UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
Commission File Number 0-21923
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Illinois 36-3873352
- ----------------------------------------- -------------------------------------
(State of incorporation of organization) (I.R.S. Employer Identification No.)
727 North Bank Lane
Lake Forest, Illinois 60045
-----------------------------------------------------
(Address of principal executive offices)
(847) 615-4096
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of issuer's class of common
stock, as of the last practicable date.
Common Stock - no par value, 8,148,772 shares, as of May 13, 1998.
<PAGE>
TABLE OF CONTENTS
PART I. -- FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements and Notes (Unaudited)_____________________ 1-6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations______________________________________ 7-24
PART II. -- OTHER INFORMATION
ITEM 1. Legal Proceedings ____________________________________________ 25
ITEM 2. Changes in Securities ________________________________________ 25
ITEM 3. Defaults Under Senior Securities _____________________________ 25
ITEM 4. Matters Submitted to a Vote of Security Holders _______________ 25
ITEM 5. Other Information _____________________________________________ 25
ITEM 6. Exhibits and Reports on Form 8-K _____________________________ 25
Signatures_____________________________________________________ 26
Exhibit Index__________________________________________________ 27
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(IN THOUSANDS)
MARCH 31, December 31, March 31,
ASSETS 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks-noninterest bearing $ 33,822 $ 32,158 $ 23,976
Federal funds sold 36,701 60,836 46,319
Interest-bearing deposits with banks 71,271 85,100 15,001
Available-for-Sale securities, at market value 183,443 101,934 62,650
Held-to-Maturity securities, at amortized cost 5,001 5,001 5,001
Loans, net of unearned income 758,235 712,631 566,894
Less: Allowance for possible loan losses 5,665 5,116 4,073
- --------------------------------------------------------------------------------------------------------------------------
Net loans 752,570 707,515 562,821
Premises and equipment, net 48,418 44,206 31,892
Accrued interest receivable and other assets 18,993 14,894 14,997
Goodwill and organizational costs 1,708 1,756 1,914
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,151,927 $ 1,053,400 $ 764,571
==========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 95,705 $ 92,840 $ 74,850
Interest bearing 950,029 824,861 607,343
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 1,045,734 917,701 682,193
Short-term borrowings - 35,493 -
Notes payable 22,903 20,402 6,503
Other liabilities 13,326 11,014 12,344
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,081,963 984,610 701,040
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Preferred stock - - -
Common stock 8,137 8,118 7,997
Surplus 72,796 72,646 71,678
Common stock warrants 100 100 100
Retained deficit (11,075) (12,117) (16,234)
Accumulated other comprehensive income 6 43 (10)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 69,964 68,790 63,531
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,151,927 $ 1,053,400 $ 764,571
==========================================================================================================================
</TABLE>
- 1 -
<PAGE>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
PERIODS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31
- -----------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------
Interest income $ 19,900 $ 13,078
Interest expense 11,896 7,826
- -----------------------------------------------------------------------------
Net interest income 8,004 5,252
Provision for possible loan losses 1,267 679
- -----------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 6,737 4,573
Noninterest income 1,683 1,592
Noninterest expense 7,932 6,354
- -----------------------------------------------------------------------------
Income before income taxes 488 (189)
Income tax (benefit) expense (554) (918)
- -----------------------------------------------------------------------------
Net income (loss) $ 1,042 $ 729
=============================================================================
EARNINGS PER SHARE DATA:
- -----------------------
Net income (loss) per common share - Basic $ 0.13 $ 0.11
=============================================================================
Net income (loss) per common share - Diluted $ 0.12 $ 0.10
=============================================================================
- 2 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
ACCUMULATED
OTHER
COMPRE- COMPRE- TOTAL
HENSIVE COMMON RETAINED HENSIVE SHAREHOLDERS'
INCOME STOCK SURPLUS WARRANTS (DEFICIT) INCOME EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 6,603 $ 52,871 $ 100 $ (16,963) $ 9 $ 42,620
Comprehensive Income
Net income 729 - - - 729 - 729
Other Comprehensive Income, net of tax
Unrealized gains (losses), net of
reclassification adjustment (19) - - - - (19) (19)
------------
Comprehensive income $ 710
============
Common stock issued upon exercise
of stock options 16 79 - - - 95
Common stock issued in conjunction with
public offering, net of issuance costs 1,378 18,728 - - - 20,106
- ---------------------------------------- -----------------------------------------------------------------------------
Balance at March 31, 1997 $ 7,997 $ 71,678 $ 100 $ (16,234) $ (10) $ 63,531
======================================== =============================================================================
Balance at December 31, 1997 $ 8,118 $ 72,646 $ 100 $ (12,117) $ 43 $ 68,790
Comprehensive Income
Net income 1,042 - - - 1,042 - 1,042
Other Comprehensive Income, net of tax
Unrealized gains (losses), net of
reclassification adjustment (37) - - - - (37) (37)
------------
Comprehensive income $ 1,005
============
Common stock issued upon exercise
of stock options 19 150 - - - 169
- ---------------------------------------- -----------------------------------------------------------------------------
BALANCE AT MARCH 31, 1998 $ 8,137 $ 72,796 $ 100 ($11,075) $ 6 $ 69,964
======================================== =============================================================================
PERIODS ENDING MARCH 31
1998 1997
-------- --------
Disclosure of reclassification amount:
Unrealized holding gains arising during the period $ (37) $ (19)
Less: reclassification adjustment for gains included in net income - -
------------------------
Unrealized gain on securities $ (37) $ (19)
------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
- -----------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,042 $ 729
Adjustments to reconcile net income to net cash
used for, or provided by, operating activities:
Provision for possible loan losses 1,267 679
Depreciation and amortization 638 518
Deferred income tax benefit (554) (918)
Net accretion/amortization of investment securities 80 (163)
Decrease (increase) in other assets, net (3,546) 2,288
Increase (decrease) in other liabilities, net 2,275 (3,949)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 1,202 (816)
- -----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of Available-for-Sale securities 144,564 30,170
Purchases of Available-for-Sale securities (226,153) (23,270)
Net decrease in interest bearing deposits 13,829 3,731
Net increase in loans (46,321) (74,587)
Purchases of premises and equipment, net (4,802) (2,102)
- -----------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (118,883) (66,058)
- -----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts 128,033 64,164
Decrease in short-term borrowings, net (35,493) (7,058)
Proceeds from notes payable 2,501 -
Repayment of notes payable - (15,554)
Issuance of common stock, net of issuance costs 169 20,201
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 95,210 61,753
- -----------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (22,471) (5,121)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 92,994 75,416
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 70,523 $ 70,295
=====================================================================================================
</TABLE>
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<PAGE>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
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.
Wintrust 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 Insurance Funding Corporation
("FIFC"). FIFC is a wholly owned subsidiary of Crabtree Capital Corporation
("Crabtree") which is a wholly owned subsidiary of Wintrust. As of March 31,
1998, Wintrust owned six 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"),
Barrington Bank & Trust Company ("Barrington") and Crystal Lake Bank & Trust
Company ("Crystal Lake").
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, 1997. Operating results for the three-month periods presented are
not necessarily indicative of the results which may be expected for the entire
year.
(2) 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.
(3) Earnings Per Share
------------------
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.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders 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 this entity.
- 5 -
<PAGE>
SFAS No. 128 was effective for financial statements for both interim and annual
periods after December 15, 1997. Accordingly, EPS amounts have been presented in
accordance with SFAS No. 128 for 1998 and prior periods have been restated to
conform to the requirements of such statement.
(4) Comprehensive Income
--------------------
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130). SFAS No. 130 was issued to address concerns over the practice of
reporting elements of comprehensive income directly in equity. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS No. 130
requires all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement that
is displayed in equal prominence with the other financial statements. The
statement does not require a specific format for that financial statement but
requires that a company display an amount representing total comprehensive
income for the period in that financial statement. SFAS No. 130 is effective for
both interim and annual financial statements for periods beginning after
December 15, 1997. Comparative financial statements provided for earlier periods
are required to be reclassified to reflect the provisions of this statement. The
Company is disclosing comprehensive income in the Statement of Changes in
Shareholders' Equity.
- 6 -
<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 Insurance Funding Corporation ("FIFC").
FIFC, formerly known as First Premium Services, Inc., is a wholly owned
subsidiary of Crabtree Capital Corporation ("Crabtree") which is a wholly owned
subsidiary of Wintrust. As of March 31, 1998, Wintrust owned six 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"), Barrington Bank & Trust
Company, N.A. ("Barrington") and Crystal Lake Bank & Trust Company, N.A.
("Crystal Lake").
The consolidated Wintrust entity was formed on September 1, 1996 through a
merger transaction whereby the holding companies of Lake Forest, Hinsdale,
Libertyville and FIFC 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-interests 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. On December 1,
1997 the holding companies of Lake Forest, Hinsdale and Libertyville were merged
into Wintrust.
Crystal Lake opened in December, 1997 at a temporary banking location in
downtown Crystal Lake. Accordingly, the Company's consolidated financial
statements reflects the financial condition and results of operations of Crystal
Lake since the date of opening.
The existing operating subsidiaries have all started operations within the last
eight 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, Barrington and
Crystal Lake began banking operations in December 1991, October 1993, March
1994, October 1995, December 1996 and December 1997, respectively. Subsequent to
those initial dates of operations, each of the banks, except Libertyville,
Barrington and Crystal Lake have established additional full service banking
facilities. FIFC 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, FIFC has consistently expanded its umbrella of operations to include
additional states in which it can operate. As such, Wintrust is a growth
oriented company which is still undertaking to establish additional market share
in the communities and industries it serves.
The management of Wintrust presents the following discussion and analysis of its
financial condition as of March 31, 1998, compared with December 31, 1997, and
March 31, 1997, and the results of operations for the periods ending March 31,
1998 and 1997. This discussion should be read in conjunction with the Company's
unaudited consolidated financial statements contained in this report.
- 7 -
<PAGE>
OVERVIEW
Wintrust reported net income for the quarter ended March 31, 1998 of $1,042,000
compared to net income of $729,000 in the first quarter of the prior year. A
significant factor contributing to the net income was the recording of net tax
benefits of $554,000 and $918,000 in the three month periods ending March 31,
1998 and 1997, respectively. The income tax benefits recorded in 1998 and 1997
reflect 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 recognized was more likely than not to occur. Excluding the impact of
income taxes, the Company recorded operating income of $488,000 and an operating
loss of $189,000 in the first quarters of 1998 and 1997, respectively. The
improvement in operating results was due to the enhanced performance of the
Company's five banking subsidiaries that existed as of March, 1997. The
improvement accomplished at those subsidiaries, however, was offset by (a) an
expected pre-tax loss in the first quarter of 1998 of approximately $245,000 at
the newest de novo bank, Crystal Lake, (opened December 1997), and (b) start up
costs associated with branch banking facilities opened in Glencoe (March 1998)
and Western Springs, Illinois (November 1997) Additionally, the 1998 results
were negatively impacted by an increased provision for loan losses of $1.3
million compared with $679,000 in the first quarter of 1997.
The loss in 1997 was attributable in part to start up costs associated with full
service banking operations in (a) Barrington, Illinois via a newly chartered de
novo bank during December, 1996, and (b) branch banking facilities in Lake
Forest (February 1997), Clarendon Hills (August 1996), and Winnetka, Illinois
(May 1996). 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 $1.15 billion at March 31, 1998, up approximately $98.5
million, or 9%, from $1.05 billion at December 31, 1997. Total loans were $758.2
million at March 31, 1998, an increase of $45.6 million, or 6%, from $712.6
million at year-end. Deposits reached $1,045.7 million, up $128.0 million or
14%, from $917.7 million at year-end 1997. Shareholders' equity rose to $70.0
million, an increase of $1.2 million from the year-end level of $68.8 million
due primarily to the Company's net earnings for the first three months of the
year.
- 8 -
<PAGE>
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>
THREE MONTHS ENDED Three Months Ended
MARCH 31, 1998 March 31, 1997
--------------- ------------- ----------- -------------- ------------- -----------
AVERAGE INTEREST RATE Average Interest Rate
--------------- ------------- ----------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits with banks $ 70,510 $ 990 5.62% $ 16,167 $ 227 5.62%
Federal funds sold 60,122 813 5.41 51,213 651 5.09
Investment securities* 121,942 1,729 5.67 72,136 970 5.38
Loans, net of unearned discount* 729,496 16,388 8.99 516,717 11,257 8.71
--------------- ------------- ----------- -------------- ------------- -----------
Total earning assets $ 982,070 $ 19,920 8.11% $ 656,233 $ 13,105 7.99%
--------------- ------------- ----------- -------------- ------------- -----------
Interest-bearing deposits $ 877,652 $ 11,514 5.25% $ 580,814 $ 7,481 5.15%
Term debt and short-term borrowings 22,269 382 6.86 19,833 345 6.96
--------------- ------------- ----------- -------------- ------------- -----------
Total interest-bearing liabilities $ 899,921 $ 11,896 5.29% $ 600,647 $ 7,826 5.21%
--------------- ------------- ----------- -------------- ------------- -----------
Taxable equivalent net interest income $ 8,024 $ 5,279
============= =============
Net interest spread 2.82% 2.78%
=========== ===========
Net interest margin 3.27% 3.22%
=========== ===========
- -------------------------------
<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 $20,000
and $27,000 in 1998 and 1997, respectively.
</FN>
</TABLE>
The net interest margin increased slightly to 3.27% in the first three months of
1998 from 3.22% for the same period one year ago. Positive factors driving the
net interest margin higher included increased yields on loans, securities and
federal funds along with lower yields on term debt and short-term borrowings.
Offsetting these factors was an increase in rates paid on deposits of 10 basis
points and a slight shift in the mix of interest earning assets whereby average
loans as a percentage of average earning assets declined to 74% in 1998 from 79%
in 1997.
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. In addition, Wintrust's subsidiary banks originate
primarily high quality loans as opposed to originating higher yielding loans
that bring more credit risk with them. Finally, the newer de novo banks in
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<PAGE>
the Company, such as Crystal Lake and Barrington, typically have lower
loan-to-deposit ratios than the original four Wintrust banks because loan growth
is slower to develop in new markets than deposit growth.
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 three month periods
ended March 31, 1997 and March 31, 1998. 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 three months ended March 31, 1997.............. $ 5,279
Change due to average earning assets fluctuations (volume)................................. 2,623
Change due to interest rate fluctuations 79(rate).......................................... 79
Change due to rate/volume fluctuations (mix)............................................... 43
---------
Fully tax equivalent net interest income for the three months ended March 31, 1998.............. $ 8,024
=========
</TABLE>
NONINTEREST INCOME
Total noninterest income increased approximately $91,000, or 6%, to $1.7 million
for the first three months of 1998, as compared with $1.6 million in 1997. The
following table presents noninterest income by category (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1998 1997
------------------- ------------------
<S> <C> <C>
Fees on mortgage loans sold $ 1,191 $ 425
Loan servicing fees - Mortgage loans 34 21
Loan servicing fees - Securitization - 155
Service charges on deposit accounts 211 158
Trust fees 166 154
Securities gains, net - -
Other income 81 679
------------------- ------------------
Total noninterest income $ 1,683 $ 1,592
=================== ==================
</TABLE>
Fees on mortgage loans sold includes income from originating and selling
residential real estate loans to the secondary market as well as the income
associated with the retention of mortgage servicing rights. Such fees rose 180%
in the first three months of 1998 to $1.2 million from $425,000 in 1997 due to a
favorable interest rate environment that encouraged original mortgages and
re-financings.
Loan servicing fees from securitization in 1997 were derived from the former
practice of selling premium finance loans to a third-party securitization
facility whereby gains on the sale of such loans and related servicing fees were
recorded. Fee income earned in 1998 by FIFC in conjunction with the sale and
servicing of such loans to the subsidiary banks was eliminated as an
inter-company transaction.
- 10 -
<PAGE>
Service charges on deposit accounts rose 34% to $211,000 for the three months
ended March 31, 1998 from $158,000 from the year ago period. The increase is
primarily a result of a 53% increase in deposit balances from March 31, 1997 to
March 31, 1998. 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 $166,000 for the three months ended March 31, 1998, up
8% from the $154,000 earned in the same period of 1997. 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.
Other noninterest income in 1998 decreased to $81,000 from $679,000 one year
earlier. The decrease is primarily related to the settlement of a lawsuit in
1997. Excluding the impact of such settlement, other noninterest income remained
relatively stable.
NONINTEREST EXPENSE
Total noninterest expense increased approximately $1.6 million, or 25%, to $7.9
million for the first three months of 1998, as compared with $6.4 million for
the same period of 1997. The following table presents noninterest expenses by
category (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Salaries and employee benefits $ 4,278 $ 3,456
Net occupancy expense 572 482
Data processing 398 321
Advertising and marketing 407 296
Other 2,277 1,799
----------------- -----------------
Total noninterest expense $ 7,932 $ 6,354
================= =================
</TABLE>
Salaries and employee benefits increased 24% to $4.3 million for the three
months ended March 31, 1998, as compared with $3.5 million for the same period
of the prior year. The increase of $822,000 is partially the result of one
additional bank (Crystal Lake), one additional full service facility located in
Western Springs, Illinois and a drive-up banking facility in Glencoe that were
in operation during the first three months of 1998 but were not operational
during the same period of 1997. Crystal Lake accounted for approximately
$200,000 of the salaries and employee benefits expense for the first quarter of
1998. 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 $90,000, or 19%, to $572,000 for the three months
ended March 31, 1998 from $482,000 for the same period of 1997, due primarily to
the addition of Crystal Lake and additional branch locations.
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<PAGE>
Data processing expenses increased $77,000, or 24%, to $398,000 for the three
months ended March 31, 1998 from $321,000 in the year ago period. 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 53% and 34%, respectively, were the primary reason for the
increases in this expense category. Additionally, the first quarter of 1998
included data processing costs for Crystal Lake which opened in December 1997.
Marketing expenses increased $111,000, or 38%, to $407,000 for the first three
months of 1998 from $296,000 for the 1997 period. Management provided for a
higher level of marketing expenditures to support the continued growth in
banking locations and to promote FIFC loan products. 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.
Other noninterest expenses increased by $478,000, or 27%, to $2.3 million for
the three months ended March 31, 1998 from $1.8 million for prior year period.
This category includes expenses incurred for insurance, stationery and supplies,
postage, legal fees, audits and examinations, 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
three months of 1998 compared to 1997, Wintrust's ratio of noninterest expenses
to total average assets declined to 3.0% in 1998 from the 1997 level of 3.5%,
reflecting management's commitment to maintaining low overhead costs while
providing superior customer service. Additionally, Wintrust's net overhead ratio
of 2.3% for the three months ended March 31, 1998 is approximately the same as
the Company's peer group.
INCOME TAXES
The Company recorded income tax benefit of $554,000 and $918,000 for the three
months ending March 31, 1998 and 1997, respectively. Prior to the merger date of
March 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 1998 and 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 March 31, 1998 were $1.15 billion, a 9%
increase from the prior year-end level of $1.05 billion, and a 51% increase from
the March 31, 1997 level of $764.6 million as a result of strong
- 12 -
<PAGE>
deposit growth. Total loans at March 31, 1998 were $758.2 million, an increase
of 6% from $712.6 million at the prior year-end, and an increase of 34% from
$566.9 million one year ago. As can be seen from the table below, the growth in
the loan portfolio has been diversified amongst all categories of loans with
each categories' percentage to total earning assets staying relatively constant.
However, the level of short term investments in relation to total earning assets
has increased more than other earning assets as the growth in the level of
deposit funds accelerated at a quicker pace than loan production.
Total securities and other money market investments (i.e. federal funds sold and
interest-bearing deposits with banks) were $296.4 million at March 31, 1998, up
17% from $252.9 million at December 31, 1997, and 130% higher than their
year-ago level of $129.0 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 March 31, 1998, total securities and money market investments
were comprised of 18% in U.S. Treasury and government agency securities, 46% in
other debt and equity securities, 24% in short-term interest-bearing deposits
with banks and 12% in overnight federal funds sold. Wintrust maintained no
trading account securities at March 31, 1998 or in any of the other previous
reporting periods.
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 at its subsidiary banks in order
to facilitate the funding of quality loan demand as it emerges and to keep the
banks in a liquid condition in the event that deposit levels fluctuate.
Furthermore, since short-term investments yields are comparable to long-term
investment yields in the current interest rate environment there is little
incentive to invest in securities with extended maturities.
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>
MARCH 31, 1998 December 31, 1997 March 31, 1997
------------------------------ ----------------------------- -------------------------------
Loans: BALANCE PERCENT Balance Percent Balance Percent
---------------- ------------- ------------- --------------- ---------------- --------------
Commercial and commercial
<S> <C> <C> <C> <C> <C> <C>
real estate $253,597 24% $235,483 25% $199,323 29%
Premium finance 143,373 13 128,453 13 91,832 13
Indirect auto 150,776 14 138,784 14 98,650 14
Home equity 113,765 11 116,147 12 55,087 8
Residential real estate 60,250 6 61,611 6 94,503 14
Installment 36,474 4 32,153 4 27,499 4
---------------- ------------- ------------- --------------- ---------------- --------------
Total loans 758,235 72 712,631 74 566,894 82
---------------- ------------- ------------- --------------- ---------------- --------------
Federal funds sold, money
market deposits and securities 296,416 28 252,871 26 128,971 18
---------------- ------------- ------------- --------------- ---------------- --------------
Total earning assets $1,054,651 100% $965,502 100% $695,865 100%
================ ============= ============= =============== ================ ==============
</TABLE>
DEPOSITS
Total deposits at March 31, 1998 were $1,045.7 million, or 14% higher than the
year-end 1997 level of $917.7 million and 53% higher than the year-ago level of
$682.2 million. The following table sets forth the
- 13 -
<PAGE>
composition of the deposit balances by category and those categories' relative
percentage of the total deposits as of the date specified.
<TABLE>
<CAPTION>
MARCH 31, 1998 December 31, 1997 March 31, 1997
-------------------------------- -------------------------------- --------------------------------
PERCENT Percent Percent
BALANCE OF TOTAL Balance of Total Balance of Total
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Demand $95,705 9% $ 92,840 10% $ 74,850 11%
NOW 76,728 7 83,301 9 59,377 9
Money market 223,955 22 154,893 17 122,195 18
Savings 67,185 7 61,445 7 57,001 8
Certificates of deposit 582,161 55 525,222 57 368,770 54
--------------- --------------- --------------- --------------- --------------- ---------------
Total $1,045,734 100% $ 917,701 100% $ 682,193 100%
=============== =============== =============== =============== =============== ===============
</TABLE>
The growth in deposit balances is due primarily to the addition of de novo banks
and branches in new markets. An equally important factor has been the continued
success of marketing the Company's deposit products which has increased market
share in the original communities served.
SHAREHOLDERS' EQUITY
Shareholders' equity grew $1.2 million to $70.0 million at March 31, 1998, from
$68.8 million at December 31, 1997. The primary components of the change in
shareholders' equity are the first quarter's net income of approximately $1.0
million and the proceeds from the exercise of certain stock options of $169,000.
The following table reflects various consolidated measures of capital at March
31, 1998, December 31, 1997 and March 31, 1997:
<TABLE>
<CAPTION>
MARCH 31, December 31, March 31,
1998 1997 1997
---------------------- ------------------- --------------------
<S> <C> <C> <C>
Leverage ratio 6.0% 6.6% 8.5%
Ending tier 1 capital to risk-adjusted asset ratio 7.4% 8.7% 10.1%
Ending total capital to risk-adjusted asset ratio 8.0% 9.4% 10.8%
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 6.0% at March 31,
1998 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 7.4% and 8.0%, 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%. The Company's capital ratios
have declined over the course of the last year due to the continued growth of
the Company's deposit and asset base. Management is currently in the process of
evaluating the timing, nature and potential amount of additional capital to
support continued growth. It is currently anticipated that additional capital
will be raised during the third quarter of 1998. Management is not aware of any
known trends, events, regulatory recommendations or uncertainties that will have
any adverse effect on Wintrust's capital resources.
- 14 -
<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 three month periods under review is shown as follows
(dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1998 1997
---------------- -----------------
<S> <C> <C>
Balance at beginning of period $5,116 $3,636
Provision for possible loan losses 1,267 679
Loans charged-off
-----------------
Core banking loans 612 64
Premium finance 140 180
Indirect auto 112 21
---------------- -----------------
Total loans charged-off 864 265
---------------- -----------------
Recoveries
----------
Core banking loans 107 16
Premium finance 30 7
Indirect auto 9 -
---------------- -----------------
Total recoveries 146 23
---------------- -----------------
Net loans charged off (718) (242)
---------------- -----------------
Balance at March 31 $5,665 $4,073
================ =================
Loans at March 31 $758,235 $566,894
================ =================
Allowance as a percentage of loans 0.75% 0.72%
================ =================
Annualized net charge-offs as a percentage of :
Loans 0.38% 0.17%
================ =================
Annualized provision for possible
loan losses 56.70% 35.64%
================ =================
</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 and an independent loan review performed by an entity
engaged by the Board of Directors. The amount of additions to the allowance for
possible loan losses which are charged to earnings through the provision for
possible loan losses are determined based on a variety of factors, including
actual charge-offs during the year, historical loss experience, delinquent
loans, and an evaluation of current and prospective economic conditions in the
market area.
- 15 -
<PAGE>
Net charge-offs of core banking loans during the first quarter of 1998 were
higher than has been historically recorded by the Company as a result of poor
credit underwriting at one of the Company's banking facilities. Management has
changed the management at that location and has implemented additional control
procedures to avoid any similar breakdowns in credit quality. Maintaining high
credit quality standards is of the utmost importance to the management of the
Company and believes this situation is isolated in nature. Additionally, the
level of non-performing loans as presented in the table on the following page
have increased as a result of this situation and management believes that
additional losses of up to $500,000 at this facility are possible. However,
management is actively involved in each of the credits at this facility and
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, FIFC seeks to obtain a refund of
unearned premiums from the insurer. FIFC 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. FIFC diversifies
its financing activities among a wide range of brokers and insurers.
- 16 -
<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>
MARCH 31, December 31, March 31,
1998 1997 1997
---- ---- ----
Past Due greater than 90 days
and still accruing:
<S> <C> <C> <C>
Core banking loans $ 381 $ 868 $ 964
Indirect automobile loans 47 11 15
Premium finance loans 1,082 887 -
------------------- ------------------- -------------------
1,510 1,766 979
------------------- ------------------- -------------------
Non-accrual loans:
Core banking loans 4,225 782 196
Indirect automobile loans 19 29 28
Premium finance loans 2,039 1,629 753
------------------- ------------------- -------------------
6,283 2,440 977
------------------- ------------------- -------------------
Total non-performing loans:
Core banking loans 4,606 1,650 1,160
Indirect automobile loans 66 40 43
Premium finance loans 3,121 2,516 753
------------------- ------------------- -------------------
7,793 4,206 1,956
------------------- ------------------- -------------------
Other real estate owned - - -
------------------- ------------------- -------------------
Total non-performing assets $ 7,793 $ 4,206 $ 1,956
=================== =================== ===================
Total non-performing loans by
category as a percent of its own
respective category:
Core banking loans 0.99% 0.37% 0.31%
Indirect automobile loans 0.04% 0.03% 0.04%
Premium finance loans 2.23% 1.96% 0.80%
------------------- ------------------- -------------------
Total loans 1.03% 0.59% 0.35%
------------------- ------------------- -------------------
Total non-performing assets as a
percentage of total assets: 0.68% 0.40% 0.26%
Allowance for loan losses as a
percentage of non-performing loans 72.69% 121.64% 208.23%
</TABLE>
- 17 -
<PAGE>
Non-performing Core Banking Loans:
Total non-performing loans for the Company's core banking business totaled $5.4
million or 1.15% of the Company's core banking loans. One loan accounts for
approximately $2.4 million of this total and is a credit that is adequately
secured but is more than 90 days past due and on non-accrual status. The
borrower has a contract to sell the property whereby the proceeds from the sale
would retire our loan balance and no loss is currently anticipated.
Approximately $1.0 million of the non-performing loan total relates to a loan
that has been restructured by the Company and is current under the terms of the
new arrangement; however, management believes that the credit exhibits higher
than normal credit risk and has placed the loan on non-accrual status and
specifically reserved $300,000 as potential loss. The remaining $2.0 million of
non-performing loans is comprised of approximately 22 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
Another significant category of non-performing loans at March 31, 1998 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 FIFC. The
insured makes a down payment of approximately 15% to 25% of the total premium
and signs a premium finance agreement with FIFC for the balance due, which
amount FIFC 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 FIFC by the insured. Under the terms of the Company's standard
form of financing contract, the Company has the power to cancel the insurance
policy if there is a default in the payment on the finance contract and to
collect the unearned portion of the premium from the insurance carrier. In the
event of cancellation of a policy, the cash returned in payment of the unearned
premium by the insurer should 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 March 31, 1998 were
approximately $3.1 million or 2.23% of the outstanding premium finance loan
balance. However, for the three months ended March 31, 1998, management has
recorded net charge-offs of only $110,000, or 0.32% 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 March 31, 1997 were
significantly less because, prior to
- 18 -
<PAGE>
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 at
percentage levels slightly higher than current past due levels.
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
March 31, 1998 and December 31, 1997 were approximately $2.6 million and $7.2
million, respectively.
LIQUIDITY MANAGEMENT
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
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
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.
- 19 -
<PAGE>
Derivative Financial Instruments:
One method utilized by financial institutions to limit market risk is to enter
into derivative financial instruments. A derivative financial instrument
includes interest rate swaps, interest rate caps and floors, futures, forwards,
option contracts and other financial instruments with similar characteristics.
The Company currently has not entered into any such derivative financial
instruments but may enter into such instruments in the future to manage its
market risk positions.
Commitments To Extend Credit And Standby Letters Of Credit:
In addition, the Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated statements of condition. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation on any
condition established in the contract. Commitments may require collateral from
the borrower if deemed necessary by the Company and generally have a fixed
expiration date. Standby letters of credit are conditional commitments issued by
the Banks to guarantee the performance of a customer to a third party up to a
specified amount and with specific terms and conditions. Commitments to extend
credit and standby letters of credit are not recorded as an asset or liability
by the Company until the instrument is exercised.
Interest Rate Sensitivity Analysis:
The Company's exposure to market risk is reviewed on a regular basis by
management and the boards of directors of the individual subsidiaries and the
Company. The objective is to measure the effect on net income and to adjust
balance sheet and off-balance sheet instruments to minimize the inherent risk
while at the same time maximize income. Tools used by management include a
standard gap report and an rate simulation model whereby changes in net income
are measured in the event of various changes in interest rate indices. 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 March
31, 1998.
- 20 -
<PAGE>
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
0-90 91-365 1-5 OVER 5 TOTAL
DAYS DAYS YEARS YEARS -----
---- ---- ----- -----
(DOLLARS IN THOUSANDS)
ASSETS:
<S> <C> <C> <C> <C> <C>
Loans................................ $ 357,569 190,351 197,796 12,519 758,235
Securities........................... 178,505 7,604 2,335 - 188,444
Interest-bearing bank deposits....... 60,739 10,532 - - 71,271
Federal funds sold................... 36,701 - - - 36,701
Other................................ - - - 97,276 97,276
---------------- --------------- --------------- -------------- --------------
Total assets....................... $ 633,514 208,487 200,131 109,795 1,151,927
================ =============== =============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
NOW.................................. $ 76,728 - - - 76,728
Savings and money market............. 279,639 - - 11,501 291,140
Time deposits........................ 265,382 235,658 79,125 1,996 582,161
Short term borrowings................ - - - - -
Notes payable........................ 22,903 - - - 22,903
Demand deposits & other liab.. - - - 109,031 109,031
Shareholders' equity................. - - - 69,964 69,964
---------------- --------------- --------------- -------------- --------------
Total liabilities and
shareholders' equity.......... $ 644,652 235,658 79,125 192,492 1,151,927
================ =============== =============== ============== ==============
Rate sensitive assets (RSA)............. 633,514 208,487 200,131 109,795
Rate sensitive liabilities (RSL)........ 644,652 235,658 79,125 180,991
---------------- --------------- --------------- --------------
Cumulative gap
(GAP = RSA - RSL)..................... (11,138) (38,309) 82,697 -
================ =============== =============== ==============
RSA/RSL................................. 0.98 0.88 2.53
RSA/Total assets........................ 0.55 0.18 0.17
RSL/Total assets........................ 0.56 0.20 0.07
GAP/Total assets........................ (1)% (3)% 7%
GAP/RSA................................. (2)% (5)% 8%
</TABLE>
- 21 -
<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 its exposure to changes in
interest rates using many different interest rates scenarios. One interest rate
scenario utilized is to measure the percentage change in net income 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 March 31, 1998, is as
follows:
<TABLE>
<CAPTION>
+200 BASIS -200 BASIS
POINTS POINTS
Percentage change in net income due to an immediate 200 basis point change in
<S> <C> <C>
interest rates over a two-year time horizon........ 3.3% -9.2%
--------------- ---------------
</TABLE>
INFLATION
A banking organization's assets and liabilities are primarily monetary. Changes
in the rate of inflation do not have as great an impact on the financial
condition of a bank as do changes in interest rates. Moreover, interest rates do
not necessarily change at the same percentage as does inflation. An analysis of
a banking organization's asset and liability structure provides the best
indication of how a banking organization is positioned to respond to changing
interest rates and maintain profitability.
OTHER MATTERS
On April 20, 1998, the Company announced Mr. Howard D. Adams' plan to retire
from the Company effective as of, or prior, to the Annual Meeting of
Shareholders to be held on May 28, 1998. At a Special Meeting of the Board of
Directors held May 8, 1998, the Board of Directors amended the by-laws of the
Company to provide that the President will serve as the Company's chief
executive officer, and there will no longer be an officer position of Chairman
following Mr. Adams' retirement. Effective upon Mr. Adams' retirement date, John
S. Lillard will become Chairman of the Board of Directors and Edward J. Wehmer,
President of the Company will assume the additional responsibilities of Chief
Executive Officer. The Company expects that second quarter results will be
impacted by expenses related to succession planning and other issues associated
with Mr.
Adams' retirement.
The Company recently established a new subsidiary to expand the trust
operations, currently operated out of Lake Forest Bank, into additional market
areas currently being served by the Company. The Company recently expanded its
staffing in the trust area from five to nine employees and expects to add
approximately six to ten additional employees during the remainder of 1998. The
new trust subsidiary, which is subject to regulatory approval, will begin to
offer a full array of trust products at several of the subsidiary banking
facilities. Company management believes that its subsidiary bank facilities are
located in some of the best trust markets in the country and that our current
market areas that will support trust services designed for the small-to-mid size
trust accounts. Similar to starting a de novo bank, during the first two to
three years of operation, the
- 22 -
<PAGE>
introduction of expanded full service trust services is expected to result in
relatively high overhead levels compared to fee income reflecting the necessary
start-up investment primarily in human resources.
YEAR 2000 COMPLIANCE
A critical issue has emerged in the banking industry and generally for all
industries that are heavily reliant upon computers regarding how existing
software application programs and operating systems can accommodate the date
value for the "Year 2000". The Year 2000 issue is the result of computer
programs being written using two digits (rather than four) to define the
applicable year. As such, certain programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. As a
result, the year 1999 (i.e. `99') could be the maximum date value these systems
will be able to accurately process. During 1997, management began the process of
working with its outside data processor and other software vendors to assure
that the Company is prepared for the year 2000. That process will continue
throughout 1998. The financial impact to the Company has not been and is not
anticipated to be material to its financial position or results of operations in
any given year.
IMPACT OF NEW ACCOUNTING STANDARDS
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.
AICPA Accounting Standards Executive Committee Statement of Position 98-5:
- --------------------------------------------------------------------------
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities ("SOP
98-5"). SOP 98-5 requires that the unamortized portion of previously capitalized
start-up costs be written-off as a cumulative effect of a change in accounting
principle upon adoption of SOP 98-5. Subsequent to adoption of the statement,
start-up and organization costs must be expensed as incurred. SOP 98-5 is
effective for financial statements for fiscal years beginning after December 15,
1998. The Company will implement the statement in the first quarter of 1999 and
the pre-tax impact will be less than $225,000.
- 23 -
<PAGE>
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:
o The level of reported net income, return on average assets and return on
average equity for the Company will in the near term continue to be
impacted by start-up costs associated with de novo bank and branching
operations, and expanded trust operations. 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.
o The Company's success to date has been and will continue to be strongly
influenced by its ability to attract and retain senior management
experienced in banking and financial services.
o Although management believes the allowance for loan losses is adequate to
absorb losses 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.
o 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.
o The financial services business is highly competitive which may affect the
pricing of the Company's loan and deposit products as well as its services.
o the Company's ability to adapt successfully to technological changes to
compete effectively in the marketplace
o The economic environment may influence growth in loans and deposits.
- 24 -
<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
--------
o Computation of Net Income Per Common Share - Exhibit 11
o Financial Data Schedule - Exhibit 27
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed by the Company during the quarter ended March
31, 1998.
- 25 -
<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: May 14, 1998 /s/ Edward J. Wehmer
President & Chief Operating Officer
Date: May 14, 1998 /s/ David A. Dykstra
Executive Vice President
& Chief Financial Officer
(Principal Accounting Officer)
- 26 -
<PAGE>
EXHIBIT INDEX
Exhibit 11 Computation of Net Income Per Common Share
Exhibit 27 Financial Data Schedule
- 27 -
EXHIBIT 11
WINTRUST FINANCIAL CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1998 1997
----------------- -----------------
Net income (A) $1,042 $ 729
================= =================
Average common shares outstanding 7,755 6,816
Average common share equivalents (1) 331 477
----------------- -----------------
Weighted average common shares and
common share equivalents (B) 8,086 7,293
================= =================
Net income (loss) per average
common share (A/B) $ 0.13 $ 0.11
================= =================
Net income (loss) per average
common share (A/B) $ 0.12 $ 0.10
================= =================
(1) Common share equivalents result from stock options and stock warrants being
treated as if they had been exercised and are computed by application of the
treasury stock method.
- 28 -
<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 quarter
ended March 31, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001015328
<NAME> WINTRUST FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 33,822 23,976
<INT-BEARING-DEPOSITS> 71,271 15,001
<FED-FUNDS-SOLD> 36,701 46,319
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 183,443 62,650
<INVESTMENTS-CARRYING> 5,001 5,001
<INVESTMENTS-MARKET> 4,975 4,881
<LOANS> 758,235 566,894
<ALLOWANCE> 5,665 4,073
<TOTAL-ASSETS> 1,151,927 764,571
<DEPOSITS> 1,045,734 682,193
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 13,326 12,344
<LONG-TERM> 22,903 6,503
0 0
0 0
<COMMON> 8,137 7,997
<OTHER-SE> 61,827 55,534
<TOTAL-LIABILITIES-AND-EQUITY> 1,151,927 764,571
<INTEREST-LOAN> 16,368 11,230
<INTEREST-INVEST> 3,532 1,848
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 19,900 13,078
<INTEREST-DEPOSIT> 11,514 7,481
<INTEREST-EXPENSE> 11,896 7,826
<INTEREST-INCOME-NET> 8,004 5,252
<LOAN-LOSSES> 1,267 679
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 7,932 6,354
<INCOME-PRETAX> 488 (189)
<INCOME-PRE-EXTRAORDINARY> 1,042 729
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,042 729
<EPS-PRIMARY> 0.13 0.11
<EPS-DILUTED> 0.12 0.10
<YIELD-ACTUAL> 3.27 3.22
<LOANS-NON> 6,283 977
<LOANS-PAST> 1,510 1,956
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 2,637 1,338
<ALLOWANCE-OPEN> 5,116 3,636
<CHARGE-OFFS> (864) (265)
<RECOVERIES> 146 23
<ALLOWANCE-CLOSE> 5,665 4,073
<ALLOWANCE-DOMESTIC> 4,203 2,505
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,462 1,568
</TABLE>
