estate transactions and mortgage refinancing activity.
Substantially all of the fees on loans sold related to the servicing rights that
have been sold along with the mortgage loans. The Company earns trust fees for
managing and administering investment funds for individuals and small
businesses. Miscellaneous fees and income include service charges on deposit
accounts and for ancillary banking services. Non-interest expenses are heavily
influenced by the growth of operations, with additional employees necessary to
staff new banks and to open new branch facilities and marketing expenses
necessary to promote them. Growth in the number of account relationships
directly affects such expenses as data processing costs, supplies, postage and
other miscellaneous expenses.
CHARACTERISTICS OF THE COMPANY'S PROFITABILITY
The nature of the Company's de novo bank strategy has led to, and will likely
continue to lead to, differences in earnings patterns as compared to other
established community banking organizations. The Company's net interest margin,
which has ranged from 2.91% to 3.35% over the last three years, is low compared
to industry standards for a variety of reasons. Upon entering new markets, the
Company has aggressively pursued business through competitive rates in order to
garner market share. The Company has been cautious in its loan origination
activities, focusing on strong borrowers who often command favorable loan rates.
Finally, the Company has maintained a relatively shorter term, and therefore
lower-yielding, investment portfolio, in order to facilitate loan demand as it
emerges, provide funds to retain increasingly larger amounts of insurance
premium finance loans in the portfolio, and maintain excess liquidity in the
event deposit levels fluctuate.
Similarly, as the Company has been growing its balance sheet at relatively high
rates over the past five years, the Company has experienced high overhead levels
in relation to its assets, reflecting the necessary start-up investment in human
resources and facilities to organize additional de novo banks and open new
branch facilities. For the last three fiscal years, the net overhead ratio has
declined from 3.57% in 1994 to 2.71% in 1996, and is further reduced to 2.55% in
1996 excluding the non-recurring merger expenses. The Company expects that as
its existing Banks mature, the organizational and start-up expenses associated
with future de novo banks and new banking offices will not have as significant
an impact on the Company's overhead ratio.
- 23 -
<PAGE>
DE NOVO BANK FORMATION AND BRANCH OPENING ACTIVITY
The following table illustrates the progression of Bank and branch openings that
have impacted the Company's results of operations over the past five years.
<TABLE>
<CAPTION>
============================================================================================================================
MONTH YEAR BANK LOCATION TYPE OF FACILITY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 1996 Barrington Bank Barrington, Illinois Bank
August 1996 Hinsdale Bank Clarendon Hills, Illinois(1) Branch
May 1996 North Shore Bank Winnetka, Illinois Branch
November 1995 North Shore Bank Wilmette, Illinois Drive-up/walk-up
October 1995 Hinsdale Bank Hinsdale, Illinois Drive-up/walk-up
October 1995 Libertyville Bank Libertyville, Illinois Bank
October 1995 Libertyville Bank Libertyville, Illinois Drive-up/walk-up
October 1995 North Shore Bank Glencoe, Illinois Branch
May 1995 Lake Forest Bank West Lake Forest, Illinois Branch
December 1994 Lake Forest Bank Lake Bluff, Illinois Branch
October 1994 North Shore Bank Wilmette, Illinois Bank
April 1994 Lake Forest Bank Lake Forest, Illinois New permanent facilities
October 1993 Hinsdale Bank Hinsdale, Illinois Bank
April 1993 Lake Forest Bank Lake Forest, Illinois Drive-up/walk-up
December 1991 Lake Forest Bank Lake Forest, Illinois Bank
- ------------------------
<FN>
(1) Operates in this location as Clarendon Hills Bank, a branch of Hinsdale
Bank.
</FN>
============================================================================================================================
</TABLE>
REORGANIZATION
Effective September 1, 1996, pursuant to the terms of a reorganization agreement
dated as of May 28, 1996, which was approved by shareholders of all of the
parties, the Company completed a reorganization transaction to combine the
separate activities of the holding companies of each of the Company's operating
subsidiaries (other than Barrington Bank which was opened in December 1996). As
a result of the transaction, the Company (formerly known as North Shore
Community Bancorp, Inc., the name of which was changed to Wintrust Financial
Corporation in connection with the reorganization) became the parent holding
company of each of the separate businesses, and the shareholders and warrant
holders of each of the separate holding companies exchanged their shares for
Common Stock and their warrants for a combination of shares of Common Stock and
Warrants of the Company (the "Reorganization"). The Reorganization was accounted
for as a pooling-of-interests transaction and, accordingly, the Company's
financial statements have been restated on a combined and consolidated basis to
give retroactive effect to the combined operations throughout the reported
historical periods.
- 24 -
<PAGE>
AVERAGE BALANCE SHEETS, INTEREST INCOME AND EXPENSE AND INTEREST RATE YIELDS AND
COSTS
The following table sets forth the average balances, the interest earned or paid
thereon, and the effective interest rate yield or cost for each major category
of interest-earning assets and interest-bearing liabilities for the years ended
December 31, 1996, 1995, and 1994. The yields and costs include fees which are
considered adjustments to yields. Interest income on non-accruing loans is
reflected in the year that it is collected. Such amounts are not material to net
interest income or net change in net interest income in any year. Non-accrual
loans are included in the average balances and do not have a material effect on
the average yield. This table should be referred to in conjunction with this
analysis and discussion of the financial condition and results of operations
(dollars in thousands).
<TABLE>
<CAPTION>
==================================================================================================================================
1996 1995 1994
---------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE(1) INTEREST COST BALANCE(1) INTEREST COST BALANCE(1) INTEREST COST
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest bearing deposits with banks $28,382 $1,588 5.60% $51,159 $3,194 6.24% $28,077 $1,290 4.59%
Federal funds sold 47,199 2,491 5.28 35,172 2,048 5.82 18,323 791 4.32
Investment securities 88,762 4,327 4.87 58,015 3,202 5.52 40,721 2,046 5.02
Loans, net of unearned discount 347,076 30,631 8.83 183,614 17,028 9.27 148,209 13,617 9.19
---------------------------------------------------------------------------------------------
Total earning assets 511,419 39,037 7.63 327,960 25,472 7.77 235,330 17,744 7.54
---------------------------------------------------------------------------------------------
Cash and due from
banks-non-interest bearing 13,911 8,031 5,026
Allowance for possible loan losses (3,247) (2,038) (1,447)
Premises and equipment, net 26,586 17,687 9,034
Other assets 13,575 10,485 11,460
---------------------------------------------------------------------------------------------
Total assets $562,244 $362,125 $259,404
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits-interest bearing:
NOW accounts $45,144 1,713 3.79% $23,214 844 3.64% $7,586 202 2.66%
Savings and money market deposits 139,150 5,659 4.07 106,247 4,541 4.27 80,324 3,210 4.00
Time deposits 261,502 15,388 5.88 140,724 8,705 6.19 44,709 2,086 4.67
---------------------------------------------------------------------------------------------
Total interest-bearing deposits 445,796 22,760 5.11 270,185 14,090 5.21 132,619 5,498 4.15
---------------------------------------------------------------------------------------------
Short-term borrowings 809 34 4.20 10,238 474 4.63 78,741 3,577 4.54
Term-debt and subordinated debt 15,242 1,361 8.93 14,044 1,208 8.60 9,373 796 8.49
---------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 461,847 24,155 5.23 294,467 15,772 5.36 220,733 9,871 4.47
---------------------------------------------------------------------------------------------
Non-interest bearing deposits 51,249 29,304 15,593
Other liabilities 7,420 7,181 4,445
Shareholders' equity 41,728 31,173 18,633
---------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $562,244 $362,125 $259,404
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income/spread $14,882 2.40% $9,700 2.41% $7,873 3.07%
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest margin 2.91% 2.96% 3.35%
==================================================================================================================================
<FN>
(1) Average balances were generally computed using daily balances.
</FN>
</TABLE>
- 25 -
<PAGE>
CHANGES IN INTEREST INCOME AND EXPENSE
The following table shows the dollar amount of changes in interest income and
expense by major categories of interest-earning assets and interest-bearing
liabilities attributable to changes in volume or rate or both, for the periods
indicated (in thousands):
<TABLE>
<CAPTION>
===========================================================================================================================
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994
-------------------------------------------------------------------------
CHANGE CHANGE CHANGE CHANGE
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
RATE VOLUME CHANGE RATE VOLUME CHANGE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits with banks $ (304) (1,302) (1,606) 579 1,325 1,904
Federal funds sold (206) 649 443 346 911 1,257
Investment securities (410) 1,535 1,125 218 938 1,156
Loans, net of unearned discount (861) 14,464 13,603 129 3,282 3,411
-------------------------------------------------------------------------
Total interest income (1,781) 15,346 13,565 1,272 6,456 7,728
-------------------------------------------------------------------------
NOW accounts 39 830 869 97 545 642
Savings and money market deposits (229) 1,347 1,118 236 1,095 1,331
Time deposits (444) 7,127 6,683 872 5,747 6,619
Short-term borrowings (40) (400) (440) 70 (3,173) (3,103)
Term debt and subordinated debt 47 106 153 10 402 412
-------------------------------------------------------------------------
Total interest expense (627) 9,010 8,383 1,285 4,616 5,901
-------------------------------------------------------------------------
Net interest income $ (1,154) 6,336 5,182 (13) 1,840 1,827
===========================================================================================================================
</TABLE>
The changes in net interest income are complicated to assess and require
significant analysis to fully understand. However, it is clear that the change
in the Company's net interest income for the periods under review was
predominantly impacted by the growth in the volume of the overall
interest-earning assets and interest-bearing deposit liabilities. In the table
above, volume variances are computed using the change in volume multiplied by
the previous year's rate. Rate variances are computed using the change in rate
multiplied by the previous year's volume. The change in interest due to both
rate and volume has been allocated between factors in proportion to the
relationship of the absolute dollar amounts of the change in each.
ANALYSIS OF FINANCIAL CONDITION
The dynamics of community bank balance sheets is generally dependent upon the
ability of management to attract additional deposit accounts to fund the growth
of the institution. This is the current situation at the Company as it is a
group of relatively new institutions which are still diligently attempting to
establish themselves as the bank of choice in a significant amount of households
and businesses in the communities they serve. Accordingly, the discussion of the
financial condition of the Company will focus first on the sources of funds
received through the liability side of the balance sheet which is predominantly
deposit growth. After it is understood how the Company was funded during the
periods under discussion, the latter section of this "Analysis of Financial
Condition" discussion will focus on the asset categories where the Company
invested the funds.
Deposits. The Company has experienced significant growth in deposits over the
past three years primarily as a result of de novo bank formations and new branch
openings. Total deposit balances increased 52.4% to $618.0 million at December
31, 1996 compared to $405.7 million at December 31, 1995.
The following table presents deposit balances by the Banks and the relative
percentage of total deposits held by each Bank at December 31 during the past
three years (dollars in thousands):
- 26 -
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
1996 1995 1994
-----------------------------------------------------------------------------------
DEPOSIT PERCENT DEPOSIT PERCENT DEPOSIT PERCENT
BALANCES OF TOTAL BALANCES OF TOTAL BALANCES OF TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lake Forest $ 251,906 40% $ 181,186 45% $ 126,067 57%
Hinsdale 140,873 23 104,402 26 59,182 27
North Shore 153,878 25 93,657 23 36,736 16
Libertyville 67,490 11 26,413 6 - -
Barrington 3,882 1 - - - -
-----------------------------------------------------------------------------------
Total Deposits $ 618,029 100% $ 405,658 100% $ 221,985 100%
-----------------------------------------------------------------------------------
Percentage increase from
prior year-end 52.4% 82.7% 125.9%
===========================================================================================================================
</TABLE>
Other liabilities. Other liabilities, consisting of accrued interest payable and
other accrued expenses, increased to $16.3 million at December 31, 1996 from
$13.1 million at December 31, 1995.
Short-term borrowings: Short-term borrowings fluctuate based on daily liquidity
needs of the Banks and First Premium. At December 31, 1996 and 1995, short-term
borrowings consisted of Federal Funds purchased and treasury, tax and loan note
option accounts. During the first quarter of 1995, First Premium also had
short-term commercial paper borrowings to fund its originated loan recorded on
their financial statements; however, in February 1995, First Premium entered
into a new securitization facility whereby the accounting treatment dictated
that the loans sold pursuant to the securitization facility be treated as sales
and First Premium's related short-term commercial paper borrowings were
consequently eliminated. As a result, the average balance of short-term
borrowings declined in 1996 to $809,000 from $10.2 million in 1995.
Notes payable: As of December 31, 1996, the balance of notes payable represented
the amount due under a $25 million revolving credit line of credit. The line of
credit bears interest at a floating rate equal to, at the Company's option,
either the lender's prime rate or the London Inter-Bank Offered Rate plus 1.50%.
This revolving credit line is secured by the stock of the subsidiary bank
holding companies and the subsidiary Banks, other than Barrington. The balance
outstanding increased to $22.1 million at December 31, 1996 from $10.8 million
at December 31, 1995, primarily as a result of additional borrowings to fund the
growth of the Company's banking subsidiaries and to partially capitalize
Barrington Bank in December, 1996. On March 18, 1997, the Company reduced the
outstanding debt to approximately $2.5 million by utilizing the proceeds from
the common stock offering.
Total assets and earning assets. The Company's total assets and earning assets
were $706.0 million and $624.5 million, respectively, at December 31, 1996
compared to $470.9 million and $427.5 million, respectively, at December 31,
1995. These asset increases during 1996 follow increases in 1995 from year-end
1994 levels of $354.2 million and $322.5 million, respectively. The increase in
total assets and earning assets is attributable to the 52.4% increase in the
Banks' core deposit balances. Continued marketing efforts and a full year of
operations of the five banking offices opened in late 1995, combined with
opening of three additional banking facilities during 1996, contributed to the
strong growth. The Company had 14 total banking facilities at the end of 1996
compared to 11 at the end of 1995.
Loans: The composition of earning assets has shifted as the Company increased
the level of deposit funds invested into loans from shorter-term money market
investments. Loans comprised 78.9% and 60.4% of total earning assets at December
31, 1996 and December 31, 1995, respectively. Total loans, net of unearned
discount, increased 90.7%, from $258.2 million in 1995 to $492.5 million in
1996. The following table presents loan balances by category at December 31,
1996 and 1995 (dollars in thousands).
==================================================================
PERCENT PERCENT
1996 OF TOTAL 1995 OF TOTAL
------------------------------------
Commercial and
commercial real estate $182,403 37% $101,271 39%
Home equity 87,303 18 54,592 21
Indirect auto 89,999 18 37,323 15
Residential real estate 51,673 10 37,074 14
Premium finance 57,453 12 15,447 6
Other loans 23,717 5 12,524 5
------------------------------------
Total loans $492,548 100% $258,231 100%
==================================================================
The growth in the loan portfolio has occurred in each major loan category. The
growth in the Company's commercial and commercial real estate, home equity, and
residential real estate portfolios is primarily due to the growth in the number
of bank and branch locations of the Company and the maturation of the existing
banks.
- 27 -
<PAGE>
In order to minimize the time lag typically experienced by de novo banks in
redeploying deposits into higher yielding earning assets, the Company is
developing lending programs focused on specialized earning asset niches having
large volumes of homogeneous assets that can be acquired for the Banks'
portfolios and possibly sold in the secondary market to generate fee income.
Currently, the Company's two largest loan niches are premium finance loans
generated by First Premium and indirect auto loans.
Premium finance loans. The Company's most significant specialized earning asset
niche is comprised of commercial insurance premium finance loans. The Company
originates premium finance loans at First Premium which generally sells them to
the Banks or funds the loans through asset securitization facilities. All
premium finance loans, however financed, are subject to the Company's stringent
credit standards, and substantially all such loans are made to commercial
customers. The Company rarely finances consumer insurance premiums, which are
regarded by management as riskier loans. At December 31, 1995, substantially all
of the premium finance loans were sold through an asset securitization facility;
however, subsequent to the September 1, 1996 merger transaction, premium finance
loan originations have generally been sold to the Banks and consequently remain
as an asset of the Company.
Indirect auto loans. The Company finances fixed rate automobile loans sourced
indirectly through unaffiliated automobile dealers. Indirect automobile loans
are secured by new and used automobiles and are generated by a network of
automobile dealers located in the Chicago area with which the Company has
established relationships. These credits generally have an original maturity of
36 to 60 months and the average actual maturity is estimated to be approximately
37 months. The risk associated with this portfolio is diversified amongst many
individual borrowers. Management continually monitors the dealer relationships
and the Banks are not dependent on any one dealer as a source of such loans. The
Company began to originate these loans in mid-1995 and has consistently
increased the level of outstanding loans.
Money Market Investments and Investment Securities. The Company's objective in
managing its securities portfolio is to balance liquidity risk, interest rate
risk and credit quality such that the earnings of the Company are maximized.
Management has maintained the funds that were not invested in loans in
short-term investment securities and money market investments. The aggregate
carrying value of such investments declined to $132.0 million at December 31,
1996 from $169.3 million at December 31, 1995 primarily as a result of increased
investments in loans during 1996. A detail of the carrying value of the
individual categories as of December 31 is set forth in the table below (in
thousands).
==================================================================
1996 1995
-------------------------
Federal funds sold $ 38,835 55,812
Interest bearing deposits with banks 18,732 50,600
Investment securities 74,388 62,889
Total money market investments
and investment securities $ 131,955 169,301
==================================================================
Federal Funds Sold, Interest Bearing Deposits with Banks and Investment
Securities. Federal funds sold and interest bearing deposits with banks are very
short-term investments with high-quality banks. The balances in these accounts
fluctuate based upon deposit inflows and loan demand. These accounts are
extremely liquid and provide management with the ability to meet liquidity needs
for supplying loan demand or for other reasons.
CONSOLIDATED RESULTS OF OPERATIONS
Comparison of Results of Operations for the Years Ended December 31, 1996 and
December 31, 1995
General. For the year ended December 31, 1996, the Company recorded net loss of
$973,000 compared to net income of $1.5 million for the year ended December 31,
1995. The 1996 loss represents a loss per share of $0.16 for the year compared
to earnings per share of $0.24 for 1995. The year ended December 31, 1996,
included $891,000 of merger-related expenses from the Company's September 1996
reorganization transaction and $312,000 in legal fees arising out of collection
efforts related to a significant non-performing asset. Excluding these expenses,
the pre-tax loss for 1996 would have been approximately $1.1 million, or
approximately one half of the recorded pre-tax loss of $2.3 million. In
addition, the prior year included an initial gain of $763,000 on the sale of
premium finance loans into a securitization facility and a one-time gain on
settlement of contingencies of $735,000 from the repurchase of a minority
interest in a now discontinued subsidiary and the settlement of various related
contingencies. Excluding these gains, the year ended December 31, 1995, would
have posted a net pre-tax loss of approximately $513,000. The $567,000 increase
in pre-tax loss, as adjusted to exclude the effect of the 1996 merger-related
expenses and exceptional legal fees and the 1995 initial and one-time gains, was
primarily the result of higher non-interest expenses associated with openings
and start-up operations of banking facilities in 1996 than in 1995. While the
Company opened three new facilities in 1996 compared to six openings in 1995,
five of the 1995 openings occurred in the fourth quarter and associated start-up
expenses continued to impact 1996 results.
Net interest income. Net interest income increased to $14.9 million for the year
ended December 31, 1996, from $9.7
- 28 -
<PAGE>
million for the comparable period of 1995. This increase in net interest income
of $5.2 million, or 53.4%, was attributable to a 55.9% increase in average
earning assets in 1996 compared to 1995. Partially offsetting the changes due to
volume was a slight decline in net interest margin to 2.91% for 1996 from 2.96%
in 1995, due to a decline in the general interest rate environment during 1996.
Because the Company's overall earning asset portfolio reprices at a rate quicker
than its liabilities, the decline in interest rates had an unfavorable impact on
the Company's net interest margin.
Provision for possible loan losses. The provision for possible loan losses
increased to $1.9 million in 1996, from $1.4 million in the prior year due to
the increases in the loan portfolio. At December 31, 1996, the allowance for
possible loan losses represented 0.74% of loans outstanding which management
believed was adequate to cover potential losses in the portfolio. There can be
no assurance that future losses will not exceed the amounts provided for,
thereby affecting future results of operations. The amount of future additions
to the allowance for possible loan losses will be dependent upon the economy,
changes in real estate values, interest rates, the view of regulatory agencies
toward adequate reserve levels, and past due and non-performing loan levels.
Non-interest income. Total non-interest income decreased approximately $1.0
million, or 11.8%, to $7.5 million for the year ended December 31, 1996, as
compared to $8.5 million in the same period of 1995.
Gains on the sale of premium finance loans, which are dependent upon the total
loans originated and sold into a securitization facility, decreased to $3.1
million for the year ended December 31, 1996, from $4.4 million for the year of
1995. The decrease in total insurance premium finance loans originated and sold
during 1996 to $294.4 million from $301.3 million in 1995, and an initial gain
of $763,000 which was recorded in February 1995 when a significant portion of
the existing premium finance loan portfolio was sold to a newly structured
securitization facility contributed to the decrease. Additionally, subsequent to
the merger of the First Premium and the Banks on September 1, 1996, the majority
of insurance premium finance loans originated were retained by the Company;
thereby eliminating any gain from sales to the securitization facility. Absent
the initial gain recognition in 1995 and the shift by the Company in late 1996
to retain the insurance premium finance loans, the amount of gains recorded as a
percent of loans originated was relatively stable.
Loan servicing fees increased to $1.4 million for the year ended December 31,
1996 compared to $1.1 million for the same period of 1995, primarily due to an
increase in the amount of average managed insurance premium loans in the 1996
period. 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 therefore qualified to receive a servicing fee, the
comparable 1995 period had only seven months of service fee income on average
managed insurance premium loans
Fees on mortgage loans sold relate to income derived by the Banks for services
rendered in originating and selling residential mortgages into the secondary
market. Such fees increased to $1.4 million in 1996 from $850,000 in 1995
primarily due to increased volume. Approximately $499,000 of the increase was
generated from North Shore Bank which only began such activities during 1995 but
which had a full year of loan sales in 1996. Libertyville Bank also contributed
approximately $166,000 during 1996.
Service charges on deposit accounts increased to $468,000 for the year ended
December 31, 1996, from $196,000 for the year ended December 31, 1995. The
increase is a direct result of the 52.4% increase in deposit balances from
December 31, 1995 to December 31, 1996. The majority of service charges on
deposit accounts relates to customary fees on accounts in overdraft positions
and for returned items on accounts.
Trust fees increased to $522,000 from $399,000 for the years ended December 31,
1996 and 1995, respectively, due primarily to increased trust business.
Non-interest expense. Total non-interest expense increased approximately $7.0
million, or 44.0%, to $22.8 million for the twelve months of 1996, as compared
to $15.8 million in the same period of 1995. Despite the increases in various
non-interest expense categories in 1996 compared to 1995, the Company's ratio of
non-interest expenses, excluding the merger-related costs, to total average
assets declined to 3.89% in 1996 from 4.37% in 1995.
Salaries and employee benefits increased to $11.6 million for the year ended
December 31, 1996 as compared to $8.0 million for the same period of the prior
year, principally due to the increase in the number of banking facilities to 14
at December 31, 1996, from 11 at December 31, 1995. The increase of $3.6 million
reflects an increase of approximately $754,000 related to Libertyville Bank,
which only opened and became fully staffed in October, 1995 but which had a
fully operational staff during 1996, and an increase of $1.4 million at North
Shore Bank as a result of four banking locations being operational in 1996
compared to only one banking location during the first nine months of 1995 and
three banking locations during the fourth quarter of 1995. North Shore Bank
opened a full service banking facility in Glencoe, Illinois and a
- 29 -
<PAGE>
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. In addition to the increased
staffing to support the new banking facility, the growth in deposit and loan
accounts at the previously existing banking locations required additional
staffing to maintain the standard of customer service. Also contributing to the
increase in salaries were normal salary increases and the addition of certain
executive officers during mid-1995 and early 1996 to help manage the Company's
growth.
Occupancy expenses increased to $2.3 million for the year ended December 31,
1996, from $1.5 million for the year ended December 31, 1995, primarily due to
the significant increase in the number of the Company's facilities to almost
double the number of physical locations at year-end 1996 compared to the end of
the third quarter of 1995.
For the year ended December 31, 1996, data processing expenses increased by
$390,000, or 62.5%, compared to the same period of 1995, as a result of the
increase of average outstanding deposit and loan balances of approximately 65.2%
and 89.3%, respectively.
Advertising and marketing expenses increased to $1.1 million for the year ended
December 31, 1996 compared to $682,000 for the same period of 1995, primarily
due to the addition of eight banking locations during the past fifteen months.
Management anticipates that higher levels of marketing expense are likely to be
incurred in the future as the Company continues to establish its base of
customers, promotes its newly opened Barrington Bank, and opens additional
banking facilities.
Nonrecurring merger-related expenses were $891,000 during 1996. The
Reorganization resulted in various legal expenses, accounting and tax related
expenses, printing, Securities and Exchange Commission filing expenses, and
other applicable expenses.
Other non-interest expenses increased by $1.2 million, or 28.3%, to $5.4 million
for the year ended December 31, 1996 from $4.2 million for the year ended
December 31, 1995, primarily due to the higher volume of accounts outstanding at
the Banks. Also contributing to the increase was approximately $312,000 in legal
fees related to efforts to collect a significant nonperforming insurance premium
finance loan during 1996 compared to approximately $78,000 in the same period of
1995. Controlling overhead expenses is a basic philosophy of management and is
closely evaluated. Management is committed to continually evaluating its
operations to determine whether additional expense savings are possible without
impairing the goal of providing superior customer service.
Despite the increases in the various noninterest expense categories during 1995,
the Company's ratio of noninterest expenses to total average assets was 4.05% of
average assets in 1996, and 3.89% excluding non-recurring merger expenses,
compared to its peer group that has a ratio of noninterest expenses to total
average assets of approximately 3.36%. Thus, despite the traditionally initial
high investment to establish de novo banks, the Company has controlled its
noninterest expenses in a fashion which is just slightly higher than other bank
holding companies in its peer group.
Income taxes. The Company recorded an income tax benefit of $1.3 million during
1996, whereas an income tax benefit of approximately $512,000 was recorded in
1995. Prior to completion of the Reorganization on September 1, 1996, each of
the merging companies except Lake Forest Bank 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, a valuation allowance was established
against a portion of the deferred tax assets with the combined result being that
a minimal amount of Federal tax benefit was recorded. As the entities become
profitable, it is anticipated that each entity will have the opportunity to
recognize its own tax loss benefits to the extent it generates operating income.
Comparison of Results of Operations for the Years Ended December 31, 1995 and
December 31, 1994
General. The Company had net income of $1.5 million for the year ended December
31, 1995, compared with a net loss of $2.2 million for the year ended December
31, 1994. The increase in net income was due to an increase in net interest
income of $1.8 million, an increase in non-interest income of $7.1 million and
the realization of $512,000 in income tax benefits, offset by increases in the
provision for possible loan losses of $823,000 and other non-interest expenses
of $5.1 million.
Net interest income. Net interest income increased by $1.8 million, or 23.2%, to
$9.7 million in 1995 from $7.9 million in 1994. Interest income increased as
average interest-earning assets increased in each major category due to growth
at North Shore Bank, which was in its first year of operations in 1995, the
opening of Libertyville Bank in October 1995, and continued growth at the
Company's other subsidiary Banks. Interest income also increased as a result of
generally higher interest rates in 1995 which led to higher yields on the
Company's short-term investments and investment securities. An increase in net
earning assets (average interest-earning assets less interest-bearing
liabilities) of $18.9 million in 1995 over 1994, reflecting increased
non-interest bearing funding provided by a $13.7 million increase in average
non-interest bearing deposits and an approximately $12.5 million increase in
average shareholders' equity, also contributed to the increase in interest
income. These increases were offset in part by
- 30 -
<PAGE>
increased interest expense. Deposit costs increased primarily due to the higher
volume of deposits funding the higher earning-asset volume as well as higher
market rates of interest and the Company's competitive deposit pricing
strategies in its new markets. Net interest income was also impacted in 1995 by
a lower net interest margin, which declined to 2.96% in 1995 from 3.35% in 1994.
The margin decline was largely due to an unfavorable shift in the Company's
earning asset mix in 1995 compared to 1994 from higher-yielding premium finance
loans to loans originated or purchased by the Banks and other lower-yielding
earning assets. Average premium finance loans decreased by 73.1% in 1995 as a
result of the sale in February 1995 of a significant portion of this portfolio
into a securitization facility. However, as discussed below, the decrease in
interest income attributable to premium finance loans was offset by gains
recognized in 1995 on the sale of such loans.
Provision for possible loan losses. The provision for possible loan losses
increased to $1.4 million in 1995 from $607,000 in 1994, due to volume increases
in the loan portfolio. Total loans increased approximately $64.2 million, or
33.1%, from December 31, 1994 to December 31, 1995. At December 31, 1995, the
allowance for possible loan losses represented 1.07% of loans outstanding, which
management believed was adequate to cover potential losses in the portfolio.
Non-interest income. Non-interest income increased to $8.5 million in 1995 from
$1.5 million in 1994 primarily due to a change in the structure of the
securitization facility resulting in recognition of gains on sales of premium
finance loans sold to others.
Gain on the sale of insurance premium finance loans was $4.4 million in 1995
versus none in 1994. The increase was a result of restructuring the
securitization facility in February 1995 which dictated different accounting
treatment for loans sold pursuant to the securitization facility. The new
structure caused the Company to record gains on insurance premium finance loans
sold to an independent third party at the time of sale rather than recording the
income over the life of the loan as a component of interest income. As a result,
an initial gain of $763,000 was recorded in February 1995 when existing loans
were sold to the new securitization facility, and sales of receivables
subsequent to February 1995 were recorded as gains.
Substantially all of the $1.1 million increase in loan servicing fees related to
premium finance loans. Beginning in 1995, the change in the structure of the
securitization facility allowed for the insurance premium finance loans to be
sold with servicing retained, while in 1994 no servicing fees were received on
that portfolio.
Fees on mortgage loans sold increased approximately $451,000 in 1995 compared to
1994. Approximately $181,000 of the increase was generated from Hinsdale Bank
which only began such activities during late 1994 but which had a complete
period of mortgage loan sales in 1995. Also, North Shore Bank, which did not
open until the last quarter of 1994, contributed approximately $196,000 during
1995.
Trust fees increased to $399,000 in 1995 from $202,000 in 1994 primarily
attributable to new trust business generated by new trust officers.
Service charges on deposit accounts increased by 75.0% to $196,000 in 1995 from
$112,000 in 1994. The increase is a direct result of the 82.7% increase in
deposits from December 31, 1994 to December 31, 1995.
The gain on settlement of contingencies is primarily a result of a one-time
$735,000 gain from the repurchase of a minority interest in a now-discontinued
subsidiary and the settlement of various related contingencies. The actual costs
required to complete the transaction were less than amounts previously accrued
therefor, resulting in recognition of gain as the accruals were reversed into
income.
Non-interest expense. Total non-interest expense increased approximately $5.0
million, or 47.1%, to $15.8 million in 1995 from $10.8 million in 1994.
Salaries and employee benefits expense increased approximately $2.7 million,
principally attributable to growth in the deposit base of 82.7% from December
31, 1994 to December 31, 1995. The operation of additional facilities required
additional employees in those locations and the Company's successful generation
of new business from new and existing customers required additional customer
support personnel to service the expanding relationships. At Lake Forest Bank, a
branch established in the neighboring community of Lake Bluff in December 1994
was operational for a full year and another branch was opened in May 1995 in
West Lake Forest, requiring expansion of the payroll by 10 full-time equivalent
employees. At Hinsdale Bank, six full-time equivalent employees were added by
year-end 1995, as the Company initiated a lending department to originate
indirect automobile loans for its own portfolio and for sale to other financial
institutions, requiring the addition of three lending individuals. North Shore
Bank was in its initial year of operation in 1994 and thus did not have a full
year of salaries and employee benefits in 1994. Staffing levels began to
accumulate in April 1994 and the Bank became operational in September 1994. In
late 1995, North Shore Bank added a drive-through facility and opened a
full-service banking facilities in Glencoe, with organizational efforts relating
to its full-service facility in Winnetka also well underway. At the end of 1995,
North
- 31 -
<PAGE>
Shore Bank had 22 full-time equivalent employees. Libertyville Bank began to
accumulate staff in May 1995, and a full staffing complement of 20 full-time
equivalent employees was achieved by October 1995.
Occupancy expenses increased $355,000 to $1.5 million for 1995 from $1.2 million
in 1994 primarily due to the increase in the number of facilities.
Advertising and marketing expenses amounted to $682,000 during 1995 compared to
$288,000 in 1994, due to the promotion of the opening of the new banking
facilities during 1995 and the desire of management to effectively integrate the
opening of those facilities into the Company's overall marketing plan.
Data processing. Data processing expense increased by approximately $289,000 or
86.3% in 1995 compared to 1994, reflecting the Company's increase in deposits
and loans over such period. An increase in trust accounts during 1995 also
contributed to higher data processing charges.
Other non-interest expense. Other non-interest expenses increased by
approximately $1.2 million or 40.0% to $4.2 million for 1995 from $3.0 million
for 1994, primarily due to the higher volume of accounts outstanding and the
additional depreciation, supplies, and other sundry expenses related to the
opening of the new facilities.
Income taxes. The Company had no consolidated Federal or state income tax
expense for 1995 or 1994. In 1995, an income tax benefit of $512,000 was
recorded. Management determined that the Company's 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. In 1994, management had established a
valuation allowance against its net deferred tax assets with the result being
that no federal or state income tax expense or benefit was realized in the
financial statements.
ASSET-LIABILITY MANAGEMENT
As a continuing part of its financial strategy, the Company attempts to manage
the impact of fluctuations in market interest rates on its net interest income.
This effort entails providing a reasonable balance between interest rate risk,
credit risk, liquidity risk and maintenance of yield. Asset-liability management
policies are established and monitored by management in conjunction with the
boards of directors of the Banks, subject to general oversight by the Company's
Board of Directors. The policy establishes guidelines for acceptable limits on
the sensitivity of the market value of assets and liabilities to changes in
interest rates.
An institution with more assets than liabilities repricing over a given time
frame is considered asset sensitive and will generally benefit from rising
rates. The following table illustrates the Company's estimated interest rate
sensitivity and periodic and cumulative gap positions as calculated as of
December 31, 1996 (dollars in thousands).
<TABLE>
<CAPTION>
==========================================================================================================================
TIME TO MATURITY OR REPRICING
----------------------------------------------------------------------
0-90 91-365 1-5 OVER 5
DAYS DAYS YEARS YEARS TOTAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets (RSA) $ 326,390 155,094 114,871 109,682 706,037
Rate sensitive liabilities (RSL) $ 427,267 102,630 49,235 126,905 706,037
Cumulative gap (GAP = RSA - RSL) $ (100,877) (48,413) 17,223
Cumulative RSA/RSL 0.76 0.91 1.03
Cumulative RSA/Total assets 0.46 0.68 0.84
Cumulative RSL/Total assets 0.61 0.75 0.82
GAP/Total assets (14)% (7)% 2%
GAP/RSA (31)% (10)% 3%
==========================================================================================================================
</TABLE>
- 32 -
<PAGE>
While the gap position illustrated above is a useful tool that management can
assess for general positioning of the Company's and its subsidiaries' balance
sheets, management uses an additional measurement tool to evaluate its
asset/liability sensitivity which determines exposure to changes in interest
rates by measuring the percentage change in net income due to changes in rates
over a two-year time horizon. Management measures such percentage change
assuming an instantaneous permanent parallel shift in the yield curve of 200
basis points, both upward and downward. Utilizing this measurement concept, the
interest rate risk of the Company, expressed as a percentage change in net
income over a two-year time horizon due to changes in interest rates, at
December 31, 1996, is as follows:
===========================================================
+200 BASIS -200 BASIS
POINTS POINTS
-------------------------
Percentage change in net income
due to an immediate 200 basis point
change in interest rates over a
two-year time horizon 23.0% (13.3)%
===========================================================
LIQUIDITY AND CAPITAL RESOURCES
The following table reflects various measures of the Company's capital at
December 31, 1996 and 1995:
===========================================================
DECEMBER 31,
--------------------
1996 1995
--------------------
Average equity-to-average asset ratio 7.4% 8.6%
Leverage ratio 6.4% 8.5%
Tier 1 risk-based capital ratio 7.3% 11.1%
Total risk-based capital ratio 8.0% 11.9%
Dividend payout ratio 0.0% 0.0%
===========================================================
The Company's consolidated leverage ratio (Tier 1 capital/total assets less
intangibles) was 6.4% at December 31, 1996 which places the Company above the
"well capitalized" regulatory level. Consolidated Tier 1 and total risk-based
capital ratios were 7.3% and 8.0%, respectively. Based on guidelines established
by the Federal Reserve Bank, a bank holding company is required to maintain a
ratio of Tier 1 capital to risk-based assets of 4.0% and a ratio of total
capital to risk-based assets of 8.0%.
The Company's principal funds at the holding company level are dividends from
its subsidiaries, and if necessary, borrowings or additional equity offerings.
Banking laws impose restrictions upon the amount of dividends which can be paid
to the Company by the Banks. Based on these laws, the Banks could, subject to
minimum capital requirements, declare dividends to the Company without obtaining
regulatory approval in an amount not exceeding (a) undivided profits, and (b)
the amount of net income reduced by dividends paid for the current and prior two
years. In addition, the payment of dividends may be restricted under certain
financial covenants in the Company's revolving line of credit and First
Premium's existing securitization facility. At January 1, 1997, $2.5 million was
available as dividends from the Banks without prior regulatory approval,
compared to $1.5 million at January 1, 1996, and no dividend availability from
the Banks at December 31, 1994. No cash dividends were paid to the Company by
the Banks during the years ended December 31, 1996, 1995, or 1994.
Effective September 1, 1996, the Company obtained a $25.0 million revolving
credit line from a major commercial bank to consolidate separate lines
previously maintained at the subsidiary holding companies. As of December 31,
1996, the Company had borrowed $22.1 million under the line. The revolving line
is secured by all of the shares of common stock of the subsidiary bank holding
companies and of each of the Banks, other than Barrington Bank, and bears
interest on the amounts outstanding from time to time, at the Company's option,
at an interest rate of either (a) LIBOR plus 150 basis points, or (b) the
lender's prime rate. Upon completion of the common stock offering in March 1997,
the net proceeds were used to repay approximate $19.6 of the debt outstanding
under the line. The entire unused portion of the revolving line will remain
available for future borrowings. All unpaid principal amounts due under the
revolver will mature on September 1, 1997.
Liquidity management at the Banks involves planning to meet anticipated funding
needs at a reasonable cost. Liquidity management is guided by policies,
formulated and monitored by the Company's senior management and each Bank's
asset/liability committee, which take into account the marketability of assets,
the sources and stability of funding and the level of unfunded commitments. The
Banks' principal sources of funds are deposits, short-term borrowings and
capital contributions by the Company out of the proceeds of borrowings under the
revolving line. In addition, each of the Banks, except Barrington Bank, has
recently become eligible to borrow under Federal Home Loan Bank advances, an
additional source of short-term liquidity.
The Banks' core deposits, the most stable source of liquidity for community
banks due to the nature of long-term relationships generally established with
depositors and the security of deposit insurance provided by the FDIC, are
available to provide long-term liquidity. At December 31, 1996, 64.9% of the
Company's total assets were funded by core deposits with balances less than
$100,000, while remaining assets were funded by other funding sources such as
core deposits with balances in excess of $100,000, public funds, purchased
funds, and the
- 33 -
<PAGE>
capital of the Banks. At December 31, 1995 and 1994, 66.3% and 51.6% of total
assets were funded by core deposits, respectively.
Liquid assets refers to money market assets such as Federal funds sold and
interest bearing deposits with banks, as well as available-for-sale debt
securities and held-to-maturity securities with a remaining maturity less than
one year. Net liquid assets represent the sum of the liquid asset categories
less the amount of assets pledged to secure public funds. At December 31, 1996,
net liquid assets totaled approximately $74.3 million, compared to approximately
$129.1 million at December 31, 1995 and $88.8 million at December 31, 1994.
The Banks routinely accept deposits from a variety of municipal entities.
Typically, these municipal entities require that banks pledge marketable
securities to collateralize these public deposits. At December 31, 1996,
December 31, 1995 and December 31, 1994, the Banks had approximately $52.7
million, $35.2 million and $27.6 million, respectively, of securities
collateralizing such public deposits. Deposits requiring pledged assets are not
considered to be core deposits, and the assets that are pledged as collateral
for these deposits are not deemed to be liquid assets.
To finance its insurance premium loans, First Premium has over the past several
years relied primarily on proceeds of loan sales to a securitization facility.
In such transactions, First Premium transferred loans to First Premium Funding
Corp., its wholly-owned special-purpose corporation, which in turn sold the
loans to an independent multi-seller conduit, which issued commercial paper to
finance the acquisition of the loans, and First Premium retained servicing
rights. Loans have also been financed by short-term lines of credit. Following
the Reorganization in September 1996, consistent with the Company's strategy of
augmenting the Banks' internal loan generation capabilities with special asset
niches, the Banks began purchasing premium finance loans originated by First
Premium using funds provided by deposits and other lower-cost funding sources.
Consequently, First Premium's activities under the existing securitization
facility are being curtailed. The Company is currently exploring the feasibility
of establishing a single-seller multi-purpose conduit facility that may be
utilized in the future to securitize a variety of different types of assets
originated or purchased by the Company, including premium finance loans, to the
extent and at such times as management determines asset securitizations to be
desirable in implementing overall asset/liability management strategies.
The Company is not aware of any known trends, commitments, events, regulatory
recommendations or uncertainties that would have any adverse effect on the
Company's capital resources, operations or liquidity.
CREDIT RISK AND ASSET QUALITY
Summary of Loan Loss Experience. The following table summarizes average loan
balances, changes in the allowance for possible loan losses arising from
additions to the allowance which have been charged to earnings, and loans
charged-off and recoveries on loans previously charged-off for the periods shown
(dollars in thousands).
<TABLE>
<CAPTION>
===========================================================================================================================
1996 1995 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 2,763 1,702 1,357 961 818
Total loans charged-off-continuing operations (520) (290) (60) (5) -
Loans charged-off-discontinued leasing operations (583) (109) (205) (728) (965)
Total recoveries 41 30 3 2 -
-----------------------------------------------------------------------
Net loans charged-off (1,062) (369) (262) (731) (965)
-----------------------------------------------------------------------
Reduction due to subsidiary sold - - - - (8)
Provision for possible loan losses 1,935 1,430 607 1,127 1,116
-----------------------------------------------------------------------
Balance at end of year $ 3,636 2,763 1,702 1,357 961
-----------------------------------------------------------------------
Average total loans $347,076 183,614 148,209 79,052 40,528
-----------------------------------------------------------------------
Allowance as percent of year-end total loans 0.74% 1.07% 0.88% 1.24% 1.98%
Net loans charged-off to average total loans 0.31% 0.20% 0.18% 0.92% 2.38%
Net loans charged-off to the provision for
possible loan losses 54.88% 25.80% 43.16% 64.86% 86.47%
===========================================================================================================================
</TABLE>
- 34 -
<PAGE>
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.
Nonaccrual, Past Due and Restructured Loans. The following table classifies the
Company's non-performing loans as of December 31 for each of last five years
(dollars in thousands):
<TABLE>
<CAPTION>
===========================================================================================================================
1996 1995 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,686 1,778 4 4 44
Loans past due 90 days or more 95 142 16 - 88
Restructured loans - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 1,781 1,920 20 4 132
Other real estate owned - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 1,781 1,920 20 4 132
- ---------------------------------------------------------------------------------------------------------------------------
Total non-performing loans to total loans 0.36% 0.74% 0.01% -% 0.27%
Total non-performing assets to total assets 0.25% 0.41% 0.01% -% 0.16%
Nonaccrual loans to total loans 0.34% 0.69% -% -% 0.09%
===========================================================================================================================
</TABLE>
It is the policy of the Company to discontinue the accrual of interest income on
any loan for which there is a reasonable doubt as to the payment of interest or
principal. Nonaccrual loans are returned to an accrual status when the financial
position of the borrower indicates there is no longer any reasonable doubt as to
the payment of principal or interest. Of the $1.8 million of non-performing
assets at December 31, 1996, $1.3 million relates to a non-performing loan at
First Premium, which amount is expected to be fully recovered and a substantial
portion of which management has collected or expects to collect in early in
1997.
Accordingly, no amount has been specifically reserved against possible loss
related to this loan.
Other than those loans reflected in the table above, the Company had no
significant loans (i) for which the terms had been renegotiated, or (ii) for
which there were serious doubts as to the ability of the borrower to comply with
repayment terms.
Potential Problem Loans. In addition to those loans disclosed under "Nonaccrual,
Past Due and Restructured Loans," 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 believes might jeopardize the future timely collection of principal
and interest payments. The principal amount of loans in this category as of
December 31, 1996, and December 31, 1995 were approximately $1.1 million and
$604,000, respectively. Loans in this category generally include loans that were
classified for regulatory purposes. At December 31, 1996, there were no
significant loans which were classified by any bank regulatory agency that are
not included above as nonaccrual, past due or restructured.
Control of the Company's loan quality is continually monitored by management and
is reviewed by the boards of directors and credit committees of the Banks on a
monthly basis, subject to the oversight by the Company's Board of Directors
through its members who serve on such credit committees. 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.
Loan Concentrations. Loan concentrations are considered to exist when there are
amounts loaned to a multiple number of borrowers engaged in similar activities
which would cause them to be similarly impacted by economic or other conditions.
The Company had no concentrations of loans exceeding 10% of total loans at
December 31, 1996 or December 31, 1995, except for indirect auto and premium
finance loans.
Other Real Estate Owned. The Company did not have any Other Real Estate Owned at
the end of any of the reporting periods.
- 35 -
<PAGE>
EFFECTS OF INFLATION
The impact of inflation on a financial institution differs significantly from
that of an industrial company in that virtually all assets and liabilities of a
bank are monetary in nature. Monetary items, such as cash, loans, and deposits,
are those assets and liabilities that are or will be converted into a fixed
number of dollars regardless of prices. Management of the Company believes the
impact of inflation on financial results depends upon the Company's ability to
react to changes in interest rates. Interest rates do not necessarily move in
the same direction, or at the same magnitude, as the prices of other goods and
services. Management seeks to manage the relationship between interest-sensitive
assets and liabilities in order to protect against wide fluctuations in
earnings, including those resulting from interest rate changes and from
inflation.
EFFECTS OF NEW ACCOUNTING PRINCIPLES
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" (Statement No. 125). Statement No. 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Statement No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments 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. Management of the Company does not expect
that adoption of Statement No. 125 will have a material impact on the Company's
financial position, results of operations or liquidity.
- 36 -
<PAGE>
DIRECTORS & OFFICERS
- --------------------
WINTRUST FINANCIAL CORPORATION
- ------------------------------
DIRECTORS
Howard D. Adams
Alan W. Adams
Joseph Alaimo
Peter Crist
Maurice F. Dunne, Jr.
Eugene Hotchkiss III
James Knollenberg
John S. Lillard
James E. Mahoney
James B. McCarthy
Marguerite Savard McKenna
Albin F. Moschner
Hollis W. Rademacher
J. Christopher Reyes
John N. Schaper
John J. Schornack
Jane R. Stein
Katharine V. Sylvester
Lemuel H. Tate
Edward J. Wehmer
Larry V. Wright
OFFICERS
Howard D. Adams
Chairman & Chief Executive Officer
Edward J. Wehmer
President & Chief Operating Officer
David A. Dykstra
Executive Vice President & Chief Financial Officer
Lloyd M. Bowden
Executive Vice President/Technology
Robert F. Key
Executive Vice President/Marketing
LAKE FOREST BANK & TRUST COMPANY
- --------------------------------
DIRECTORS
Howard D. Adams
Craig E. Arnesen
Maurice F. Dunne, Jr.
Maxine Farrell
Francis C. Farwell
Robert D. Harnach
John A. Hilton, Jr.
Eugene Hotchkiss, III
Moris T. Hoversten
John S. Lillard
Albin F. Moschner
Genevieve M. Plamondon
Hollis W. Rademacher
J. Christopher Reyes
Babette Rosenthal
Ellen A. Stirling
Edward J. Wehmer
EXECUTIVE
Howard D. Adams
Chairman
Edward J. Wehmer
President & Chief Executive Officer
Craig E. Arnesen
Executive Vice President/Lending
LOANS
Alan W. Adams
Vice President/Commercial Lending
Kathryn Walker-Eich
Vice President/Commercial Lending
Rachele L. Wright
Vice President/Mortgages - West Lake Forest
Janice C. Nelson
Assistant Vice President/Loan Administration
Peggy Turchi
Loan Administration Officer
PERSONAL BANKING/OPERATIONS
Randolph M. Hibben
Executive Vice President/Operations
Frank W. Strainis
Senior Vice President - Lake Bluff
Mary Ann Gannon
Vice President/Operations
Lynn Van Cleave
Assistant Vice President/Personal Banking
Christine K. Tarant
Personal Banking Officer
Tamara Saucier
Teller Operations Officer
Kathleen E. Eichhorn
Assistant Cashier
Marc L. Witten
Assistant Cashier
TRUST
Joseph Alaimo
Director of Trust Investments
Sandra L. Shinsky
Assistant Vice President & Trust Officer
Anita E. Morris
Assistant Vice President & Trust Officer
Susan C. Gavinski
Trust Operations Officer
Finance/Other
Alan J. Lorr
Vice President/Controller
Anne M. Adams
marketing Officer
Andrea Eschenbaum
Administration Officer
- 37 -
<PAGE>
HINSDALE BANK & TRUST COMPANY
- -----------------------------
DIRECTORS
Howard D. Adams
Peter Crist
Diane Dean
Donald Gallagher
Robert D. Harnach
Dennis J. Jones
Douglas J. Lipke
James B. McCarthy
Mary Martha Mooney
Frank J. Murnane, Sr.
Richard B. Murphy
Joel Nelson
Hollis W. Rademacher
Ralph J. Schindler
Katherine V. Sylvester
Edward J. Wehmer
Lorraine Wolfe
EXECUTIVE
Dennis J. Jones
Chairman & Chief Executive Officer
Richard B. Murphy
President
David LaBrash
President - Clarendon Hills
LOANS
Richard Stefanski
Senior Vice President/Indirect Lending
George Mitchel
Senior Vice President/Mortgage Warehouse Lending
Eric Westberg
Vice President/Mortgages
Kay Olenec
Vice President/Mortgages
Robert Crisp
Installment Loan Officer
PERSONAL BANKING/OPERATIONS
Philip Sidock
Vice President/Cashier
Heidi Sulaski
Assistant Vice President/Personal Banking
Margaret A. Madigan
Assistant Vice President/Controller
Michelle Paetsch
Operations Officer
NORTH SHORE COMMUNITY BANK & TRUST COMPANY
- ------------------------------------------
DIRECTORS
Howard D. Adams
Brian C. Baker
Gilbert W. Bowen
T. Tolbert Chisum
John W. Close
Joseph DeVivo
Maurice F. Dunne, Jr.
James Fox (Director Emeritus)
Gayle Inbinder
Brian V. Masterton
Robert H. Meeder
Thomas J. McCabe, Jr.
Marguerite Savard McKenna
Donald L. Olson
Hollis W. Rademacher
John J. Schornack
Ingrid S. Stafford
Curtis R. Tate
Lemuel H. Tate
Elizabeth C. Warren
Edward J. Wehmer
Stanley R. Weinberger
EXECUTIVE
Lemuel H. Tate
Chairman
John W. Close
President & Chief Executive Officer
Robert H. Meeder
Executive Vice President/Lending
Brian V. Masterton
President - Glencoe
T. Tolbert Chisum
President - Winnetka
LOANS
James L. Sefton
Vice President/Lending
Henry L. Apfelbach
Vice President/Mortgages
Susan J. Weisbond
Vice President/Lending - Glencoe
Laurie A. Bartholomew
Vice President/Lending - Winnetka
John J. Presberg
Loan Officer
Patricia M. McNeilly
Mortgage Loan Officer
Mark A. Stec
Mortgage Loan Officer
PERSONAL BANKING/OPERATIONS
Donald F. Krueger
Senior Vice President/Cashier
James A. Waters
Assistant Vice President/Personal Banking
Jennifer A. Waters
Assistant Cashier
Laurence A. Dufour
Assistant Vice President/Tellers
Leslie A. Freid
Assistant Vice President/Personal
Banking - Glencoe
Cynthia L. Andrae
Personal Banking Officer - Glencoe
- 38 -
<PAGE>
LIBERTYVILLE BANK & TRUST COMPANY
- ---------------------------------
DIRECTORS
Howard D. Adams
J. Albert Carstens
David A. Dykstra
Robert Dunn
Bert Getz, Jr.
Scott Lucas
James E. Mahoney
Susan Milligan
William Newell
Hollis W. Rademacher
John N. Schaper
Jane R. Stein
Jack Stoneman
Edward J. Wehmer
Edward R. Werdell
EXECUTIVE
J. Albert Carstens
President & Chief Executive Officer
Edward R. Werdell
Executive Vice President
COMMERCIAL LENDING
Brian B. Mikaelian
Senior Vice President
Betty Berg
Vice President/Commercial Banking Services
PERSONAL BANKING
Sharon Worlin
Vice President
Ursula Schuebel
Second Vice President
Margaret Beckwith
Second Vice President/Residential Real Estate
Deborah Motzer
Personal Banking Officer
Julie Rolfsen
Personal Banking Officer
FINANCE/OPERATIONS
Jolanta Slusarski
Vice President/Operations
Patrice Lima
Vice President/Cashier
BARRINGTON BANK & TRUST COMPANY
- -------------------------------
DIRECTORS
Howard D. Adams
James H. Bishop
Raynette Boshell
Edwin C. Bruning
Bruce K. Crowther
Scott A. Gaalaas
William C. Graft
Penny Horne
Peter Hyland
Dr. Lawrence Kerns
Sam Oliver
Mary F. Perot
Betsy Petersen
Hollis W. Rademacher
Peter Rusin
George L. Schueppert
Dr. Richard Smith
Richard P. Spicuzza
W. Bradley Stetson
Dan T. Thomson
Charles VanFossan
Edward J. Wehmer
EXECUTIVE
James H. Bishop
President & Chief Executive Officer
LOANS
W. Bradley Stetson
Executive Vice President/Lending
Barbara E. Ringquist
Mortgage Loan Officer
PERSONAL BANKING/OPERATIONS
Kris A. Slattery
Vice President/Operations & Retail Banking
Helene A. Torrenga
Assistant Vice President/Controller
Jonathan E. Prell
Personal Banking Officer
FIRST PREMIUM SERVICES, INC.
DIRECTORS
Howard D. Adams
Frank J. Burke
David A. Dykstra
James C. Knollenberg
Hollis W. Rademacher
Edward J. Wehmer
EXECUTIVE
James C. Knollenberg
President & Chief Executive Officer
MARKETING/OPERATIONS/FINANCE
Frank J. Burke, Jr.
Vice President/Director of Sales
& Marketing
Joseph G. Shockey
Vice President/Director of Operations
Sal J. Sidoti
Vice President/Controller
- 39 -
<PAGE>
CORPORATE INFORMATION & LOCATIONS
- ---------------------------------
CORPORATE INFORMATION
- ---------------------
PUBLIC TRADING AND MARKET SYMBOL
The Company's Common Stock is traded on the Nasdaq National MarketSM under the
symbol WTFC. The stock abbreviation appears as "WINTRSTFNL" in the Wall Street
Journal.
ANNUAL MEETING OF SHAREHOLDERS
May 22, 1997
Gorton Community Center
400 East Illinois Road
Lake Forest, Illinois
6:00 P.M.
FORM 10-K
The Form 10-K Annual Report to the Securities and Exchange Commission will be
available to holders of record upon written request to the Secretary of the
Company. The information is also available on the Internet at the Securities and
Exchange Commission's website. The address for the web site is:
http://www.sec.gov.
TRANSFER AGENT
Illinois Stock Transfer Company
223 West Jackson Boulevard
Suite 1210
Chicago, Illinois 60606
Telephone: (312) 427-2953
Facsimile: (312) 427-2879
MARKET MAKERS FOR WINTRUST FINANCIAL CORPORATION
COMMON STOCK
EVEREN Securities, Inc.
Howe Barnes Investments, Inc.
PaineWebber, Inc.
Principal Financial Services, Inc.
William Blair & Co.
LOCATIONS
- ---------
WINTRUST FINANCIAL CORPORATION
727 North Bank Lane
Lake Forest, IL 60045
(847) 615-4096
LAKE FOREST BANK
& TRUST COMPANY
Lake Forest Locations
Main Bank
727 North Bank Lane
Lake Forest, IL 60045
(847) 234-2882
Drive-thru
780 North Bank Lane
Lake Forest, IL 60045
West Lake Forest
810 South Waukegan Avenue
Lake Forest, IL 60045
(847) 615-4080
West Lake Forest Drive-thru
911 Telegraph Road
Lake Forest, IL 60045
(847) 615-4097
Lake Bluff Location
103 East Scranton Avenue
Lake Bluff, IL 60044
(847) 615-4060
HINSDALE BANK
& TRUST COMPANY
Hinsdale Locations
Main Bank
25 East First Street
Hinsdale, IL 60521
(630) 323-4404
Drive-thru
130 West Chestnut
Hinsdale, IL 60521
(630) 655-8025
Clarendon Hills Location
200 West Burlington Avenue
Clarendon Hills, IL 60514
(630) 323-1240
NORTH SHORE COMMUNITY BANK
& TRUST COMPANY
Wilmette Locations
Main Bank
1145 Wilmette Avenue
Wilmette, IL 60091
(847) 853-1145
Drive-thru
720 12th Street
Wilmette, IL 60091
Glencoe Location
362 Park Avenue
Glencoe, IL60022
(847) 835-1700
Winnetka Location
794 Oak Street
Winnetka, IL 60093
(847) 441-2265
LIBERTYVILLE BANK
& TRUST COMPANY
Main Bank
507 North Milwaukee Avenue
Libertyville, IL 60048
(847) 367-6800
Drive-thru
201 Hurlburt Court
Libertyville, IL 60048
(847) 247-4045
BARRINGTON BANK
& TRUST COMPANY
Main Bank
202 South Cook Street
Barrington, IL 60010
(847) 842-7970
FIRST PREMIUM SERVICES, INC.
520 Lake Cook Road
Suite 300
Deerfield, IL 60015
(847) 374-3000
EXHIBIT 10.29
FIRST AMENDMENT TO
LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT dated as of March 1, 1997 (this
"Amendment"), is between WINTRUST FINANCIAL CORPORATION, an Illinois corporation
(the "Borrower"), and LASALLE NATIONAL BANK, a national banking association (the
"Bank").
WITNESSETH:
WHEREAS, the Borrower and the Bank entered into a Loan Agreement dated
as of September 1, 1996 (the "Agreement"); and
WHEREAS, the Borrower and the Bank desire to amend the Agreement as
more fully described herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without
definition shall have the respective meanings set forth in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1 Amendment to Section 3 (a) of the Agreement.
--------------------------------------------
Section 3 (a) of the Agreement is hereby amended as of the date hereof by
- --------------
deleting it in its entirety and replacing it with the following:
"(a) Interest on amounts outstanding under the Note shall be payable
quarterly, in arrears, commencing on March 1, 1997 and continuing on
the first day of each June, September, December and March thereafter. A
final payment of all outstanding amounts due under the Note including,
but not limited to principal, interest and any amounts owing under
Subsection 10 (m) of this Agreement, if not payable earlier, shall be
due and payable on September 1, 1997. The amounts outstanding under the
Note from time to time shall bear interest calculated on the actual
number of days elapsed on the basis of a 360 day year, at a rate equal,
at the Borrower's option, to either (a) the London Inter-Bank Offered
Rate ("LIBOR") plus 125 basis points, or (b) the Prime Rate (whichever
is so selected, the "Interest Rate")."
3. WARRANTIES. To induce the Bank to enter into this Amendment,
the Borrower warrants that:
3.1 Authorization. The Borrower is duly authorized to execute
--------------
and deliver this Amendment and is and will continue to be duly authorized to
borrow monies under the Agreement, and amended hereby, and to perform its
obligations under the Agreement, as amended hereby.
<PAGE>
3.2 No Conflicts. The execution and delivery of this Amendment
-------------
and the performance by the Borrower of its obligations under the Agreement, as
amended hereby, do not and will not conflict with any provision of law or of the
charter or by-laws of the Borrower or of any agreement binding upon the
Borrower.
3.3 Validity and Binding Effect. The Agreement, as amended
-----------------------------
hereby, is a legal valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms, except as enforceable against
the Borrower in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency or other similar laws of general application
affecting the enforcement of creditors' rights or by general principals of
equity limiting the availability of equitable remedies.
3.4 No Default. As of the date hereof, no Event of Default
------------
under Section 9 of the Agreement, as amended by this Amendment, or event or
condition which, with the giving of notice or the passage of time, shall
constitute an Event of Default, has occurred or is continuing.
3.5 Warranties. As of the date hereof, the representations
----------
and warranties in Section 5 of the Agreement are true and correct as though made
on such date, except for such changes as are specifically permitted under the
Agreement.
4. CONDITIONS PRECEDENT. This Amendment shall become effective
as of the date above first written after receipt by the Bank of the following
documents:
(a) This Amendment duly executed by the Borrower; and
(b) Such other documents and instruments as the Bank
reasonably requests.
5. GENERAL.
5.1 Law. This Amendment shall be construed in accordance with
---
and governed by the laws of the State of Illinois.
5.2 Successors. This Amendment shall be binding upon the
-----------
Borrower and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Bank and their respective
successors and assigns.
5.3 Confirmation of the Agreement. Except as amended hereby,
------------------------------
the Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
LASALLE NATIONAL BANK WINTRUST FINANCIAL CORPORATION
By: ______________________________ By:________________________________
Its: ______________________________ Its:________________________________
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the annual
audited financial statements of Wintrust Financial Corporation for the year
ended December 21, 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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 36,581
<INT-BEARING-DEPOSITS> 18,732
<FED-FUNDS-SOLD> 38,835
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,387
<INVESTMENTS-CARRYING> 5,001
<INVESTMENTS-MARKET> 4,913
<LOANS> 492,548
<ALLOWANCE> 3,636
<TOTAL-ASSETS> 706,037
<DEPOSITS> 618,029
<SHORT-TERM> 7,058
<LIABILITIES-OTHER> 16,273
<LONG-TERM> 22,057
0
0
<COMMON> 6,603
<OTHER-SE> 36,017
<TOTAL-LIABILITIES-AND-EQUITY> 706,037
<INTEREST-LOAN> 30,631
<INTEREST-INVEST> 8,406
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 39,037
<INTEREST-DEPOSIT> 22,760
<INTEREST-EXPENSE> 1,395
<INTEREST-INCOME-NET> 14,882
<LOAN-LOSSES> 1,935
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 22,762
<INCOME-PRETAX> (2,283)
<INCOME-PRE-EXTRAORDINARY> (973)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (973)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
<YIELD-ACTUAL> 2.91
<LOANS-NON> 1,686
<LOANS-PAST> 1,781
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,100
<ALLOWANCE-OPEN> 2,763
<CHARGE-OFFS> (1,103)
<RECOVERIES> 41
<ALLOWANCE-CLOSE> 3,636
<ALLOWANCE-DOMESTIC> 2,280
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,356
</TABLE>
