UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission File Number 0-21923
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Illinois 36-3873352
- ---------------------------------------- ------------------------------------
(State of incorporation of organization) (I.R.S. Employer Identification No.)
727 North Bank Lane
Lake Forest, Illinois 60045
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(Address of principal executive offices)
(847) 615-4096
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of issuer's class of common
stock, as of the last practicable date.
Common Stock - no par value, 8,103,982 shares, as of November 13, 1997.
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TABLE OF CONTENTS
PART I. -- FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements and Notes (Unaudited).................... 1-6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 7-23
PART II. -- OTHER INFORMATION
ITEM 1. Legal Proceedings .......................................... 24
ITEM 2. Changes in Securities ...................................... 24
ITEM 3. Defaults Under Senior Securities ........................... 24
ITEM 4. Matters Submitted to a Vote of Security Holders ............. 24
ITEM 5. Other Information ........................................... 24
ITEM 6. Exhibits and Reports on Form 8-K ........................... 24
Signatures................................................... 25
Exhibit Index............................................... 26
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WINTRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(IN THOUSANDS)
SEPTEMBER 30, December 31, September 30
ASSETS 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks-noninterest bearing $ 34,871 $ 36,581 $ 19,753
Federal funds sold 75,077 38,835 52,033
Interest-bearing deposits with banks 50,023 18,732 25,100
Available-for-Sale securities, at market value 64,705 69,387 69,022
Held-to-Maturity securities, at amortized cost 5,001 5,001 5,002
Loans, net of unearned income 694,152 492,548 414,405
Less: Allowance for possible loan losses 5,013 3,636 3,749
- ---------------------------------------------------------------------------------------------------------------
Net loans 689,139 488,912 410,656
Premises and equipment, net 39,894 30,277 28,410
Accrued interest receivable and other assets 12,478 16,426 10,818
Goodwill and organizational costs 1,782 1,886 470
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 972,970 $ 706,037 $ 621,264
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 77,136 $ 67,164 $ 55,523
Interest bearing 804,174 550,865 493,780
- ---------------------------------------------------------------------------------------------------------------
Total deposits 881,310 618,029 549,303
Short-term borrowings - 7,058 1,812
Notes payable 15,903 22,057 16,554
Other liabilities 8,841 16,273 12,810
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 906,054 663,417 580,479
- ---------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock - - -
Common stock 8,103 6,603 6,516
Surplus 72,502 52,871 51,681
Common stock warrants 100 100 75
Retained deficit (13,797) (16,963) (17,511)
Net, unrealized gains on Available-for-Sale
securities, net of tax 8 9 24
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity 66,916 42,620 40,785
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Total liabilities and shareholders' equity $ 972,970 $ 706,037 $ 621,264
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<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Interest income $ 46,205 $ 27,398 $ 17,746 $ 10,174
Interest expense 26,824 17,011 10,406 6,232
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 19,381 10,387 7,340 3,942
Provision for possible loan losses 2,512 1,344 958 451
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 16,869 9,043 6,382 3,491
Total noninterest income 3,622 5,856 1,102 1,970
Total noninterest expense 19,724 16,454 6,946 5,339
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 767 (1,555) 538 122
Income tax (benefit) expense (2,399) (34) (773) (179)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,166 $ (1,521) $ 1,311 $ 301
========================================================================================================================
Net income (loss) per common share $ 0.39 $ (0.25) $ 0.15 $ 0.04
========================================================================================================================
Weighted average common shares and
common share equivalents outstanding 8,117 5,992 8,587 6,846
========================================================================================================================
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<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
NET
UNREALIZED
GAIN (LOSS)
ON SECURITIES TOTAL
PREFERRED COMMON RETAINED AVAILABLE SHAREHOLDERS'
STOCK STOCK SURPLUS WARRANTS (DEFICIT) FOR SALE EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 503 $ 5,831 $ 50,053 $ 75 $ (15,990) $ 15 $ 40,487
Net loss - - - - (1,521) - (1,521)
Common stock issuance - 567 1,298 - - - 1,865
Repurchase of common stock - (4) (44) - - - (48)
Conversion of preferred stock (503) 122 381 - - - -
Cash value of fractional shares - - (7) - - - (7)
Change in net unrealized gain on securities
available-for-sale, net of tax effect - - - - - 9 9
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 $ - $ 6,516 $ 51,681 $ 75 $ (17,511) $ 24 $ 40,785
==================================================================================================================================
Balance at December 31, 1996 $ - $ 6,603 $ 52,871 $ 100 $ (16,963) $ 9 $ 42,620
Net income - - - - 3,166 - 3,166
Common stock issued upon exercise
of stock options - 102 652 - - - 754
Common stock issued in conjunction with
public offering, net of issuance costs - 1,398 18,979 - - - 20,377
Change in net unrealized gain on securities
available-for-sale, net of tax effect - - - - - (1) (1)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 $ - $ 8,103 $ 72,502 $ 100 $(13,797) $ 8 $ 66,916
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,166 $ (1,521)
Adjustments to reconcile net income (loss) to net cash
used for, or provided by, operating activities:
Provision for possible loan losses 2,512 1,344
Depreciation and amortization 1,709 1,036
Deferred income tax (benefit) expense (2,399) 111
Net accretion/amortization of investment securities (332) (34)
Decrease (increase) in other assets, net 6,268 (1,866)
Decrease in other liabilities, net (7,432) (301)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 3,492 (1,231)
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of Available-for-Sale securities 76,847 288,102
Proceeds from sales of Available-for-Sale securities - 498
Purchases of securities (71,833) (299,734)
Net (increase) decrease in interest bearing deposits (31,291) 25,500
Net increase in loans (202,739) (156,532)
Purchases of premises and equipment, net (11,144) (5,447)
- ------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (240,160) (147,613)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts 263,281 143,645
(Decrease) increase in short-term borrowings, net (7,058) 945
Proceeds from notes payable 11,700 5,796
Repayment of notes payable (17,854) -
Cash value of fractional shares upon exchange of shares - (7)
Issuance of common stock, net of issuance costs 21,131 1,865
Repurchase of common stock - (48)
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 271,200 152,196
- ------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 34,532 3,352
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 75,416 68,434
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 109,948 $ 71,786
======================================================================================================
</TABLE>
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WINTRUST FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
The consolidated financial statements of Wintrust Financial Corporation and
Subsidiaries ("Wintrust" or "Company") presented herein are unaudited, but in
the opinion of management reflect all necessary adjustments for a fair
presentation of results as of the dates and for the periods covered by the
consolidated financial statements.
The consolidated Wintrust entity was formed on September 1, 1996 through a
merger transaction whereby the holding companies of Lake Forest, Hinsdale,
Libertyville and First Premium were merged with newly formed wholly-owned
subsidiaries of North Shore Community Bancorp, Inc. (which changed its name to
Wintrust Financial Corporation concurrent with the merger). The merger
transaction was accounted for in accordance with the pooling-of-interest method
of accounting for a business combination. Accordingly, the consolidated
financial statements included herein reflect the combination of the historical
financial results of the five entities and the recorded assets and liabilities
have been carried forward to the consolidated company at their historical cost.
In October 1996, Wintrust purchased a company known as Wolfhoya Investments,
Inc. ("Wolfhoya") for a purchase price of approximately $1.3 million. Wolfhoya
was a company organized prior to the merger transaction by certain directors and
officers of the Company for purposes of organizing a de novo banking operation
in Barrington, Illinois. At the date of purchase by Wintrust, Wolfhoya had
purchased real estate for a permanent banking location and constructed a
temporary banking location in downtown Barrington. Wolfhoya had also secured the
services of its top three executive officers to run the new de novo bank. On
December 19, 1996, Wintrust opened Barrington Bank and Trust Company, the bank
that Wolfhoya had begun to organize prior to the acquisition. The acquisition
was accounted for using the purchase method of accounting and the purchase price
was paid for by issuing approximately 88,000 shares of Wintrust common stock to
the shareholders of Wolfhoya.
The accompanying consolidated financial statements are unaudited and do not
include information or footnotes necessary for a complete presentation of
financial condition, results of operations or cash flows in accordance with
generally accepted accounting principles. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes included in the Company's Annual Report and Form 10-K for the year ended
December 31, 1996. Operating results for the three-month and nine-month periods
presented are not necessarily indicative of the results which may be expected
for the entire year.
(2) Statement of Financial Accounting Standard No. 122:
--------------------------------------------------
In May 1995, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard No. 122, "Accounting for Mortgage Servicing
Rights, an amendment of Financial Accounting Standard No. 65" (SFAS No. 122).
The statement requires the recognition as separate assets the rights to service
mortgage loans for others, however those rights are acquired. SFAS No. 122
requires that when a definitive plan exists to sell the loan and retain
servicing rights, the cost of the mortgage will be allocated between the loan
and the related mortgage servicing right based on their relative fair values at
the date of
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<PAGE>
origination or purchase; otherwise the date of sale will be used. Mortgage
servicing rights are amortized ratably over the period of the associated
estimated net servicing income. SFAS No. 122 also requires assessing the
capitalized mortgage servicing rights for impairment by comparing the recorded
book value to the fair value of those rights.
(3) Statement of Financial Accounting Standard No. 114 and No. 118:
--------------------------------------------------------------
The Company follows the guidance of Statement of Financial Accounting Standard
No. 114 (as amended by Statement of Financial Accounting Standard No. 118),
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" to account for impaired loans. A loan is considered impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due. Impaired loans under SFAS No. 114 and SFAS
No. 118 are considered by the Company to be nonaccrual loans, restructured loans
and loans with principal and/or interest at risk, even if the loan is current
with all payments of principal and interest. Impairment is measured by
determining the fair value of the loan based on the present value of expected
cash flows, the market price of the loan, or the fair value of the underlying
collateral. If the fair value of the loan is less than the recorded book value,
a valuation allowance is established as a component of the allowance for
possible loan losses. Interest income is not accrued on loans where management
has determined that the borrowers may be unable to meet contractual principal
and/or interest obligations, or where interest or principal is 90 days or more
past due, unless the loans are adequately secured and in the process of
collection. Cash receipts on nonaccrual loans are generally applied to the
principal balance until the remaining balance is considered collectible, at
which time interest income may be recognized when received.
(4) Statement of Financial Accounting Standard No. 125
--------------------------------------------------
As of January 1, 1997, the Company adopted Financial Accounting Standards Board
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS No. 125). SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is applied prospectively.
SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extingushments of liabilities based on
consistent application of a financial components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. The adoption of SFAS No. 125 did not have
a material impact on the Company's financial position, results of operations or
liquidity.
(5) Cash and Cash Equivalents
-------------------------
For the purposes of the Consolidated Statements of Cash Flows, the Company
considers cash and cash equivalents to include cash and due from banks and
federal funds sold which have an original maturity of 90 days or less.
(6) Per Common Share Data
---------------------
Earnings per share are calculated by dividing net income, after consideration of
preferred stock dividends, by the weighted average number of shares of common
stock and common stock equivalents outstanding during the period. Common stock
equivalents are calculated using the treasury stock method.
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<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wintrust Financial Corporation ("Wintrust" or "Company") is a multi-bank holding
company currently engaged in the business of providing financial services
primarily through its banking subsidiaries to customers in the Chicago
metropolitan area and financing the payment of insurance premiums, on a national
basis, through its subsidiary, First Premium Services, Inc. ("First Premium").
As of September 30, 1997, Wintrust owned five bank subsidiaries ("Banks"), all
of which started as de novo institutions, including Lake Forest Bank & Trust
Company ("Lake Forest"), Hinsdale Bank & Trust Company ("Hinsdale"), North Shore
Community Bank & Trust Company ("North Shore"), Libertyville Bank & Trust
Company ("Libertyville") and Barrington Bank & Trust Company ("Barrington").
The consolidated Wintrust entity was formed on September 1, 1996 through a
merger transaction whereby the holding companies of Lake Forest, Hinsdale,
Libertyville and First Premium were merged with newly formed wholly-owned
subsidiaries of North Shore Community Bancorp, Inc. (which changed its name to
Wintrust Financial Corporation concurrent with the merger). The merger
transaction was accounted for in accordance with the pooling-of-interest method
of accounting for a business combination. Accordingly, the consolidated
financial statements included herein reflect the combination of the historical
financial results of the five entities and the recorded assets and liabilities
have been carried forward to the consolidated company at their historical cost.
In October 1996, Wintrust purchased Wolfhoya Investments, Inc. ("Wolfhoya") for
a purchase price of approximately $1.3 million. The sole business purpose of
Wolfhoya was to organize a de novo banking operation in Barrington, Illinois. At
the date of purchase by Wintrust, Wolfhoya had secured a permanent banking
location and constructed a temporary banking location in downtown Barrington.
Wolfhoya had also secured the services of its top three executive officers to
run the new de novo bank. Barrington opened on December 19, 1996. The
acquisition was accounted for using the purchase method of accounting and the
purchase price was paid for by issuing approximately 88,000 shares of Wintrust
common stock to the shareholders of Wolfhoya. Accordingly, the Company's
consolidated financial statements reflects the financial condition and results
of operations of Barrington since the date of acquisition.
Each of Lake Forest, Hinsdale, Libertyville and First Premium are wholly-owned
by mid-tier holding companies known as Lake Forest Bancorp, Inc., Hinsdale
Bancorp, Inc., Libertyville Bancorp, Inc., and Crabtree Capital Corporation,
respectively. These mid-tier holding companies are all owned 100% by Wintrust.
The existing operating subsidiaries have all started operations within the last
seven years. Each of the operating subsidiaries were started in an effort to
fulfill a financial services need in the banking and insurance premium financing
industries. Lake Forest, Hinsdale, North Shore, Libertyville and Barrington
began banking operations in December 1991, October 1993, September 1994, October
1995 and December 1996, respectively. Subsequent to those initial dates of
operations, each of the banks, except Libertyville and Barrington have
established additional full service banking facilities. First Premium began
operations in 1990 and is primarily involved in the financing of insurance
premiums written through independent insurance agents or brokers on a national
basis for commercial customers. Since its commencement of operations, First
Premium has
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consistently expanded its umbrella of operations to include additional states in
which it can operate. As such, Wintrust is a growth oriented company which is
still undertaking to establish additional market share in the communities and
industries it serves.
The management of Wintrust presents the following discussion and analysis of its
financial condition as of September 30, 1997, compared with December 31, 1996,
and September 30, 1996, and the results of operations for the periods ending
September 30, 1997 and 1996. This discussion should be read in conjunction with
the Company's unaudited consolidated financial statements contained in this
report.
OVERVIEW
Wintrust reported net income for the quarter ended September 30, 1997 of
$1,311,000 compared to net income of $301,000 in the third quarter of the prior
year. For the nine months ended September 30, 1997, net income was $3,166,000
compared with a net loss of $1,521,000 for the first nine months of 1996. A
significant factor contributing to the net income in 1997 was the recording of
net tax benefits of $773,000 and $2,399,000 in the three month and nine month
periods ending September 30, 1997, respectively. The income tax benefit recorded
in 1997 reflected management's determination that certain of the Company's
subsidiaries earnings history and projected future earnings were sufficient to
make a judgment that the realization of a portion of the net deferred tax assets
not previously valued was more likely than not to occur. Excluding the impact of
income taxes, the Company recorded operating income of $538,000 and $767,000 for
the three months and nine months ended September 30 1997, respectively, compared
with operating income of $122,000 and operating loss of $1,555,000 for the same
periods ending September 30, 1996. The improvement in operating results was due
to the enhanced performance of the Company's four banking subsidiaries that
existed as of September, 1996. The improvement accomplished at those
subsidiaries, however, was offset by an expected pre-tax loss of approximately
$1.1 million at Barrington in the first nine months of 1997. Barrington, the
Company's newest de novo bank, was opened in December, 1996. Additionally, the
1997 results were negatively impacted by the costs associated with the first
year of operations at the Company's full services banking facility opened in
Clarendon Hills, Illinois in August, 1996, and the opening of a new drive-up
banking facility in Lake Forest, Illinois during February, 1997.
The loss in 1996 was attributable in part to start up costs associated with full
service banking operations in (a) Libertyville, Illinois via a newly chartered
de novo bank during October, 1995, and (b) branch banking facilities in Glencoe,
Illinois (October, 1995) and Winnetka, Illinois (May, 1996). Additionally, North
Shore and Hinsdale opened separately located drive-up/walk-up facilities in the
fourth quarter of 1995. Generally, a community bank's results of operations are
reliant upon the net interest income to produce an overall profit for the bank.
However, as these banking locations were only operational for less than one
year, the revenues generated through the net interest income were not sufficient
to offset organizational expenses and the overhead established to support full
service banking operations, as has been typical during the first twelve to
fifteen months of the Company's start-up banking operations and was anticipated
by management during its planning of these facilities.
Total assets were $973.0 million at September 30, 1997, up approximately $267.0
million, or 38%, from $706.0 million at December 31, 1996. Total loans were
$694.2 million at September 30, 1997, an increase of $201.6 million, or 41%,
from $492.5 million at year-end. Deposits reached $881.3 million, up $263.3
million or 43%, from $618.0 million at year-end 1996. Shareholders' equity rose
to $66.9 million, an increase of $24.3 million
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from the year-end level of $42.6 million due primarily to the proceeds received
from the Company's common stock offering and the Company's net earnings for the
first nine months of the year.
CONSOLIDATED RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is defined as the difference between interest income and
fees on earning assets and interest expense on deposits and borrowings. The
related net interest margin represents the net interest income on a fully tax
equivalent basis as a percentage of average earning assets during the period.
The following table presents a summary of Wintrust's net interest income and
related net interest margin, calculated on a fully taxable equivalent basis
(dollars in thousands).
<TABLE>
<CAPTION>
NINE MONTHS ENDED Nine Months Ended
SEPTEMBER 30, 1997 September 30, 1996
----------------------------------------- ----------------------------------------
AVERAGE INTEREST RATE Average Interest Rate
--------------- ------------- ----------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits with banks $ 16,670 $ 690 5.52% $ 31,478 $ 1,323 5.60%
Federal funds sold 58,644 2,379 5.41 43,805 1,733 5.27
Investment securities* 68,067 2,779 5.44 81,697 3,307 5.40
Loans, net of unearned discount* 598,138 40,409 9.01 332,150 21,063 8.46
--------------- ------------- ----------- -------------- ------------- -----------
Total earning assets $ 741,519 $ 46,257 8.32% $ 489,130 $ 27,426 7.48%
--------------- ------------- ----------- -------------- ------------- -----------
Interest-bearing deposits $ 659,164 $ 26,161 5.29% $ 420,109 $ 16,000 5.08%
Term debt and short-term borrowings 13,325 663 6.63 15,949 1,011 8.45
--------------- ------------- ----------- -------------- ------------- -----------
Total interest-bearing liabilities $ 672,489 $ 26,824 5.32% $ 436,058 $ 17,011 5.20%
--------------- ------------- ----------- -------------- ------------- -----------
Taxable equivalent net interest income $ 19,433 $ 10,415
============= =============
Net interest spread 3.00% 2.28%
=========== ===========
Net interest margin 3.49% 2.84%
=========== ===========
<FN>
- -------------------------------
* - Interest income on tax advantaged investment securities and loan reflects a
tax equivalent adjustment based on a marginal federal corporate tax of 34%.
The total tax-equivalent adjustment reflected in the above table is $52,000
and $28,000 in 1997 and 1996, respectively.
</FN>
</TABLE>
The net interest margin increased 0.65% to 3.49% in the first nine months of
1997 from 2.84% for the same period one year ago. The increase in the net
interest margin was primarily the result of a shift in the composition of the
earning asset portfolio whereby loans constituted approximately 81% of the
average earning assets during the nine months ending September 30, 1997 compared
to only 68% over the same period one year ago. Contributing to the increase of
loans is the fact that the Company is now maintaining the premium finance loans
originated by First Premium as assets of the subsidiary banks. First Premium had
previously funded its loan generation through a securitization facility whereby
most loans were sold into the secondary market, with servicing retained by First
Premium. The cost of First Premium's funding was more expensive than the cost of
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funds that could be provided by the subsidiary banks' deposit base. As such,
subsequent to the consummation of the merger in September 1996, First Premium
has sold their loan production to the subsidiary banks. On a consolidated basis,
the sale of the loans to the banks has resulted in a larger net interest margin
in the first three quarters of 1997 as the high yielding insurance premium loans
remain on the books of the Company using a lower overall cost of funds. As of
September 30, 1997, the subsidiary banks have absorbed virtually all of the loan
volume of First Premium.
Additionally, the Company's borrowing costs have been reduced by lower rates
charged on term debt. During the first eight months of 1996, each of the
predecessor companies were distinct entities with relatively higher borrowing
rates. As a result of the consummation of the merger and consolidation of the
debt outstanding at each of the predecessor companies, Wintrust was able to
secure more favorable interest rate terms from its lender.
Despite an increase in the net interest margin as discussed above, the Company's
net interest margin is low compared to industry standards for a variety of
reasons. First, as de novo banking institutions, Wintrust's subsidiary banks
have been aggressive in providing competitive loan and deposit interest rates to
the communities served. Next, Wintrust's subsidiary banks originate primarily
high quality loans as opposed to originating higher yielding loans that bring
more credit risk with them. Also, the subsidiary banks have purposefully
maintained an investment portfolio that is short-term in nature in order to
facilitate the funding of quality loan demand as it emerged and to keep the
banks in a liquid condition in the event that deposit levels fluctuated. In the
current interest rate environment, the short-term investment portfolio has been
yielding less than a portfolio with extended maturities; however, management
believed that this method of investing was prudent given the de novo status of
the banks.
RECONCILIATION OF THE NET INTEREST INCOME ACCORDING TO RATE AND VOLUME VARIANCES
The following table presents a reconciliation of Wintrust's net interest income,
calculated on a fully taxable equivalent basis between the nine month periods
ended September 30, 1996 and September 30, 1997. The reconciliation sets forth
the change in the net interest income as a result of changes in volumes, changes
in rates and the change due to the combination of volume and rate changes (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Fully tax equivalent net interest income for the nine months ended September 30, 1996 $ 10,415
Change due to average earning assets fluctuations (volume) 5,376
Change due to interest rate fluctuations (rate) 2,400
Change due to rate/volume fluctuations (mix) 1,242
-------------------
Fully tax equivalent net interest income for the nine months ended September 30, 1997 $ 19,433
===================
</TABLE>
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NONINTEREST INCOME
Total noninterest income decreased approximately $2.3 million, or 38%, to $3.6
million for the first nine months of 1997, as compared with $5.9 million in
1996. The following table presents noninterest income by category (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Fees on mortgage loans sold $ 1,496 $ 1,023 $ 579 $ 362
Gains on sale of premium finance loans - 2,659 - 799
Loan servicing fees - Mortgage loans 69 41 26 16
Loan servicing fees - Securitization 261 994 50 336
Service charges on deposit accounts 553 309 227 124
Trust fees 471 412 162 153
Securities gains, net - 18 - -
Other income 772 400 58 180
------------------- ------------------- ------------------- -----------------
Total noninterest income $ 3,622 $ 5,856 $ 1,102 $ 1,970
=================== =================== =================== =================
</TABLE>
Beginning in the fourth quarter of 1996, First Premium began selling premium
finance loans to the Company's banking subsidiaries. Previously, such loans had
been sold to a third-party securitization facility whereby gains on the sale of
such loans and related servicing fees were recorded. Fee income earned in 1997
by First Premium in conjunction with the sale and servicing of such loans to the
subsidiary banks was eliminated as an intercompany transaction. Consequently,
gains on the sale of premium finance loans sold and loan servicing fees
decreased from 1996 to 1997. Although these income categories declined in 1997,
the Company's net interest margin was impacted positively by the additional
interest income that the bank subsidiaries earn over the life of such loans.
Fees on mortgage loans sold relate to income derived by the subsidiary banks for
services rendered in originating and selling residential real estate loans into
the secondary market. Such fees rose 46% in the first nine months of 1997 to
$1.5 million from $1.0 million in 1996 due to increased loan volumes.
Service charges on deposit accounts rose 79% to $553,000 for the nine months
ended September 30, 1997 from $309,000 from the year ago period. The increase is
primarily a result of a 60% increase in deposit balances from September 30, 1996
to September 30, 1997. The majority of service charges on deposit accounts
relates to customary fees on accounts in overdraft positions and for returned
items on an account. The level of service charges received on deposit accounts
is substantially below peer group levels as management believes in the
philosophy of providing high quality service without encumbering that service
with numerous activity charges.
Trust fees increased to $471,000 for the nine months ended September 30, 1997,
up 14% from the $412,000 earned in the same period of 1996. The continuing
efforts of the trust management team to establish new account relationships and
to provide high quality customer service has resulted in a steady increase in
trust fees.
- 11 -
<PAGE>
Other noninterest income in 1997 increased to $772,000 from $400,000 one year
earlier. The increase is primarily related to the settlement of a lawsuit.
Excluding the impact of such settlement, other noninterest income remained
relatively stable.
NONINTEREST EXPENSE
Total noninterest expense increased approximately $3.2 million, or 20%, to $19.7
million for the first nine months of 1997, as compared with $16.5 million for
the same period of 1996. The following table presents noninterest expenses by
category (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
---------------- ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 10,401 $ 8,133 $ 3,532 $ 2,883
Net occupancy expense 1,434 1,245 497 449
Data processing 982 732 339 260
Advertising and marketing 932 710 360 282
Non-recurring merger expenses - 850 - -
Other 5,975 4,784 2,218 1,465
----------------- ---------------- ------------------- -----------------
Total noninterest expense $ 19,724 $ 16,454 $ 6,946 $ 5,339
================= ================ =================== =================
</TABLE>
Salaries and employee benefits increased 28% to $10.4 million for the nine
months ended September 30, 1997, as compared with $8.1 million for the same
period of the prior year. The increase of approximately $2.3 million is
partially the result of one additional bank (Barrington), one additional
full-service branch banking facility located in Clarendon Hills, Illinois and a
drive-up banking facility in Lake Forest that were in operation during the first
nine months of 1997 but were not operational during, or for a substantial
portion of, the first nine months of 1996. Barrington accounted for
approximately $800,000 of the salaries and employee benefits expense for the
nine months ending September 30, 1997. In addition to the increased staffing to
support the new banking facilities, the growth in deposit and loan accounts at
the previously existing banking locations required additional staffing. Also,
contributing to the increase in salaries were normal salary increases.
Occupancy expenses increased 15%, for the nine months ended September 30, 1997
to $1.4 million from $1.2 million for the same period of 1996, due primarily to
the addition of Barrington and additional branch locations.
For the nine months ended September 30, 1997, data processing expenses were $1.0
million, or 34%, over the $732,000 expensed in the first nine months of 1996.
Data processing expenses are highly dependent on the number of accounts
processed by the Banks. As a result, higher deposit and loan balances from the
year-ago level of approximately 60% and 68%, respectively, were the primary
reason for the increases in this expense category. Additionally, the first nine
months of 1997 included data processing costs for Barrington which opened in
December 1996.
- 12 -
<PAGE>
Marketing expenses increased 31% to $932,000 for the first nine months of 1997
compared to $710,000 for the 1996 period. The continued growth in banking
locations caused the higher level of marketing expenditures. Management
anticipates proportional increases in marketing expense will be incurred in
future quarters as Wintrust continues to establish its base of customers and
promotes the opening of additional banking locations.
Non-recurring merger related expenses were $850,000 through the first nine
months of 1996. They consist of various legal, accounting, and tax consulting
expenses; printing and Securities and Exchange Commission filing expenses; and
other applicable expenses to consummate the merger transaction that resulted in
the consolidated Wintrust entity. Because the merger was consummated in 1996, no
such expenses are applicable in 1997.
Other noninterest expenses increased by 25%, to $6.0 million for the nine months
ended September 30, 1997 from $4.8 million for the first nine months of 1996.
This category of expenses contains insurance expense, stationary and supplies
expense, postage expense, legal fees, audits and examinations expense,
amortization of organizational costs, and other sundry expenses. The increase in
this category of expenses is generally a result of originating and servicing the
growing deposit and loan balances.
Despite the increases in various noninterest expense categories during the first
half of 1997 compared to 1996, Wintrust's ratio of noninterest expenses to total
average assets declined to 3.2% in 1997 from the 1996 level of 3.9%, excluding
the non-recurring merger expenses, reflecting management's commitment to
maintaining low overhead costs while providing superior customer service.
Additionally, Wintrust's net overhead ratio of 2.6% for the nine months ended
September 30, 1997 is approximately the same as the Company's peer group.
INCOME TAXES
The Company recorded an income tax benefit of $2.4 million for the first nine
months of 1997, whereas an income tax benefit of approximately $34,000 was
recorded in the same period of 1996. Prior to the merger date of September 1,
1996, each of the merging companies except Lake Forest had net operating losses
and, based upon the start-up nature of the organization, there was not
sufficient evidence to justify the full realization of the net deferred tax
assets generated by those losses. Accordingly, during 1996, certain valuation
allowances were established against deferred tax assets with the combined result
being that a minimal amount of federal tax expense or benefit was recorded. As
the entities become profitable, the recognition of previously unvalued tax loss
benefits are available, subject to certain limitations, to offset tax expense
generated from profitable operations. The income tax benefit recorded in 1997
reflected management's determination that certain of the subsidiaries' earnings
history and projected future earnings were sufficient to make a judgment that
the realization of a portion of the net deferred tax assets not previously
valued was more likely than not to occur.
FINANCIAL CONDITION
INTEREST-EARNING ASSETS
Wintrust's consolidated total assets at September 30, 1997 were $973.0 million,
a 38% increase from the prior year-end level of $706.0 million, and a 57%
increase from the September 30, 1996 level of $621.3 million as a result of
strong deposit growth. Total loans at September 30, 1997 were $694.2 million, an
increase of 41%, from $492.6 million at the prior year-end, and an increase of
68% from the level one year ago. As can be seen from the table below, the growth
in the loan portfolio has been diversified amongst all categories of loans with
- 13 -
<PAGE>
each categories' percentage to total earning assets staying relatively constant.
However, the level of premium finance loans in relation to total earning assets
has increased more than other earning assets since the prior year-end. The
increase in premium finance receivables reflects the change to internally
financing First Premium loans by the Company's banking subsidiaries from being
sold through a securitization facility as was done during the first three
quarters of 1996.
At September 30, 1997, total securities and other money market investments (i.e.
federal funds sold and interest-bearing deposits with banks) were $194.8
million, up 48% from $132.0 million at December 31, 1996, and 29% higher than
their year-ago level of $151.2 million. The increase in securities and money
market investments is a result of deposit funds being invested in this category
as deposit growth has increased at a more rapid pace than the growth in the loan
portfolio. As of September 30, 1997, total securities and money market
investments were comprised of 14% in U.S. Treasury and government agency
securities, 26% in short-term interest-bearing deposits with banks, 39% in
overnight federal funds sold, and 22% in other debt and equity securities. As a
result of the significant growth in deposit and loans, it has been Wintrust's
policy to maintain its investment portfolio in short-term, liquid, and
diversified high credit quality investments. Wintrust maintained no trading
account securities at September 30, 1997 or in any of the other previous
reporting periods.
The following table sets forth Wintrust's end of period earning assets by
category and their respective balance and percent of total earning assets.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 December 31, 1996 September 30, 1996
----------------------------- ----------------------------- -----------------------------
Loans: BALANCE PERCENT Balance Percent Balance Percent
--------------- ------------- --------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and commercial
real estate $237,095 27% $ 182,403 29% $167,445 30%
Premium finance 129,100 15 57,453 9 15,120 3
Indirect auto 129,050 15 89,999 15 79,068 14
Home equity 110,042 12 87,303 14 80,034 14
Residential real estate 58,498 6 51,673 8 50,576 9
Other 30,367 3 23,717 4 22,162 4
--------------- ------------- -------------------------------------------- --------------
Total loans 694,152 78 492,548 79 414,405 74
--------------- ------------- -------------------------------------------- --------------
Federal funds sold, money
market deposits and securities 194,806 22 131,955 21 151,157 26
--------------- ------------- -------------------------------------------- --------------
Total earning assets $888,958 100% $ 624,503 100% $565,562 100%
=============== ============= ============================================ ==============
</TABLE>
DEPOSITS
Total deposits at September 30, 1997 were 43% higher than the year-end 1996
level of $618.0 million and 60% higher than the year-ago level of $549.3
million. The following table sets forth the composition of the deposit balances
by category and those categories' relative percentage of the total deposits as
of the date specified.
- 14 -
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 December 31, 1996 September 30, 1996
-------------------------------- -------------------------------- --------------------------------
PERCENT Percent Percent
BALANCE OF TOTAL Balance of Total Balance of Total
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Demand $ 77,136 9% $ 67,164 11% $ 55,523 10%
NOW 76,917 9 57,490 9 52,658 10
Money market 149,436 17 105,508 17 87,475 16
Savings 55,758 6 63,469 10 55,194 10
Certificates of deposit 522,063 59 324,398 53 298,453 54
--------------- --------------- --------------- --------------- --------------- ---------------
Total $881,310 100% $ 618,029 100% $549,303 100%
=============== =============== =============== =============== =============== ===============
</TABLE>
The continued growth in deposit accounts for the nine months ended September 30,
1997 is due primarily to the new markets served, new facilities and increase in
market share in communities served.
SHAREHOLDERS' EQUITY
Shareholders' equity grew to $66.9 million at September 30, 1997, from $42.6
million at December 31, 1996. The primary components of the change in
shareholders' equity are the additional issuance of equity capital through a
common stock offering of $20.4 million, year-to-date net income of approximately
$3.2 million and the proceeds from the exercise of certain stock options of
$754,000. The proceeds of the stock offering in the first quarter were used to
retire debt and for general corporate purposes.
During the first half of 1997 the Company completed its direct subscription and
community offering of its Common Stock. The aggregate sale was 1,397,512 shares
of common stock at a price of $15.50 per share, including 420,000 shares which
were underwritten by EVEREN Securities, Inc. The net proceeds (gross proceeds
less issuance costs) from the sale of these shares were approximately $20.4
million.
The following table reflects various consolidated measures of capital at
September 30, 1997, December 31, 1996 and September 30, 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
1997 1996 1996
---------------------- ------------------- --------------------
<S> <C> <C> <C>
Leverage ratio 7.3% 6.4% 6.5%
Ending tier 1 capital to risk-adjusted asset ratio 8.6% 7.3% 8.9%
Ending total capital to risk-adjusted asset ratio 9.3% 8.0% 9.7%
Dividend payout ratio 0.0% 0.0% 0.0%
</TABLE>
The Company's consolidated leverage ratio (Tier 1 capital less
intangibles/average quarterly assets less intangibles) was 7.3% September 30,
1997 which places the Company above the "well capitalized" regulatory level.
Consolidated Tier 1 and total risk-based capital ratios were also above the
"well capitalized" regulatory levels at 8.6% and 9.3%, respectively. Based on
guidelines established by the Federal Reserve Bank, a bank holding company is
required to maintain a Tier 1 capital to risk-adjusted asset ratio of 4.0% and a
total capital to risk-adjusted asset ratio of 8.0%. Management is not aware of
any known trends, events, regulatory recommendations or uncertainties that will
have any adverse effect on Wintrust's capital resources.
- 15 -
<PAGE>
ASSET QUALITY
Allowance for Possible Loan Losses
- ----------------------------------
A reconciliation of the activity in the balance of the allowance for possible
loan losses for the nine and three month periods under review is shown as
follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------- --------------------------------------
1997 1996 1997 1996
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balance at beginning of period $3,636 $2,763 $4,432 $3,378
Provision for possible loan losses 2,512 1,344 958 451
Loans charged-off
- -----------------
Core banking loans 146 183 72 53
Premium finance 722 92 136 42
Financing leases 197 99 162 -
Indirect auto 155 - 63 -
---------------- ---------------- ----------------- -----------------
Total loans charged-offs 1,220 374 433 95
---------------- ---------------- ----------------- -----------------
Recoveries
- ----------
Core banking loans 42 16 22 15
Premium finance 36 - 27 -
Financing leases - - - -
Indirect auto 7 - 7 -
---------------- ---------------- ----------------- -----------------
Total recoveries 85 16 56 15
---------------- ---------------- ----------------- -----------------
Net loans charged off (1,135) (358) (377) (80)
---------------- ---------------- ----------------- -----------------
Balance at September 30 $5,013 $3,749 $5,013 $3,749
================ ================ ================= =================
Loans at September 30 $694,152 $414,405
================ ================
Allowance as a percentage of loans 0.72% 0.90%
================ ================
Annualized net charge-offs as a percentage of :
Loans 0.22% 0.12%
================ ================
Annualized provision for possible
loan losses 45.17% 26.64%
================ ================
</TABLE>
Management believes that the loan portfolio is well diversified and well
secured, without undue concentration in any specific risk area. Control of loan
quality is continually monitored by management and is reviewed by the Board of
Directors and its Credit Committee on a monthly basis. Independent external
review of the loan portfolio is provided by the examinations conducted by
regulatory authorities, independent public accountants in conjunction with their
annual audit, and an independent loan review performed by an entity engaged by
the Board of Directors. The amount of additions to the allowance for possible
loan losses which are charged to
- 16 -
<PAGE>
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.
Commercial insurance premium financing loans are generally secured by unearned
insurance premiums. If a borrower defaults, First Premium seeks to obtain a
refund of unearned premiums from the insurer. First Premium bears the credit
risk of collections from the insurer. In the event an insurer becomes insolvent
and unable to pay claims to an insured or refund unearned premiums upon
cancellation of a policy to a finance company, each state provides a state
guaranty fund that will pay such a refund, less a per claim deductible in
certain states. First Premium diversifies its financing activities among a wide
range of brokers and insurers.
- 17 -
<PAGE>
Past Due Loans and Non-performing Assets
- ----------------------------------------
The following table sets forth the Company's non-performing assets at the
periods indicated. The information in the table should be read in conjunction
with the detailed discussion following the table (dollars in thousands).
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Past Due greater than 90 days
and still accruing:
Core banking loans $ 611 $ 75 $ 161
Indirect automobile loans 9 20 18
Premium finance loans 1,081 - * - *
------------------- ------------------- -------------------
1,701 95 179
------------------- ------------------- -------------------
Non-accrual loans:
Core banking loans 277 448 743
Indirect automobile loans 40 - 21
Premium finance loans 2,597 1,238 * 1,238 *
------------------- ------------------- -------------------
2,914 1,686 2,002
------------------- ------------------- -------------------
Total non-performing loans:
Core banking loans 888 523 904
Indirect automobile loans 49 20 39
Premium finance loans 3,678 1,238 * 1,238 *
------------------- ------------------- -------------------
4,615 1,781 2,181
------------------- ------------------- -------------------
Other real estate owned - - -
------------------- ------------------- -------------------
Total non-performing assets $ 4,615 $ 1,781 * $ 2,181 *
=================== =================== ===================
Total non-performing loans by
category as a percent of its own
respective category:
Core banking loans 0.21% 0.15% 0.28%
Indirect automobile loans 0.04% 0.02% 0.05%
Premium finance loans 2.78% 2.15% 8.34%
------------------- ------------------- -------------------
Total loans 0.66% 0.36% 0.53%
------------------- ------------------- -------------------
Total non-performing assets as a
percentage of total assets: 0.47% 0.25% 0.35%
Allowance for loan losses as a
percentage of non-performing loans 108.64% 204.15% 171.89%
- ----------------------------------
<FN>
* - Information is not comparable to September 30, 1997 amounts. Please refer
to the discussion in the paragraph below titled "Non-performing Premium
Finance Loans."
</FN>
</TABLE>
- 18 -
<PAGE>
Non-performing Core Banking Loans:
Total non-performing loans for the Company's core banking business totaled
$887,000 or 0.21% of the Company's core banking loans. The $887,000 is comprised
of only twelve loans. The small number of borrowers allows management the
opportunity to monitor closely the status of these credits and work with the
borrowers to resolve these problems effectively. Management believes that each
of these loans are well secured and are actively being collected. As such,
minimal, if any, losses are currently anticipated on these loans.
Non-performing Premium Finance Loans
The major category of non-performing loans at September 30, 1997 is premium
finance loans. Due to the nature of the collateral, it customarily takes 60-150
days to convert the collateral into cash collections. Accordingly, it is
important to note that the level of non-performing premium finance loans is not
necessarily indicative of the loss inherent in the portfolio. 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
generally be sufficient to cover the loan balance, the interest and other
charges due as well. Due to the notification requirements and the time to
process the return of the unearned premium by most insurance carriers, many
loans will become delinquent beyond 90 days while the processing of the unearned
premium to the Company occurs. Management continues to accrue interest in the
event that the return of the unearned premium by the insurance carrier is
sufficient to pay-off the outstanding principal and contractual interest due.
Total non-performing premium finance loans as of September 30, 1997 were
approximately $3.7 million or 2.78% of the outstanding premium finance loan
balance. However, for the nine months ended September 30, 1997, management has
recorded net charge-offs of only $695,000, or 0.79% of the average outstanding
premium finance loan balance on an annualized basis. Management has recently
implemented additional collection procedures and systems to reduce the level of
net charge-offs on premium finance loans; however, the existing level of net
charge-offs of premium finance loans is acceptable based on an average gross
yield from interest and late fees in excess of 12%.
The amount of non-performing premium finance loans at December 31, 1996 and
September 30, 1996 were significantly less because, prior to October 1996, the
Company had sold its originated loans to a securitization facility. In October
1996, the Company began retaining all originated loans, and the Company
terminated the securitization facility during the third quarter of 1997. If the
loans sold to the securitization facility had been retained by the Company, the
level of non-performing premium finance loans would have been approximately as
follows at the dates indicated:
- 19 -
<PAGE>
<TABLE>
<CAPTION>
Non-performing Percent of Premium
Premium Finance Loans Finance Loans
Outstanding
----------------------- -------------------------
<S> <C> <C>
September 30, 1997 $3.7 million 2.8%
December 31, 1995 $3.9 million 3.7%
September 30, 1996 $3.2 million 2.9%
</TABLE>
Accordingly, the level of non-performing premium finance loans has remained
relatively consistent as of the dates indicated based upon the amount of
non-performing premium finance loans as a percent of total loans serviced and in
absolute dollar terms.
Potential Problem Loans
- -----------------------
In addition to those loans disclosed under "Past Due Loans and Non-performing
Assets", there are certain loans in the portfolio which management has
identified, through its problem loan identification system which exhibit a
higher than normal credit risk. However, these loans do not represent
non-performing loans to the Company. Management's review of the total loan
portfolio to identify loans where there is concern that the borrower will not be
able to continue to satisfy present loan repayment terms includes factors such
as review of individual loans, recent loss experience and current economic
conditions. Loans in this category include those with characteristics such as
those past maturity more than 45 days, those that have recent adverse operating
cash flow or balance sheet trends, or have general risk characteristics that the
loan officer feels might jeopardize the future timely collection of principal
and interest payments. The principal amount of loans in this category as of
September 30, 1997 and December 31, 1996 were approximately $2.3 million and
$1.1 million, respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Wintrust manages the liquidity position of its banking operations to ensure that
sufficient funds are available to meet customers' needs for loans and deposit
withdrawals. The liquidity to meet the demand is provided by maturing assets,
liquid assets that can be converted to cash, and the ability to attract funds
from external sources. Liquid assets refer to federal funds sold and to
marketable, unpledged securities which can be quickly sold without material loss
of principal.
Interest rate sensitivity is the fluctuation in earnings resulting from changes
in market interest rates. Wintrust continuously monitors not only the
organization's current net interest margin, but also the historical trends of
these margins. In addition, Wintrust also attempts to identify potential adverse
swings in net interest income in future years, as a result of interest rate
movements, by performing computerized simulation analysis of potential interest
rate environments. If a potential adverse swing in net interest margin and/or
net income are identified, Wintrust then would take appropriate actions within
its asset/liability structure to counter these potential adverse situations.
Please refer to the section entitled "NET INTEREST INCOME" for further
discussion.
INFLATION
A banking organization's assets and liabilities are primarily monetary. Changes
in the rate of inflation do not have as great an impact on the financial
condition of a bank as do changes in interest rates. Moreover, interest
- 20 -
<PAGE>
rates do not necessarily change at the same percentage as does inflation. An
analysis of a banking organization's asset and liability structure provides the
best indication of how a banking organization is positioned to respond to
changing interest rates and maintain profitability.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128:
- ---------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128).
SFAS No. 128 supersedes APB Opinion 15, "Earnings Per Share," and specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS) for entities with publicly held common stock or potential common stock.
SFAS No. 128 was issued to simplify the computations of EPS and to make the
United States standard more compatible with EPS standards of the International
Accounting Standards Committee. It replaces the presentation of primary and
fully-diluted EPS, respectively. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully-diluted EPS under APB 15.
SFAS No. 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997 and is not expected to have a material
impact on the Company.
Statement of Financial Accounting Standards No. 129:
- ---------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" (SFAS No. 129). SFAS No. 129 provides required disclosures for the
capital structure of companies and is effective for financial statements for
periods ending after December 15, 1997. The required disclosures had been
included in a number of separate statements and opinions. As such, the issuance
of SFAS No. 129 is not expected to require significant revision of prior
disclosures.
Statement of Financial Accounting Standards No. 130:
- ---------------------------------------------------
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130). SFAS No. 130 was issued to address concerns over the practice of
reporting elements of comprehensive income directly in equity. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS No. 130
requires all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed in equal
- 21 -
<PAGE>
prominence with the other financial statements. The statement does not require a
specific format for that financial statement but requires that a company display
an amount representing total comprehensive income for the period in that
financial statement. SFAS No. 130 is effective for both interim and annual
financial statements for periods beginning after December 15, 1997. Comparative
financial statements provided for earlier periods are required to be
reclassified to reflect the provisions of this statement.
Statement of Financial Accounting Standards No. 131:
- ---------------------------------------------------
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 was issued in
response to requests from financial statement users for additional and better
segment information. The statement requires a variety of disclosures to better
explain and reconcile segment data so that a user of the financial statements
can be better enabled to understand the information and its limitations within
the context of the consolidated financial statements. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated, unless it is impracticable to do so. SFAS No. 131 need not be applied
to interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
shall be reported in financial statements for interim periods in the second year
of application.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Such forward-looking statements may be
deemed to include, among other things, statements relating to anticipated
improvements in financial performance and management's long-term performance
goals, as well as statements relating to the Company's business and growth
strategies, including anticipated internal growth, plans to form additional de
novo banks and new branch offices, and to pursue additional potential
development or acquisition of specialty finance businesses. Actual results could
differ materially from those addressed in the forward-looking statements as a
result of the following factors:
* The level of reported net income, return on average assets and return on
average equity for the Company will in the near term continue to be
impacted by start-up costs associated with de novo bank and branching
operations. Management believes that de novo banks may typically require 18
months to three years of operations before becoming profitable, due to the
impact of organizational and overhead expenses, the startup phase of
generating deposits and the time lag typically involved in redeploying
deposits into attractively priced loans and other higher yielding earning
assets.
* The Company's success to date has been and will continue to be strongly
influenced by its ability to attract and retain senior management
experienced in banking and financial services.
* Although management believes the allowance for loan losses is adequate to
absorb losses on any existing loans that may become uncollectible, there
can be no assurance that the allowance will prove sufficient to cover
actual loan losses in the future.
- 22 -
<PAGE>
* If market interest rates should move contrary to the Bank's position on
interest earning assets and interest bearing liabilities, the "gap" will
work against the Banks and their net interest income may be negatively
affected.
* The financial services business is highly competitive which may affect the
pricing of the Company's loan and deposit products as well as its services.
* The Company's ability to adapt successfully to technological changes to
compete effectively in the marketplace
* The economic environment may influence growth in loans and deposits.
Subsequent Events - Additional Facilities
On November 12, 1997, Hinsdale Bank opened a new branch facility in Western
Springs, Illinois. This branch facility brings the Company's total banking
locations to sixteen. Additionally, in October, 1997, the Company filed
applications with the appropriate bank regulatory agencies to establish a de
novo bank in Crystal Lake, Illinois. The opening of the bank is subject to the
approval of the bank regulatory agencies. When approved, this bank will become
the sixth bank subsidiary of the Company.
- 23 -
<PAGE>
PART II
ITEM 1: LEGAL PROCEEDINGS
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 2: CHANGE IN SECURITIES
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 3: DEFAULTS UNDER SENIOR SECURITIES
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 4: MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
* Computation of Net Income Per Common Share - Exhibit 11
* Financial Data Schedule - Exhibit 27
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1997.
- 24 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINTRUST FINANCIAL CORPORATION
(Registrant)
Date: November 14, 1997 /s/ Edward J. Wehmer
President & Chief Operating Officer
Date: November 14, 1997 /s/ David A. Dykstra
Executive Vice President
& Chief Financial Officer
(Principal Accounting Officer)
- 25 -
<PAGE>
EXHIBIT INDEX
Exhibit 11 Computation of Net Income Per Common Share
Exhibit 27 Financial Data Schedule
- 26 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
WINTRUST FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands, except per share data)
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------ ---------------------------------------
1997 1996 1997 1996
----------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Net income (loss) (A) $3,166 $(1,521) $1,311 $301
================= ================= ================== ===================
Average common shares outstanding 7,631 5,992 8,059 6,212
Average common share equivalents (1) 486 - 528 634
----------------- ----------------- ------------------ -------------------
Weighted average common shares and
common share equivalents (B) 8,117 5,992 8,587 6,846
================= ================= ================== ===================
Net income (loss) per average
common share (A/B) $ 0.39 $ (0.25) $ 0.15 $ 0.04
================= ================= ================== ===================
<FN>
(1) Common share equivalents result from stock options, stock rights and stock
warrants being treated as if they had been exercised and are computed by
application of the treasury stock method. No common share equivalents were
assumed to be outstanding for the nine-month period ended September 30, 1996,
because accounting standards require that the computation of earnings per share
shall not give effect to common stock equivalents for any period in which their
inclusion would have the effect decreasing the loss per share amount otherwise
computed.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
quarterly unaudited financial statements of Wintrust Financial Corporation for
the nine months ended September 30, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001015328
<NAME> WINTRUST FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 34,871
<INT-BEARING-DEPOSITS> 50,023
<FED-FUNDS-SOLD> 75,077
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,705
<INVESTMENTS-CARRYING> 5,001
<INVESTMENTS-MARKET> 4,952
<LOANS> 694,152
<ALLOWANCE> 5,013
<TOTAL-ASSETS> 972,970
<DEPOSITS> 881,310
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,841
<LONG-TERM> 15,903
0
0
<COMMON> 8,103
<OTHER-SE> 58,813
<TOTAL-LIABILITIES-AND-EQUITY> 972,970
<INTEREST-LOAN> 40,361
<INTEREST-INVEST> 5,844
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 46,205
<INTEREST-DEPOSIT> 26,162
<INTEREST-EXPENSE> 26,824
<INTEREST-INCOME-NET> 19,381
<LOAN-LOSSES> 2,512
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 19,724
<INCOME-PRETAX> 767
<INCOME-PRE-EXTRAORDINARY> 3,166
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,166
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
<YIELD-ACTUAL> 3.49
<LOANS-NON> 2,914
<LOANS-PAST> 1,701
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,300
<ALLOWANCE-OPEN> 3,636
<CHARGE-OFFS> (1,220)
<RECOVERIES> 85
<ALLOWANCE-CLOSE> 5,013
<ALLOWANCE-DOMESTIC> 3,333
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,680
</TABLE>
