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 JUNE 30, 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, 8,149,946 shares, as of August 13, 1998.
<PAGE>
TABLE OF CONTENTS
PART I. -- FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements.___________________________________________ 1-6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. ______________________________________ 7-23
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks. ___ 24-26
PART II. -- OTHER INFORMATION
ITEM 1. Legal Proceedings. _____________________________________________ 27
ITEM 2. Changes in Securities and Use of Proceeds. _____________________ 27
ITEM 3. Defaults Upon Senior Securities. _______________________________ 27
ITEM 4. Submission of Matters to a Vote of Security Holders.____________ 27
ITEM 5. Other Information. _____________________________________________ 27
ITEM 6. Exhibits and Reports on Form 8-K. ______________________________ 27
Signatures _____________________________________________________ 28
Exhibit Index __________________________________________________ 29
<PAGE>
<TABLE>
<CAPTION>
PART I
ITEM 1-FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(IN THOUSANDS)
JUNE 30, December 31, June 30,
ASSETS 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks-noninterest bearing $ 28,869 $ 32,158 $ 34,463
Federal funds sold 31,235 60,836 56,590
Interest-bearing deposits with banks 33,096 85,100 2,018
Available-for-Sale securities, at fair value 152,313 101,934 59,501
Held-to-Maturity securities, at amortized cost 5,001 5,001 5,001
Loans, net of unearned income 852,241 712,631 650,085
Less: Allowance for possible loan losses 5,856 5,116 4,432
- --------------------------------------------------------------------------------------------------------------------------
Net loans 846,385 707,515 645,653
Premises and equipment, net 50,245 44,206 33,986
Accrued interest receivable and other assets 27,756 14,894 17,876
Goodwill and organizational costs 1,646 1,756 1,857
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,176,546 $ 1,053,400 $ 856,945
==========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 103,314 $ 92,840 $ 72,137
Interest bearing 960,276 824,861 700,037
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 1,063,590 917,701 772,174
Short-term borrowings 1,056 35,493 -
Notes payable 26,603 20,402 11,253
Accrued interest payable and other liabilities 14,314 11,014 8,554
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,105,563 984,610 791,981
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock - - -
Common stock 8,149 8,118 8,020
Surplus 72,868 72,646 71,976
Common stock warrants 100 100 100
Retained deficit (10,112) (12,117) (15,108)
Accumulated other comprehensive income (22) 43 (24)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 70,983 68,790 64,964
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,176,546 $ 1,053,400 $ 856,945
==========================================================================================================================
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS THREE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans $ 34,600 $ 24,890 $ 18,233 $ 13,660
Interest-bearing deposits with banks 1,781 300 791 73
Federal funds sold 1,259 1,394 445 743
Securities 3,707 1,875 1,978 905
- ------------------------------------------------------------------------------------------------------------------
Total interest income 41,347 28,459 21,447 15,381
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 23,604 15,954 12,090 8,473
Interest on short-term borrowings and notes payable 829 464 447 119
- ------------------------------------------------------------------------------------------------------------------
Total interest expense 24,433 16,418 12,537 8,592
- ------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 16,914 12,041 8,910 6,789
Provision for possible loan losses 2,340 1,554 1,073 875
- ------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 14,574 10,487 7,837 5,914
- ------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Fees on mortgage loans sold 2,579 985 1,388 517
Loan servicing fees - mortgage loans 71 43 37 22
Loan servicing fees - securitization - 143 - 31
Trust fees 368 309 202 155
Service charges on deposit accounts 454 326 243 168
Other 200 714 119 35
- ------------------------------------------------------------------------------------------------------------------
Total noninterest income 3,672 2,520 1,989 928
- ------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 9,788 6,869 5,510 3,413
Occupancy, net 1,176 937 604 455
Data processing 794 643 396 322
Advertising and marketing 756 572 349 276
Other 4,885 3,757 2,608 1,958
- ------------------------------------------------------------------------------------------------------------------
Total noninterest expense 17,399 12,778 9,467 6,424
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 847 229 359 418
Income tax benefit (1,158) (1,626) (604) (708)
- ------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,005 $ 1,855 $ 963 $ 1,126
==================================================================================================================
NET INCOME PER COMMON SHARE - BASIC $ 0.25 $ 0.25 $ 0.12 $ 0.14
==================================================================================================================
NET INCOME PER COMMON SHARE - DILUTED $ 0.24 $ 0.24 $ 0.11 $ 0.13
==================================================================================================================
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>
- 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>
Balance at December 31, 1996 $ 6,603 $ 52,871 $ 100 $ (16,963) $ 9 $ 42,620
Comprehensive Income:
Net income 1,855 - - - 1,855 - 1,855
Other Comprehensive Income, net of tax
Unrealized losses, net of
reclassification adjustment (33) - - - - (33) (33)
------------
Comprehensive Income $ 1,822
------------
Common stock issued upon exercise
of stock options 19 108 - - - 127
Common stock issued in conjunction with
public offering, net of issuance costs 1,398 18,997 - - - 20,395
- -------------------------------------------- -------------------------------------------------------------------------
Balance at June 30, 1997 $ 8,020 $ 71,976 $ 100 $ (15,108) $ (24) $ 64,964
- -------------------------------------------- -------------------------------------------------------------------------
Balance at December 31, 1997 $ 8,118 $ 72,646 $ 100 $ (12,117) $ 43 $ 68,790
Comprehensive Income:
Net income 2,005 - - - 2,005 - 2,005
Other Comprehensive Income, net of tax
Unrealized losses, net of
reclassification adjustment (65) - - - - (65) (65)
------------
Comprehensive Income $ 1,940
------------
Common stock issued upon exercise
of stock options 31 222 - - - 253
- -------------------------------------------- -------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $ 8,149 $ 72,868 $ 100 $ (10,112) $ (22) $ 70,983
============================================ =========================================================================
SIX MONTHS ENDED JUNE 30
1998 1997
Disclosure of reclassification amount:
Unrealized holding losses arising during the period $ (65) $ (33)
Less: reclassification adjustment for losses included in net income - -
------------------------
Unrealized losses on Available-for-Sale securities $ (65) $ (33)
========================
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
- ----------------------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 2,005 $ 1,855
Adjustments to reconcile net income to net cash used for,
or provided by, operating activities:
Provision for possible loan losses 2,340 1,554
Depreciation and amortization 1,270 1,131
Income tax benefit (1,158) (1,626)
Net accretion/amortization of securities (145) (243)
(Increase) decrease in other assets, net (11,772) 75
Increase (decrease) in other liabilities, net 3,300 (7,751)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR OPERATING ACTIVITIES (4,160) (5,005)
- ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of Available-for-Sale securities 285,228 63,751
Purchases of Available-for-Sale securities (335,462) (53,622)
Net decrease in interest-bearing deposits with banks 52,004 16,714
Net increase in loans (141,210) (158,295)
Purchases of premises and equipment, net (7,196) (4,711)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (146,636) (136,163)
- ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts 145,889 154,145
Decrease in short-term borrowings, net (34,437) (7,058)
Proceeds from notes payable 6,201 4,750
Repayment of notes payable - (15,554)
Common stock issued upon exercise of stock options 253 127
Issuance of common stock, net of issuance costs - 20,395
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 117,906 156,805
- ----------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (32,890) 15,637
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 92,994 75,416
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 60,104 $ 91,053
======================================================================================================================
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>
- 4 -
<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 financial services holding company currently engaged in the
business of providing community banking services through its banking
subsidiaries to customers in the Chicago metropolitan area and financing the
payment of commercial insurance premiums, on a national basis, through its
subsidiary, First Insurance Funding Corporation ("FIFC"). As of June 30, 1998,
Wintrust had six wholly-owned bank subsidiaries (collectively, "Banks"), all of
which started as de novo institutions, including Lake Forest Bank & Trust
Company ("Lake Forest Bank"), Hinsdale Bank & Trust Company ("Hinsdale Bank"),
North Shore Community Bank & Trust Company ("North Shore Bank"), Libertyville
Bank & Trust Company ("Libertyville Bank"), Barrington Bank & Trust Company,
N.A. ("Barrington Bank") and Crystal Lake Bank & Trust Company, N.A. ("Crystal
Lake Bank"). FIFC is a wholly-owned subsidiary of Crabtree Capital Corporation
("Crabtree") which is a wholly-owned subsidiary of Wintrust. The Company
recently received regulatory approval to operate Crabtree and FIFC as
subsidiaries of Lake Forest Bank in order to maximize flexibility in the future
under existing banking regulations. During the second quarter of 1998, the
Company began organizing a new trust subsidiary, Wintrust Asset Management
Company ("WAMC"), and it is expected that regulatory approval will be received
during the remainder of 1998.
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 and six-month periods
presented are not necessarily indicative of the results which may be expected
for the entire year. Reclassifications of certain prior year amounts have been
made to conform with the current year presentation.
(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.
- 5 -
<PAGE>
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. SFAS No. 128 is 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. The following table shows the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
------------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net income (A) $2,005 $ 1,855 $ 963 $ 1,126
============ ============= =========== ============
Average common shares outstanding (B) 8,135 7,416 8,143 8,017
Average common share equivalents (C) 344 466 368 455
------------ ------------- ----------- ------------
Weighted average common shares and
Common share equivalents (D) 8,479 7,882 8,511 8,472
============ ============= =========== ============
Net income per average
Common share - Basic (A/B) $ 0.25 $ 0.25 $ 0.12 $ 0.14
============ ============= =========== ============
Net income per average
Common share - Diluted (A/D) $ 0.24 $ 0.24 $ 0.11 $ 0.13
============ ============= =========== ============
<FN>
(C) 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.
</FN>
</TABLE>
(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 Statements of Changes in
Shareholders' Equity.
- 6 -
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition as of June 30,
1998, compared with December 31, 1997, and June 30, 1997, and the results of
operations for the three and six month periods ended June 30, 1998 and 1997
should be read in conjunction with the Company's unaudited consolidated
financial statements and notes contained in this report. This discussion
contains forward-looking statements that involve risks and uncertainties and, as
such, future results could differ significantly from management's current
expectations. See the last section of this discussion for further information on
forward-looking statements.
OVERVIEW
The Company's operating subsidiaries were organized within the last eight years
in an effort to fulfill a financial services need in the banking and insurance
premium financing industries. Lake Forest Bank, Hinsdale Bank, North Shore Bank,
Libertyville Bank, Barrington Bank and Crystal Lake Bank began 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 Bank, Barrington Bank and Crystal Lake
Bank have established additional full-service banking facilities. FIFC began
operations in 1990 and is primarily engaged in the business of financing
insurance premiums written through independent insurance agents or brokers on a
national basis for commercial customers. During the second quarter of 1998, the
Company also began organizing WAMC, that will, over time, offer trust and
investment services to customers at many of Wintrust's banking locations.
In December 1997, the Company opened the Crystal Lake Bank in a temporary
location in downtown Crystal Lake. A full-service facility of Hinsdale Bank was
also opened in November 1997 in Western Springs, Illinois and branch facilities
of North Shore Bank were opened in early 1998 in Glencoe and Wilmette, Illinois.
Expenses related to these new operations and the establishment of WAMC impacted
only 1998 operating results.
The historical performance of the Company has been affected by costs associated
with growing market share in deposits and loans, establishing new de novo banks,
opening new branch facilities, and building an experienced management team. The
Company's financial performance over the past several years reflects improving
financial performance of the Banks as they mature, offset by the significant
costs of opening new banks and branch facilities. The Company's experience has
been that it generally takes 13-24 months for new banking offices to first
achieve operational profitability. Similarly, management currently expects a
start-up phase for WAMC of approximately two years before its operations become
profitable.
While committed to a continuing growth strategy, management's current focus is
to balance further asset growth with earnings growth by seeking to more fully
leverage the existing capacity within each of the Banks and FIFC. Management
intends to pursue this refined strategy by continuing to pursue specialized
earning asset niches to increase loan-to-deposit ratios and shift the mix of
earning assets to higher-yielding loans, and by controlling the cost of deposits
as the maturing banks achieve more established customer bases.
- 7 -
<PAGE>
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income for the quarter ended June 30, 1998 totaled $963,000, or $0.11 per
diluted common share, compared to $1.1 million, or $0.13 per diluted common
share, for the second quarter of 1997. Net income was unfavorably impacted by a
non-recurring $1.0 million pre-tax charge related to severance amounts due to
the Company's former Chairman and Chief Executive Officer under terms of his
employment contract and certain related legal fees. Excluding this charge, on an
after-tax basis, net income for the second quarter of 1998 would have been $1.6
million, or $0.18 per diluted common share, an increase of $450,000, or 40%,
over the second quarter of 1997.
For the six months ended June 30, 1998 net income totaled $2.0 million, or $0.24
per diluted common share, compared to $1.9 million, or $0.24 per diluted common
share, in the same period of 1997. Excluding the aforementioned non-recurring
charge, on an after-tax basis, net income for the six months of 1998 would have
been $2.6 million, or $0.31 per diluted common share, an increase of $763,000,
or 41%, over the same period in 1997.
A significant factor contributing to the quarterly and year-to-date net income
was the recording of net tax benefits of $604,000 and $708,000 for the second
quarter of 1998 and 1997, respectively, and $1.2 million and $1.6 million for
the six months ended June 30, 1998 and 1997, respectively. These income tax
benefits 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 tax benefits and the $1.0 million non-recurring pre-tax charge,
the Company recorded operating income of $1.8 million and $229,000 in the first
six months of 1998 and 1997, respectively, and $1.4 million and $418,000 for the
second quarter of 1998 and 1997, respectively. The improvement in operating
results, prior to the $1.0 million non-recurring pre-tax charge, was due to the
enhanced performance of the Company's more established subsidiaries.
- 8 -
<PAGE>
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 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 tax equivalent basis (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED Six Months Ended
JUNE 30, 1998 June 30, 1997
------------------------------------------ ----------------------------------------
AVERAGE INTEREST RATE Average Interest Rate
----------------- ------------- ---------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits with banks $ 60,513 $ 1,781 5.94% $ 10,809 $ 300 5.55%
Federal funds sold 46,778 1,259 5.43 52,645 1,394 5.30
Investment securities (1) 132,762 3,707 5.63 68,196 1,881 5.52
Loans, net of unearned discount (1) 770,256 34,643 9.07 560,077 24,918 8.90
----------------- ------------- ---------- --------------- ------------- ----------
Total earning assets $1,010,309 $41,390 8.26% $691,727 $28,493 8.24%
----------------- ------------- ---------- --------------- ------------- ----------
Interest-bearing deposits $901,277 $23,604 5.28% $614,013 $15,954 5.20%
Term debt and short-term borrowings 25,067 829 6.67 13,559 464 6.84
----------------- ------------- ---------- --------------- ------------- ----------
Total interest-bearing liabilities $926,344 $24,433 5.32% $627,572 $16,418 5.23%
----------------- ------------- ---------- --------------- ------------- ----------
Tax equivalent net interest income $16,957 $12,075
============= =============
Net interest spread 2.94% 3.01%
========== ==========
Net interest margin 3.38% 3.49%
========== ==========
- -------------------------------
<FN>
(1) Interest income on tax advantaged investment securities and loans reflect a
tax equivalent adjustment based on a marginal federal corporate tax rate of
34%. The total tax equivalent adjustment reflected in the above table is
$43,000 and $34,000 in 1998 and 1997, respectively.
</FN>
</TABLE>
Although the year-to-date 1998 net interest margin of 3.38% is lower in
comparison to the 1997 margin of 3.49%, the second quarter 1998 margin was 3.45%
and shows improvement over the first quarter 1998 margin of 3.27%. This
improvement was primarily due to recent loan growth, which has caused the mix of
average loans to average earning assets to increase from 74% in the first
quarter of 1998 to 78% in the second quarter of 1998. In comparison to the first
six months of 1997, yields on earning assets have improved slightly, however the
rate paid on interest bearing deposits increased from 5.20% in 1997 to 5.28% in
1998, which was the primary factor that caused the margin decline.
The Company's net interest margin is low compared to industry standards
primarily for the following 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 that they serve. In addition,
newer de novo banks typically have lower loan-to-deposit ratios than more
established banks, as loan growth is slower to develop in new markets than
deposit growth.
- 9 -
<PAGE>
The following table presents a reconciliation of Wintrust's net interest income,
calculated on a tax equivalent basis between the six month periods ended June
30, 1997 and June 30, 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>
Tax equivalent net interest income for the six months ended June 30, 1997......... $ 12,075
Change due to average earning assets fluctuations (volume)................... 5,559
Change due to interest rate fluctuations (rate).............................. 364)
Change due to rate/volume fluctuations (mix)................................. (313)
-----------
Tax equivalent net interest income for the six months ended June 30, 1998......... $ 16,957
===========
</TABLE>
NONINTEREST INCOME
Total noninterest income increased approximately $1.2 million, or 46%, to $3.7
million for the first half of 1998, as compared with $2.5 million for the same
period in 1997. The following table presents noninterest income by category (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
----------------------------------------- -----------------------------------------
1998 1997 1998 1997
------------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Fees on mortgage loans sold $ 2,579 $ 985 $ 1,388 $ 517
Loan servicing fees - mortgage loans 71 43 37 22
Loan servicing fees - securitization - 143 - 31
Securities gains, net - - - -
Service charges on deposit accounts 454 326 243 168
Trust fees 368 309 202 155
Other income 200 714 119 35
------------------- ------------------ ------------------ -----------------
Total noninterest income $ 3,672 $ 2,520 $ 1,989 $ 928
=================== ================== ================== =================
</TABLE>
Fees on mortgage loans sold includes income from originating and selling
residential real estate loans into the secondary market. These fees rose $1.6
million, or 162%, in the first half of 1998 when compared to 1997, and increased
$871,000, or 168%, in the second quarter of 1998 as compared to the same quarter
in 1997. The strong increases resulted from a favorable interest rate
environment, and related high levels of refinancing activity, coupled with a
healthy residential real estate market.
Loan servicing fees from securitization in the 1997 periods were derived from
the former practice of selling premium finance loans to a third-party
securitization facility. These sales resulted in gains on the sale of such loans
and generated servicing fees. Since the fourth quarter of 1996, all loans
originated have been sold to the Company's subsidiary banks and, accordingly,
income earned by FIFC in conjunction with the sale and servicing of these loans
has been eliminated as an inter-company transaction.
Service charges on deposit accounts for the first six months of 1998 totaled
$454,000, an increase of 39% when compared to the same period of 1997. For the
second quarter of 1998, deposit service charges totaled $243,000, and increased
45% over the same quarter of 1997. These increases were primarily the result of
a 46% increase in average deposit balances for the first six months of 1998
compared to the same period of 1997. The majority of deposit service charges
relate to customary fees on overdrawn accounts and returned items. The level of
service charges received 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.
- 10 -
<PAGE>
Trust fees for the first half of 1998 increased to $368,000, up 19% from the
$309,000 recorded in the same period of 1997. For the second quarter of 1998,
trust fees totaled $202,000 and increased 30% over the prior year quarter. As
mentioned earlier, the Company began organizing a separate trust subsidiary,
WAMC, in the second quarter of 1998, and presently expects to receive regulatory
approval during the remainder of 1998. WAMC will allow Wintrust to service its
customers' trust and investment needs with many types of trust and investment
services, including traditional trust products and services, as well as
investment management, financial planning and 401(k) management services. The
Company's objective is to generate additional fee income by offering a high
degree of personalized trust services by well-experienced trust professionals.
Management believes that its bank facilities are located in some of the best
trust markets in Illinois and that current market areas will support WAMC's
product offerings that are principally designed for the small-to-mid size trust
or investment account. After receiving regulatory approval, the Company expects
to introduce these trust services at each of the Banks over the next few years,
beginning with 1998 openings at North Shore Bank and Hinsdale Bank.
Similar to starting a de novo bank, the introduction of expanded trust services
is expected to cause relatively high overhead levels when compared to initial
fee income generated by WAMC. The overhead will consist primarily of the
salaries and benefits of experienced trust professionals. Management anticipates
that WAMC will be successful in attracting trust business over the next few
years, and that trust fees will increase to levels sufficient to absorb the
overhead of WAMC.
Other year-to-date noninterest income decreased from $714,000 in 1997 to
$200,000 in 1998. This decrease is primarily related to proceeds from the
settlement of a lawsuit in 1997.
NONINTEREST EXPENSE
Noninterest expense for the second quarter of 1998 totaled $9.5 million and
included the non-recurring $1.0 million pre-tax charge related to the Company's
former Chairman and Chief Executive Officer, as mentioned earlier. Excluding
this charge, total noninterest expense for the quarter increased $2.0 million,
or 32%, over the same quarter of 1997. For the first six months of 1998, total
noninterest expense increased $3.6 million, or 28%, over the prior year period,
excluding the non-recurring charge. The increased expenses were predominantly
caused by the continued growth of the Company. Since June 30, 1997, total
deposits have grown 38% and total loan balances have risen 31%, requiring higher
levels of staffing and other costs to both originate and service the larger
customer base. The following table presents noninterest expenses by category (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
----------------------------------------- ----------------------------------------
1998 1997 1998 1997
----------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 9,788 $ 6,869 $ 5,510 $ 3,413
Occupancy, net 1,176 937 604 455
Data processing 794 643 396 322
Advertising and marketing 756 572 349 276
Other 4,885 3,757 2,608 1,958
----------------- ----------------- ------------------- -----------------
Total noninterest expense $ 17,399 $ 12,778 $ 9,467 $ 6,424
================= ================= =================== =================
</TABLE>
- 11 -
<PAGE>
As mentioned earlier, the second quarter of 1998 includes a non-recurring $1.0
million pre-tax charge, of which approximately $900,000 relates to a severance
accrual that is included in salaries and employee benefits. Excluding this
charge, salaries and employee benefits in the second quarter of 1998 increased
$1.2 million, or 35%, over the 1997 quarter. The increase during the first six
months of 1998 over the same period in 1997, exclusive of the non-recurring
charge, was $2.0 million, or 29%. These increases were caused by higher staffing
levels to support the growth of the Company including 1) the Crystal Lake Bank
that was opened in December 1997, 2) a new full-service facility located in
Western Springs that opened in November 1997, 3) two branch facilities, in
Wilmette and Glencoe, that began operations in early 1998, 4) the formation of
WAMC as a separate trust company and 5) additional staffing to service the
larger deposit and loan portfolios, as mentioned earlier.
Net occupancy expenses for the six months ended June 30, 1998 totaled $1.2
million, an increase of $239,000, or 26%, compared to the same period in 1997.
For the second quarter of 1998, the increase was $149,000, or 33%, over the 1997
quarter. These increases were due primarily to the opening of new facilities, as
discussed above.
Data processing expenses totaled $794,000 for the first half of 1998, an
increase of $151,000, or 23%, when compared to the first half of 1997. For the
second quarter of 1998, these expenses totaled $396,000, an increase of $74,000,
or 23%, over the second quarter of 1997. These increases are due primarily to
the larger deposit and loan portfolios, which increased approximately 38% and
31%, respectively, as of June 30, 1998 when compared to June 30, 1997.
Additionally, the first half of 1998 included data processing costs related to
the opening of Crystal Lake Bank and other bank facilities, as noted above.
Advertising and marketing expenses totaled $756,000 for the first six months of
1998, an increase of $184,000, or 32%, over the first six months of 1997. For
the second quarter of 1998, total advertising and marketing expenses were
$349,000, an increase of $73,000, or 26%, from the same quarter in 1997.
Management provided for a higher level of marketing expenditures in order to
attract loans and deposits, to continue expansion of FIFC loan products and for
the opening of the Crystal Lake Bank and other branch facilities. Management
anticipates continued increases in this expense category as Wintrust continues
to expand its base of customers and market additional banking and trust products
and services.
Other noninterest expenses increased by $1.1 million, or 30%, to $4.9 million
for the six months ended June 30, 1998. For the quarter, this category of
expense totaled $2.6 million, an increase of $650,000, or 33%, over the second
quarter of 1997. This category includes expenses incurred for audits and
examinations, amortization of organizational costs, correspondent bank service
charges, insurance, legal fees, postage, stationery and supplies and other
sundry expenses. The increase in this category of expenses is generally a result
of the Company's expansion activities, including the origination and servicing
of a larger base of deposit and loan accounts.
Despite the increases in various noninterest expense categories during the first
half of 1998 as compared to 1997, Wintrust's ratio of noninterest expense to
total average assets, excluding the non-recurring 1998 charge, declined to 2.97%
in 1998 from 3.35% in 1997, reflecting management's commitment to maintaining
low overhead costs while providing superior customer service. Additionally,
Wintrust's net overhead ratio of 2.30% for the first six months of 1998,
excluding the non-recurring charge, compares favorably to the six month 1997
ratio of 2.69%, and is comparable to peer group ratios.
- 12 -
<PAGE>
INCOME TAXES
The Company recorded income tax benefits of $1.2 million and $1.6 million for
the six months ended June 30, 1998 and 1997, respectively. Prior to the
September 1, 1996 merger transaction that formed Wintrust, each of the merging
companies except Lake Forest Bank had net operating losses and, based upon the
start-up nature of the organization, there was not sufficient evidence to
justify the full realization of the net deferred tax assets generated by those
losses. Accordingly, 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. Management anticipates that full
recognition of the net operating losses, for financial accounting purposes, will
be complete by year-end 1998 and the Company will be fully-taxable during 1999.
FINANCIAL CONDITION
Total assets were $1.18 billion at June 30, 1998, an increase of $319.6 million,
or 37%, over the $856.9 million a year earlier, and $123.1 million, or 12%, over
the $1.05 billion at December 31, 1997. This increase was created mainly through
deposit growth at the newer de novo banks and continued market share growth at
the other banks. Shareholders' equity rose to $71.0 million at June 30, 1998, an
increase of $2.2 million from the 1997 year-end level, due primarily to the
Company's net income for the first half of 1998.
INTEREST-EARNING ASSETS
Total loans were $852.2 million at June 30, 1998, an increase of $139.6 million,
or 20%, from $712.6 million at December 31, 1997, and an increase of $202.2
million, or 31%, from June 30, 1997. As the following table indicates, growth in
the loan portfolio has been diversified amongst all categories of loans with the
mix remaining relatively consistent (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997 June 30, 1997
------------------------------- ----------------------------- -----------------------------
Loans: BALANCE PERCENT Balance Percent Balance Percent
----------------- ------------- --------------- ------------- --------------- -------------
Commercial and commercial
<S> <C> <C> <C> <C> <C> <C>
real estate $295,149 27% $235,483 25% $221,162 29%
Premium finance, net 167,783 16 128,453 13 126,543 16
Indirect auto, net 166,461 15 138,784 14 113,651 15
Home equity 116,676 11 116,147 12 102,574 13
Residential real estate 71,648 7 61,611 6 58,351 7
Installment 34,524 3 32,153 4 27,804 4
----------------- ------------- --------------- ------------- --------------- -------------
Total loans, net of
unearned income 852,241 79 712,631 74 650,085 84
----------------- ------------- --------------- ------------- --------------- -------------
Securities and money market
investments 221,645 21 252,871 26 123,110 16
----------------- ------------- --------------- ------------- --------------- -------------
Total earning assets $1,073,886 100% $965,502 100% $773,195 100%
================= ============= =============== ============= =============== =============
</TABLE>
- 13 -
<PAGE>
Almost half of the increase in total loans resulted from growth in the Company's
niche loan categories, premium finance loans and indirect auto loans. The growth
in premium finance loans has been due mainly to the combination of increased
market penetration from new product offerings and targeted marketing programs.
The indirect auto loan portfolio has grown over the past year as a result of
increased sales efforts and a greater number of auto dealer relationships.
Commercial and commercial real estate loans, the largest loan category,
comprised 27% of total loans as of June 30, 1998 and has increased $59.7
million, or 25%, since December 31, 1997 and $74.0 million, or 33%, since June
30, 1997. These increases were generally due to the low rate environment,
healthy economy and the hiring of additional experienced lending officers. The
total of home equity loans has remained relatively constant when compared to the
prior year dates, despite the large volume of home equity loans that have been
refinanced into first mortgage loans over the past year as a result of low
mortgage loan interest rates. In addition, unused commitments on home equity
lines of credit have increased $29.0 million, or 27%, over the balance at June
30, 1997 and totaled $136.5 million at June 30, 1998.
Total securities and money market investments (i.e. federal funds sold and
interest-bearing deposits with banks) were $221.6 million at June 30, 1998, down
12% from $252.9 million at December 31, 1997, and up 80% from the year-ago level
of $123.1 million. As of June 30, 1998, total securities and money market
investments were comprised of 12% in U.S. Treasury and government agency
securities, 59% in other debt and equity securities, 15% in short-term
interest-bearing deposits with banks and 14% in overnight federal funds sold.
The Company maintained no trading account securities at June 30, 1998 or in any
of the other previous reporting periods.
The balances of securities and money market investments fluctuate based upon
deposit inflows and loan demand. As a result of the significant growth in
deposits and loans, it has been Wintrust's policy to maintain its investment
portfolio in short-term, liquid, and diversified high credit quality investments
at the 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 investment 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.
DEPOSITS
Total deposits at June 30, 1998 were $1.06 billion, or 16% higher than the
year-end 1997 level of $917.7 million and 38% higher than the June 30, 1997
level of $772.2 million. The following table sets forth by category the
composition of deposit balances and the relative percentage of total deposits as
of the date specified (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997 June 30, 1997
--------------------------------- -------------------------------- --------------------------------
PERCENT Percent Percent
BALANCE OF TOTAL Balance of Total Balance of Total
---------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Demand $ 103,314 10% $ 92,840 10% $ 72,137 9%
NOW 95,470 9 83,301 9 67,428 9
Money market 190,425 18 154,893 17 135,152 18
Savings 64,574 6 61,445 7 56,779 7
Certificates of deposit 609,807 57 525,222 57 440,678 57
---------------- --------------- --------------- --------------- --------------- ---------------
Total $1,063,590 100% $ 917,701 100% $ 772,174 100%
================ =============== =============== =============== =============== ===============
</TABLE>
- 14 -
<PAGE>
The mix of deposits has remained relatively consistent over the past year.
Growth has been due primarily to higher deposit levels at the newer de novo
banks and branches, and continued success of marketing the Company's deposit
products at the more established banks, which has increased deposit market
share.
SHAREHOLDERS' EQUITY
Shareholders' equity grew $2.2 million to $71.0 million at June 30, 1998, from
$68.8 million at December 31, 1997. The primary components of the change in
shareholders' equity are net income for the first six months of 1998 and, to a
lesser extent, the exercise of certain stock options.
The following table reflects various consolidated measures of capital at June
30, 1998, December 31, 1997 and June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30, December 31, June 30,
1998 1997 1997
---------------------- ------------------- --------------------
<S> <C> <C> <C>
Leverage ratio 6.1% 6.6% 7.9%
Ending tier 1 capital to risk-based asset ratio 6.9% 8.7% 8.7%
Ending total capital to risk-based asset ratio 7.5% 9.4% 9.4%
Dividend payout ratio 0.0% 0.0% 0.0%
</TABLE>
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, coupled with
slow capital growth primarily due to expenses associated with the newer de novo
banks. The level of the Company's leverage and tier 1 risk-based capital ratios
qualify the Company as being "well capitalized"; however, the level of the
Company's total risk-based capital ratio has declined to a level where
additional capital is required to support the asset growth. To that end, on July
28, 1998, the Company's Board of Directors authorized the issuance of
approximately $30 million in publicly traded trust preferred securities, which
qualify as regulatory capital under Federal Reserve guidelines. The offering is
expected to be completed on or about September 30, 1998 and will result in the
Company being at or near the "well capitalized" minimum capital ratios for each
of the capital ratio categories. To be considered "well capitalized," an entity
must maintain a leverage ratio of at least 5.0%, a Tier 1 risk-based capital
ratio of at least 6.0%, and a total risk-based capital ratio of at least 10.0%.
To be "adequately capitalized", an entity must maintain a leverage ratio of at
least 4.0%, a Tier 1 risk-based capital ratio of at least 4.0%, and a total
risk-based capital ratio of at least 8.0%. Management is not aware of any known
events, regulatory recommendations or uncertainties that will have any adverse
effect on the Company'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 six and three month periods is shown as follows (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
----------------------------------------- -------------------------------------
1998 1997 1998 1997
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 5,116 $3,636 $5,665 $4,073
Provision for possible loan losses 2,340 1,554 1,073 875
Loans charged-off
Core banking loans 1,273 137 661 73
Premium finance 297 621 157 441
Indirect auto 265 29 153 8
---------------- ----------------- ---------------- -----------------
Total loans charged-off 1,835 787 971 522
---------------- ----------------- ---------------- -----------------
Recoveries
Core banking loans 162 20 55 4
Premium finance 60 9 30 2
Indirect auto 13 - 4 -
---------------- ----------------- ---------------- -----------------
Total recoveries 235 29 89 6
================ ================= ================ =================
Net loans charged off (1,600) (758) (882) (516)
---------------- ----------------- ---------------- -----------------
Balance at June 30 $5,856 $4,432 $5,856 $4,432
================ ================= ================ =================
Loans at June 30 $852,241 $650,085
================ =================
Allowance as a percentage of loans 0.69% 0.68%
================ =================
Annualized net charge-offs
as a percentage of average:
Core banking loans 0.47% 0.06%
Premium finance 0.32% 1.36%
Indirect auto 0.34% 0.06%
---------------- -----------------
Total loans 0.42% 0.27%
================ =================
Annualized provision for possible
loan losses 68.38% 48.78%
================ =================
</TABLE>
- 16 -
<PAGE>
Management believes that the loan portfolio is well diversified and well
secured, without undue concentration in any specific risk area. Control of loan
quality is continually monitored by management and is reviewed by the Banks'
Board of Directors and their Credit Committees 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 and
other potential problem loans, and an evaluation of current and prospective
economic conditions in the market area.
Net charge-offs of core banking loans during the first half of 1998 totaled $1.1
million, of which approximately $815,000 was attributable to loans originated at
one banking office and reflect what management believes to be an isolated
problem that has been resolved through the dismissal of the lending officer
involved and a subsequent thorough review of all credits originated under his
authority. Management continues to be actively involved with each of the credits
at this office and presently believes that all material losses have been
recorded.
The provision for possible loan losses totaled $1.1 million for the second
quarter of 1998 and $2.3 million for the first six months of 1998, increases of
$198,000 and $786,000, respectively, over the same periods of 1997. These
increases were necessary to cover higher loan charge-offs, as mentioned above,
and also to maintain the allowance for possible loan losses at an appropriate
level, considering the growth experienced in the portfolio. Management believes
the allowance for possible loan losses is adequate to provide for any potential
losses in the portfolio.
- 17 -
<PAGE>
PAST DUE LOANS AND NON-PERFORMING ASSETS
The following table sets forth the Company's non-performing assets at the dates
indicated. The information in the table should be read in conjunction with the
detailed discussion following the table (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, March 31, December 31, June 30,
1998 1998 1997 1997
---------------- --------------- ----------------- ----------------
Past Due greater than 90 days
and still accruing:
<S> <C> <C> <C> <C>
Core banking loans $ 1,311 $ 381 $ 868 $ 173
Indirect automobile loans 45 47 11 27
Premium finance loans 897 1,082 887 769
---------------- --------------- ----------------- ----------------
2,253 1,510 1,766 969
---------------- --------------- ----------------- ----------------
Non-accrual loans:
Core banking loans 3,841 4,225 782 33
Indirect automobile loans 74 19 29 63
Premium finance loans 1,484 2,039 1,629 753
---------------- --------------- ----------------- ----------------
5,399 6,283 2,440 849
---------------- --------------- ----------------- ----------------
Total non-performing loans:
Core banking loans 5,152 4,606 1,650 206
Indirect automobile loans 119 66 40 90
Premium finance loans 2,381 3,121 2,516 1,522
---------------- --------------- ----------------- ----------------
7,652 7,793 4,206 1,818
---------------- --------------- ----------------- ----------------
Other real estate owned - - - -
---------------- --------------- ----------------- ----------------
Total non-performing assets $ 7,652 $ 7,793 $ 4,206 $ 1,818
================ =============== ================= ================
Total non-performing loans by
category as a percent of its own
respective category:
Core banking loans 0.99% 0.99% 0.37% 0.05%
Indirect automobile loans 0.07% 0.04% 0.03% 0.08%
Premium finance loans 1.42% 2.23% 1.96% 1.20%
---------------- --------------- ----------------- ----------------
Total loans 0.90% 1.03% 0.59% 0.28%
---------------- --------------- ----------------- ----------------
Total non-performing assets as a
percentage of total assets: 0.65% 0.68% 0.40% 0.21%
Allowance for possible loan losses as a
percentage of non-performing loans 76.53% 72.69% 121.64% 243.78%
</TABLE>
- 18 -
<PAGE>
Non-performing Core Banking Loans
Non-performing loans for the Company's core banking business totaled $5.2
million or 0.99% of the Company's core banking loans as of June 30, 1998. One
borrower accounts for approximately $2.6 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 entered into a contract to sell the property and the
Company believes that proceeds from the sale will retire amounts outstanding
and, accordingly, no loss is currently anticipated. Another $898,000 relates to
six residential real estate loans which management believe are adequately
secured by the underlying real estate. The remaining $1.7 million of
non-performing loans is comprised of approximately 17 loans. The small number of
borrowers enables management 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 that collection efforts
are active.
Non-performing Premium Finance Loans
Another significant category of non-performing loans 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 the Company's subsidiary, First
Insurance Funding Corp. (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 FIFC's standard form of financing contract, FIFC has
the right 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. 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. 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 refund to the Company occurs. Management
continues to accrue interest until maturity as the unearned premium by the
insurance carrier is ordinarily sufficient to pay-off the outstanding principal
and contractual interest due.
Total non-performing premium finance loans as of June 30, 1998 were
approximately $2.4 million or 1.42% of the outstanding premium finance loans.
The decline in the percent of non-performing loans from 2.23% at March 31, 1998
and 1.96% at December 31, 1997 is primarily the result of management's
implementation of additional collection procedures and upgraded systems.
Management believes the level of net charge-offs is acceptable based on an
average gross yield from premium finance loan interest and late fees of
approximately 12%.
- 19 -
<PAGE>
The amount of non-performing premium finance loans at June 30, 1997 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 2.4% of total
premium finance loans.
Non-performing Indirect Automobile Loans
Total non-performing indirect automobile loans were $119,000 at June 30, 1998 as
compared to $66,000 at March 31, 1998 and $40,000 as of the end of 1997.
Although the total has increased slightly, these loans as a percent of total
indirect automobile loans were only 0.07% at June 30, 1998 as compared to 0.04%
at March 31, 1998 and 0.03% at December 31, 1997. These individual loans
comprise smaller dollar amounts and collection efforts are active.
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. Examples of these potential problem loans
include certain loans that are in a past-due status, loans with borrowers that
have recent adverse operating cash flow or balance sheet trends, or loans with
general risk characteristics that the loan officer feels might jeopardize the
future timely collection of principal and interest payments. 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. The principal amount of loans in this category as
of June 30, 1998 and December 31, 1997 were approximately $2.5 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.
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.
- 20 -
<PAGE>
YEAR 2000 ISSUE
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 ensure
that the Company is prepared for the Year 2000. That process has continued
during 1998 and current expectations are that testing will be completed in early
1999. The Company is regulated by the Federal Reserve Bank, the Office of the
Comptroller of the Currency and the State of Illinois bank regulatory agency,
all of which are active in monitoring compliance with the implementation of
systems-related Year 2000 issues. The financial impact to the Company is not
anticipated to be material to its financial position or results in any given
year.
SHAREHOLDER RIGHTS PLAN
On July 28, 1998, the Company's Board of Directors adopted a Shareholder Rights
Plan ("Plan") in which preferred stock purchase rights ("Rights") will be
distributed as a dividend at the rate of one right for each share of the
Company=s outstanding common stock to shareholders of record as of the close of
business on August 7, 1998.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131:
- ----------------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") 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 improved
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. The Company will present this new statement's required
disclosures in its December 31, 1998 audited financial statements. The Company
has yet to determine its segments and related disclosures.
- 21 -
<PAGE>
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.
Statement of Financial Accounting Standards No. 133:
- ----------------------------------------------------
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes, for the first time, comprehensive accounting
and reporting standards for derivative instruments and hedging activities.
Previous accounting standards and methodologies did not adequately address the
many derivative and hedging transactions in the current financial marketplace
and, as such, the Securities and Exchange Commission, and other organizations,
urged the FASB to deal expeditiously with the related accounting and reporting
problems. The accounting and reporting principles prescribed by this standard
are complex and will significantly change the way entities account for these
activities. This new standard requires that all derivative instruments be
recorded in the statement of condition at fair value. The recording of the gain
or loss due to changes in fair value could be either reported in earnings or as
other comprehensive income in the statement of shareholders' equity, depending
on the type of instrument and whether or not it is considered a hedge. This
standard is effective for the Company as of January 1, 2000. The Company has not
yet determined the impact this new statement may have on its future financial
condition or its results of operations.
- 22 -
<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. 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 to open new branch
offices, and to pursue additional potential development or acquisition of banks
or specialty finance businesses. Actual results could differ materially from
those addressed in the forward-looking statements as a result of numerous
factors, including the following:
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 formations, branch
openings, and expanded trust operations. De novo banks may typically
require 13 to 24 months 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 possible 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 Company's gap
position on interest earning assets and interest bearing liabilities, the
"gap" will work against the Company and its 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 Changes in the economic environment may influence the growth rate of loans
and deposits and also the quality of the loan portfolio.
- 23 -
<PAGE>
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
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.
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, during each of the reported periods, had not entered into any such
derivative financial instruments. However, during the third quarter of 1998, the
Company entered into an interest rate cap contract with a notional amount of
$100 million to mitigate the effect of rising rates on certain of its floating
rate deposit products and fixed rate loan products.
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
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, management then would take appropriate actions within
its asset/liability structure to counter these potential adverse situations.
Please refer to the "Net Interest Income" section for further discussion of the
net interest margin.
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 a 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
- 24 -
<PAGE>
rising rates and conversely, a higher level of repricing liabilities versus
assets would be beneficial in a declining rate environment. The following table
illustrates the Company's estimated interest rate sensitivity and periodic and
cumulative gap positions as calculated as of June 30, 1998.
<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, net of unearned income........ $ 385,464 $ 221,166 $ 213,980 $ 31,631 $ 852,241
Securities........................... 141,119 13,854 271 2,070 157,314
Interest-bearing bank deposits....... 29,969 3,127 - - 33,096
Federal funds sold................... 31,235 - - - 31,235
Other................................ - - - 102,660 102,660
---------------- --------------- --------------- -------------- --------------
Total assets....................... 587,787 238,147 214,251 136,361 1,176,546
---------------- --------------- --------------- -------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
NOW.................................. 95,470 - - - 95,470
Savings and money market............. 241,409 - - 13,590 254,999
Time deposits........................ 305,723 221,308 82,776 - 609,807
Short term borrowings................ 1,056 - - - 1,056
Notes payable........................ 26,603 - - - 26,603
Demand deposits & other
liabilities....................... - - - 117,628 117,628
Shareholders' equity................. - - - 70,983 70,983
---------------- --------------- --------------- -------------- --------------
Total liabilities and
shareholders' equity.......... $ 670,261 $ 221,308 $ 82,776 $ 202,201 $ 1,176,546
---------------- --------------- --------------- -------------- --------------
Rate sensitive assets (RSA)............. 587,787 238,147 214,251 136,361
Rate sensitive liabilities (RSL)........ 670,261 221,308 82,776 202,201
---------------- --------------- --------------- --------------
Cumulative gap
(GAP = RSA - RSL)..................... $ (82,474) $ (65,635) $ 65,840 $ -
================ =============== =============== ==============
RSA/RSL................................. 0.88 1.08 2.59
RSA/Total assets........................ 0.50 0.20 0.18
RSL/Total assets........................ 0.57 0.19 0.07
GAP/Total assets........................ (7)% (6)% 6%
GAP/RSA................................. (14)% (8)% 6%
</TABLE>
- 25 -
<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, it is only as of a point in time. 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 rate
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 June 30, 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........ 5.6% -10.4%
--------------- ---------------
</TABLE>
- 26 -
<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: CHANGES IN SECURITIES AND USE OF PROCEEDS.
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders was held on May 28, 1998.
(c) At the Annual Meeting of Shareholders, the following matter was submitted to
a vote of the shareholders:
(1) The election of eight Class II directors to the Board of Directors
to hold office for a three-year term.
Director Votes For Votes Against Abstentions
-------- --------- -------------- -----------
Bruce K. Crowther 5,312,501 0 1,303,917
Maurice F. Dunne, Jr. 5,322,097 0 1,294,321
William C. Graft 5,312,901 0 1,303,517
Marguerite Savard McKenna 5,312,209 0 1,304,209
Albin F. Moschner 5,319,901 0 1,296,517
Ingrid Stafford 5,313,701 0 1,302,717
Jane R. Stein 5,318,096 0 1,298,322
Katharine V. Sylvester 5,311,696 0 1,304,722
ITEM 5: OTHER INFORMATION.
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
3 (i) Amended By-Laws
27 Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed by the Company during the quarter ended June
30, 1998.
- 27 -
<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: August 14, 1998 /s/ Edward J. Wehmer
President & Chief Executive Officer
Date: August 14, 1998 /s/ David A. Dykstra
Executive Vice President
& Chief Financial Officer
Date: August 14, 1998 /s/ Todd A. Gustafson
Vice President/Finance
(Principal Accounting Officer)
- 28 -
<PAGE>
EXHIBIT INDEX
Exhibit 3 (i) Amended By-Laws
Exhibit 27 Financial Data Schedule
- 29 -
<PAGE>
SECTION 3.2 AMENDED JULY 23, 1997.
SECTIONS 4.1 AND 4.4 THROUGH 4.9 AMENDED
MAY 8, 1998, EFFECTIVE MAY 22, 1998.
AMENDED AND RESTATED BY-LAWS
----------------------------
OF
--
WINTRUST FINANCIAL CORPORATION
------------------------------
(AN ILLINOIS CORPORATION)
-------------------------
ARTICLE I
---------
OFFICES
-------
Wintrust Financial Corporation (the "corporation") shall
continuously maintain in the State of Illinois a registered office and a
registered agent whose office is identical with such registered office, and may
have other offices within or without the state.
ARTICLE II
----------
SHAREHOLDERS
------------
SECTION 2.1 ANNUAL MEETING. An annual meeting of the
----------------
shareholders shall be held on the fourth Thursday in May of each year, or such
other date as designated by the board of directors, for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the directors shall not be elected at the annual meeting, or at any
adjournment thereof, the board of directors shall cause the election to be held
as soon thereafter as practicable.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of the
------------------
shareholders may be called either by the chairman of the board of directors or
president for the purpose or purposes stated in the call of the meeting.
SECTION 2.3 PLACE OF MEETING. The board of directors may
-----------------
designate any place as the place of meeting for any annual meeting or for any
special meeting called by the board of directors. If no designation is made, or
if a special meeting be otherwise called, the place of meeting shall be at the
office of the registered agent of the corporation in the State of Illinois.
SECTION 2.4 NOTICE OF MEETINGS. Written notice stating the
-------------------
place, date, and hour of the meeting, and in the case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than forty days before the date of the meeting, or in the case
of a merger or consolidation not less than twenty nor more than forty days
before the meeting, either personally or by mail, by or at the direction of the
president, or the secretary, or the officer or persons calling the meeting. If
mailed, such notice
<PAGE>
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder's address as it appears on the records of the
corporation, with postage thereon prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
SECTION 2.5 NOTIFICATION OF SHAREHOLDER PROPOSED BUSINESS. At
---------------------------------------------
an annual or special meeting of shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. To properly
bring business before an annual or special meeting of shareholders, written
notice of such shareholder's intent to make such proposal or proposals,
including the nomination for election of director, must be given either by
personal delivery or by United States mail postage prepaid and received by the
Secretary of the corporation not later than the following dates: (i) with
respect to an annual meeting of shareholders, 60 days in advance of such meeting
if such meeting is to be held on a day which is within 30 days preceding the
anniversary date of the previous year's annual meeting or 90 days in advance of
such meeting if such meeting is to be held on or after the anniversary of the
previous year's annual meeting; and (ii) with respect to any other annual or
special meeting of shareholders, the close of business on the tenth day
following the date of public disclosure of the date of such meeting. A
shareholder's notice to the Secretary shall set forth as to each item of
business the shareholder proposes to bring before such meeting: (a) a brief
description of the business desired to be brought before the meeting, and in
this case of a nomination for election of director, such nominee's name and
qualifications, and the reasons for conducting the business at the meeting; (b)
the name and record address of the shareholder who proposes such business; (c)
the number of shares of stock of the Corporation beneficially owned by such
shareholder; and (d) a description of all arrangements or understandings between
the shareholder and any other person or persons (naming such person or persons)
pursuant to which the proposal or proposals are to be made by the shareholder
and any material interest of the shareholder in the business being proposed. The
chairman of the meeting may refuse to acknowledge the proposal of any
shareholder not made in compliance with this Section 2.5.
Notwithstanding anything in the by-laws to the contrary, no business
shall be brought before or conducted at an annual or special meeting by a
shareholder except in accordance with the procedures set forth in this Section
2.5; provided, however, that nothing in this Section 2.5 shall be deemed to
preclude discussion by any shareholder of any business properly brought before a
shareholder meeting.
SECTION 2.6 POSTPONEMENT AND ADJOURNMENT OF MEETINGS. Prior to
----------------------------------------
any annual or special meeting of shareholders being called to order, the board
of directors may postpone such previously scheduled annual or special meeting of
shareholders at any time whether or not a quorum is present without further
notice. The board of directors may adjourn any previously scheduled annual or
special meeting of shareholders at any time whether or not a quorum is present
without further notice.
- 2 -
<PAGE>
SECTION 2.7 FIXING OF RECORD DATE. For the purpose of
------------------------
determining the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to receive payment of any dividend,
or other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of shares or for the purpose of
any other lawful action, the board of directors of the corporation may fix in
advance a record date which shall not be more than sixty days, and for a meeting
of shareholders, not less than ten days, or in the case of a merger or
consolidation not less than twenty days, before the date of such meeting. If no
record date is fixed, the record date for the determination of shareholders
shall be the date on which the notice of the meeting is mailed, and the record
date for the determination of shareholders for any other purpose shall be the
date on which the board of directors adopts the resolution relating thereto. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting.
SECTION 2.8 VOTING LISTS. The officer or agent having charge
-------------
of the transfer books for shares of the corporation shall make, at least ten
days before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of the shareholder,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be open to inspection
by any shareholder for any purpose germane to the meeting, at any time during
usual business hours. Such list shall also be produced and kept open at the time
and place of the meeting and may be inspected by any shareholder during the
whole time of the meeting. The original share ledger or transfer books, or a
duplicate thereof kept in this State, shall be prima facie evidence as to who
are the shareholders entitled to examine such list or share ledger or transfer
book or to vote at any meeting of shareholders.
SECTION 2.9 QUORUM. The holders of a majority of the
------
outstanding common shares of the corporation, present in person or represented
by proxy, shall constitute a quorum at any meeting of shareholders; provided
that if less than a majority of the outstanding shares are represented at said
meeting, a majority of the shares so represented may adjourn the meeting at any
time without further notice. If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by The Business Corporation Act of the State of Illinois (the "BCA"),
the articles of incorporation or these by-laws. At any adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the original meeting. Withdrawal of shareholders from any
meeting shall not cause failure of a duly constituted quorum at that meeting.
SECTION 2.10 PROXIES. Each shareholder entitled to vote at a
-------
meeting of shareholders or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for such shareholder by
proxy executed in writing by such shareholder or his or her duly authorized
attorney-in-fact, but no such proxy shall be valid after eleven months from the
date of its execution, unless otherwise provided in the proxy.
- 3 -
<PAGE>
SECTION 2.11 VOTING OF SHARES. Each outstanding common share
----------------
shall be entitled to one vote upon each matter submitted to vote at a meeting of
shareholders. Any preferred stock shall have such rights, voting or otherwise,
as shall be determined by the board of directors and as set forth in a
certificate of designation filed with the Illinois Secretary of State.
SECTION 2.12 VOTING OF SHARES BY CERTAIN HOLDERS. Shares
--------------------------------------
standing in the name of another corporation, domestic or foreign, may be voted
by such officer, agent, or proxy as the by-laws of such corporation may
prescribe, or, in the absence of such provision, as the board of directors of
such corporation may determine.
Shares standing in the name of a deceased person, a minor ward
or an incompetent person, may be voted by the administrator, executor, court
appointed guardian, or conservator of such person or such person's estate,
either in person or by proxy without a transfer of such shares into the name of
such administrator, executor, court appointed guardian, or conservator. Shares
standing in the name of a trustee may be voted by the trustee, either in person
or by proxy.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into the receiver's name if authority
so to do be contained in the appropriate order of the court by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Any number of shareholders may create a voting trust for the
purpose of conferring upon a trustee or trustees the right to vote or otherwise
represent their shares, for a period not to exceed ten years by entering into a
written voting trust agreement specifying the terms and conditions of the voting
trust, and by transferring their shares to such trustee or trustees for the
purpose of the agreement. Any such trust agreement shall not become effective
until a counterpart of the agreement is deposited with the corporation at its
registered office. The counterpart of the voting trust agreement so deposited
with the corporation shall be subject to the same right of examination by a
shareholder of the corporation, in person or by agent or attorney, as are the
books and records of the corporation, and shall be subject to examination by any
holder of a beneficial interest in the voting trust, either in person or by
agent or attorney, at any reasonable time for any proper purpose.
Shares of its own stock belonging to this corporation shall
not be voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but shares
of its own stock held by it in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
- 4 -
<PAGE>
SECTION 2.13 ELIMINATION OF CUMULATIVE VOTING RIGHTS. The
------------------------------------------
holders of all shares of stock having a right to vote in this corporation shall
not be entitled to cumulative voting rights in the election of directors of this
corporation, or for any other reason or purpose whatsoever.
SECTION 2.14 INSPECTORS. At any meeting of shareholders, the
----------
presiding officer may, or upon the request of any shareholder shall, appoint one
or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of
shares represented at the meeting, based upon their determination of the
validity and effect of proxies; count all votes and report the results; and do
such other acts as are proper to conduct the election and voting with
impartiality and fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by
the inspector or by a majority of them if there be more than one inspector
acting at such meeting. If there is more than one inspector, the report of a
majority shall be the report of the inspectors. The report of the inspector or
inspectors on the number of shares represented at the meeting and the results of
the voting shall be prima facie evidence thereof.
SECTION 2.15 ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the shareholders must be effected at a
duly called annual or special meeting and may not be effected by any consent in
writing by such holders.
SECTION 2.16 VOTING BY BALLOT. Voting on any question or in
-----------------
any election may be by voice unless the presiding officer shall order or any
shareholder shall demand that voting be by ballot.
ARTICLE 3
-----------
DIRECTORS
---------
SECTION 3.1 GENERAL POWERS. The business of the corporation
---------------
shall be managed by its board of directors.
SECTION 3.2 NUMBER, TENURE AND QUALIFICATIONS. The number of
----------------------------------
directors of the corporation shall be twenty-four (24). The number of directors
may be increased or decreased (provided, however, that such number shall never
be less than six (6)) from time to time by the amendment of this section by a
resolution adopted by the majority of members of the board of directors as
provided in this Section 3.2; but no decrease shall have the effect of
shortening the term of any incumbent director.
- 5 -
<PAGE>
The directors shall be divided into three classes, as equal in
number as possible, with respect to the times for which they shall hold office.
Directors of the first class shall hold office for one year or until the first
annual election following their election, directors of the second class shall
hold office for two years or until the second annual election following their
election, and directors of the third class shall hold office for three years or
until the third annual election following their election and in each case until
their successors shall be duly elected and shall qualify.
At each annual meeting of the shareholders following such
first election of the directors of all classes, the successors to the class of
directors whose terms shall expire at such meeting shall be elected to hold
office for a term of three years, so that in each year the term of office of one
class of directors shall expire.
Directors need not be residents of Illinois or shareholders of
the corporation.
Advance notice of shareholder nominations for the election of
directors and of business to be brought by shareholders before any meeting of
the shareholders of the corporation shall be given in the manner provided in
these by-laws.
SECTION 3.3 REGULAR MEETINGS. A regular meeting of the board
-----------------
of directors shall be held without other notice than this by-law, either
immediately before or after the annual meeting of shareholders, or at such time
as may be determined by the board of directors. The board of directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution.
SECTION 3.4 SPECIAL MEETINGS. Special meetings of the board of
----------------
directors may be called by or at the request of the chairman of the board of
directors, president or a majority of the then acting board of directors. The
person or persons authorized to call special meetings of the board of directors
may fix any place as the place for holding any special meeting of the board of
directors called by them.
SECTION 3.5 NOTICE. Notice of any special meeting shall be
------
given at least two (2) days previous thereto by written notice to each director
at his or her business address. If mailed, notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegram company. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 3.6 QUORUM. A majority of the number of directors
------
fixed by these by-laws shall constitute a quorum for the transaction of business
at any meeting of the
- 6 -
<PAGE>
board of directors, provided that if less than a majority of such number of
directors are present at said meeting, a majority of the directors present may
adjourn the meeting at any time without further notice.
SECTION 3.7 MANNER OF ACTING. The act of the majority of the
----------------
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, unless the act of a greater number is required by
statute, these by-laws, or the articles of incorporation.
SECTION 3.8 VACANCIES. Any vacancy occurring in the board of
---------
directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and any directorship resulting from any
increase in the authorized number of directors or otherwise may be filled only
by a majority vote of the directors then in office, though less than a quorum,
and directors so chosen shall hold office for a term expiring at the annual
meeting of shareholders at which the term of office of the class to which they
have been elected.
SECTION 3.9 ACTION WITHOUT A MEETING. Unless specifically
-------------------------
prohibited by the articles of incorporation or by-laws, any action required to
be taken at a meeting of the board of directors, or any other action which may
be taken at a meeting of the board of directors, or of any committee thereof may
be taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all the directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be. Any such consent signed by all the directors or all the members of the
committee shall have the same effect as a unanimous vote, and may be stated as
such in any document filed with the Secretary of State or with anyone else.
SECTION 3.10 COMPENSATION. The board of directors, by the
------------
affirmative vote of a majority of directors then in office, and irrespective of
any personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers, or otherwise. By resolution of the board of directors the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and of committees thereof. No such payment previously
mentioned in this section shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 3.11 COMMITTEES. The board of directors, by
----------
resolution, may create one or more committees and appoint members of the board
of directors to serve on the committee or committees. Each committee shall have
two or more members, who shall serve at the pleasure of the board of directors.
Unless the appointment by the board of directors requires a greater number, a
majority of any committee shall constitute a quorum and a majority of a quorum
is necessary for committee action. A committee may act by unanimous consent in
writing without a meeting and, subject to the provisions of these by-laws or
action by the board of directors, the committee by majority vote of its members
shall determine the time and place of meetings and the notice required therefor.
To the extent specified by the board of directors,
- 7 -
<PAGE>
each committee may exercise all the authority of the board of directors in the
management of the corporation as permitted by the BCA. Each committee shall keep
regular minutes of its proceedings and report the same to the board of
directors.
ARTICLE IV
----------
OFFICERS
--------
SECTION 4.1 NUMBER. The officers of the corporation shall be
------
the president, one or more executive vice-presidents, senior vice-presidents and
vice-presidents (the number thereof to be determined by the board of directors),
a treasurer, a secretary, and such assistant treasurers, assistant secretaries
or other officers as may be elected by the board of directors. Any two or more
offices may be held by the same person, except the offices of president and
secretary; provided, however, that in cases where all of the shares of the
corporation are owned of record by one shareholder and these by-laws provide
that the number of directors shall be one, the offices of president and
secretary may be held by the same person.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The officers of the
----------------------------
corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be convenient. Vacancies
may be filled or new offices created and filled at any meeting of the board of
directors. Each officer shall hold office until a successor shall have been duly
elected and shall have qualified or until the death, resignation, or removal (in
the manner hereinafter provided) of such officer. Election of an officer shall
not of itself create contract rights.
SECTION 4.3 REMOVAL. Any officer elected or appointed by the
-------
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
SECTION 4.4 [RESERVED]
SECTION 4.5 PRESIDENT. The president shall be the chief
---------
executive officer of the corporation. Subject to the control of the board of
directors, he shall in general supervise the business and affairs of the
corporation and he shall see that resolutions and directions of the board of
directors are carried into effect except when that responsibility is
specifically assigned to some other person by the board of directors. Unless
there is a chairman of the board elected by the board from among its members who
is present and who has the duty to preside, the president shall preside at all
meetings of the shareholders and, if a director, at all meetings of the board of
directors. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws or where otherwise required by
- 8 -
<PAGE>
law, the president may execute for the corporation any contracts, deeds,
mortgages, bonds or other instruments which the board of directors has
authorized to be executed or the execution of which is in the ordinary course of
the corporation's business, and he may accomplish such execution either under or
without the seal of the corporation and either alone or with the secretary, any
assistant secretary, or any other officer thereunto authorized by the board of
directors or these by-laws. In general, he shall perform all duties incident to
the office of president and such other duties as from time to time may be
prescribed by the board of directors.
SECTION 4.6 THE VICE-PRESIDENTS. The executive vice-president,
-------------------
senior vice-president, or vice-president (or in the event there be more than one
executive vice-president, senior vice-president or vice-president, each of the
executive vice-presidents, senior vice-presidents or vice-presidents
(collectively the "vice-presidents")) shall assist the president in the
discharge of the president's duties as the president may direct and shall
perform such other duties as from time to time may be assigned by the president
or by the board of directors. In the president's absence, inability or refusal
to act, the executive vice-president, senior vice-president or vice-president
(or in the event there be more than one executive vice-president, senior
vice-president or vice-president, each of the executive vice-presidents, senior
vice-presidents or vice-presidents in the order designated by the board of
directors, or by the president if the board of directors has not made such a
designation, or in the absence of any designation, then in the order of
seniority of tenure of the executive vice-president, the senior vice-president
or vice-president) shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the president. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the corporation or a
different mode of execution is expressly prescribed by the board of directors or
these by-laws, the vice-presidents (or each of them if there is more than one)
may execute for the corporation certificates for its shares and any contracts,
deeds, mortgages, bonds or other instruments which the board of directors has
authorized to be executed, and may further accomplish such execution either
under or without the seal of the corporation and either individually or with the
secretary, any assistant secretary, or any other officer thereunto authorized by
the board of directors according to the requirements of the form of the
instrument.
SECTION 4.7 THE TREASURER AND CHIEF FINANCIAL OFFICER. The
--------------------------------------------
treasurer shall be the principal accounting and chief financial officer of the
corporation. The treasurer shall: (a) have charge of and be responsible for the
maintenance of adequate books of account for the corporation; (b) have charge
and custody of all funds and securities of the corporation, and be responsible
therefor and for the receipt and disbursement thereof; and (c) perform all the
duties incident to the office of treasurer and chief financial officer and such
other duties as from time to time may be assigned by the president or by the
board of directors. If required by the board of directors, the treasurer shall
give a bond for the faithful discharge of all duties in such sum and with such
surety or sureties as the board of directors may determine.
SECTION 4.8 THE SECRETARY. The secretary shall: (a) record the
-------------
minutes of the shareholders' and of the board of directors' meetings in one or
more books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-
- 9 -
<PAGE>
laws or as required by law; (c) be custodian of the corporate records and of the
seal of the corporation; (d) keep a register of the post-office address of each
shareholder which shall be furnished to the secretary by such shareholder; (e)
sign with the president, or a vice-president, or any other officer thereunto
authorized by the board of directors, certificates for shares of the
corporation, the issue of which shall have been authorized by the board of
directors, and any contracts, deeds, mortgages, bonds, or other instruments
which the board of directors has authorized to be executed, according to the
requirements of the form of the instrument, except when a different mode of
execution is expressly prescribed by the board of directors or these by-laws;
(f) have general charge of the stock transfer books of the corporation; and (g)
perform all duties incident to the office of secretary and such other duties as
from time to time may be assigned by the president or by the board of directors.
SECTION 4.9 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
-------------------------------------------------
The assistant treasurers and assistant secretaries shall perform such duties as
shall be assigned to them by the treasurer or the secretary, respectively, or by
the president or the board of directors. The assistant secretaries may sign with
the president, or a vice-president, or any other officer thereunto authorized by
the board of directors, certificates or shares of the corporation, the issue of
which shall have been authorized by the board of directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the board of directors has
authorized to be executed, according to the requirements of the form of the
instrument except when a different mode of execution is expressly prescribed by
the board of directors or these by-laws. The assistant treasurers shall
respectively, if required by the board of directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
SECTION 4.10 SALARIES. The salaries of the officers shall be
--------
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that such officer is
also a director of the corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS DEPOSITS
---------------------------------
SECTION 5.1 CONTRACTS. The board of directors may authorize
---------
any officer or officers, agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
SECTION 5.2 LOANS. No loans shall be contracted on behalf of
-----
the corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the board of directors. Such authority may
be general or confined to specific instances.
- 10 -
<PAGE>
SECTION 5.3 CHECKS, DRAFTS, ETC. All checks, drafts or other
--------------------
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation, shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from time to time
be determined by resolution of the board of directors.
SECTION 5.4 DEPOSITS. All funds of the corporation not
--------
otherwise employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositories as the board of
directors may select.
ARTICLE VI
----------
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
-------------------------------
SECTION 6.1 GENERALLY. The corporation shall have power to
---------
indemnify any persons who were or are parties or are threatened to be made
parties to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that they are or
were directors, officers, employees or agents of the corporation, or are or were
serving at the request of the corporation as directors, officers, employees or
agents of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with such action, suit or proceeding if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. The
corporation shall have the power to indemnify any persons who were or are
parties or are threatened to be made parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that they are or were directors, officers, employees or
agents of any subsidiary corporation or corporations (individually the
"subsidiary" and collectively the "subsidiaries") against expenses, (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by them in connection with such action, suit or proceeding
if they acted in good faith and in a manner that they reasonably believed to be
in or not opposed to the best interests of the corporation and/or the respective
subsidiary or subsidiaries, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the persons did not act in good faith or in a
manner which they reasonably believed to be in or not opposed to the best
interests of the corporation, a subsidiary or the subsidiaries, as the case may
be, and with respect to any criminal action or proceeding, had reasonable cause
to believe that their conduct was unlawful.
- 11 -
<PAGE>
SECTION 6.2 DERIVATIVE ACTIONS. The corporation shall have
-------------------
power to indemnify any persons who were or are parties or are threatened to be
made parties to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that they are or were directors, officers, employees or agents of the
corporation, or are or were serving at the request of the corporation as
directors, officers, employees or agents of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by them in connection with the defense or
settlement of such action or suit if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such persons shall have been adjudged to be
liable for negligence or misconduct in the performance of their duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that despite the adjudication
of liability but in view of all the circumstances of the case, such persons are
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. The corporation shall have the power to indemnify any person
or persons who were or are parties or are threatened to be made parties to any
threatened, pending or completed action or suit by or in the or right of any of
the subsidiaries to procure a judgment in its favor by reason of the fact that
such persons are or were directors, officers, employees or agents of any one or
more of the subsidiaries, or are or were serving at the request of the
corporation as directors, officer, employees or agents of such subsidiary or
subsidiaries, against expenses (including attorneys' fees), actually and
reasonably incurred by them in connection with the defense or settlement of such
action or suit if they acted in good faith and in a matter they reasonably
believe to be in or not opposed to the best interests of the subsidiary or
subsidiaries, as the case may be, except that no indemnification shall be made
with respect to any claim, issue or matter as to which such persons shall have
been adjudged to be liable for negligence or misconduct in the performance of
their duty to the subsidiary or subsidiaries, as the case may be, unless and
only to the extent that the court in which such action or suit was brought shall
determine upon application that despite the adjudication of liability but in
view of all of the circumstances of the case, such persons are fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
SECTION 6.3 MANDATORY INDEMNIFICATION. To the extent that a
--------------------------
director, officer, employee or agent of a corporation, or any subsidiary or
subsidiaries, as the case may be, has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in Sections 6.1 and
6.2, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
SECTION 6.4 FIDUCIARY DUTY. A director of the corporation
---------------
shall not be personally liable to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (a) for any breach of the director's duty of loyalty to the
corporation or its shareholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 8.65 of the BCA, as the
- 12 -
<PAGE>
same exists or hereafter may be amended, or (d) for any transaction from which
the director derived an improper personal benefit.
SECTION 6.5 AUTHORIZATION. Any indemnification under Sections
-------------
6.1 and 6.2 (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
or she has met the applicable standards of conduct set forth in Sections 6.1 and
6.2. Such determination shall be made (a) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the shareholders.
SECTION 6.6 EXPENSES. Expenses incurred in defending a civil
--------
or criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding, as authorized by
the board of directors in the specific case, upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount,
unless it shall ultimately be determined that he is entitled to be indemnified
by the corporation as authorized in this Section.
SECTION 6.7 NONEXCLUSIVE. The indemnification provided by this
------------
article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. The corporation shall have power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by him or her in
any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify him or her against such
liability under the provisions of this article.
ARTICLE VII
-----------
CERTIFICATES FOR SHARES
AND THEIR TRANSFER
------------------
SECTION 7.1 CERTIFICATES FOR SHARES. Certificates representing
-----------------------
shares of the corporation shall be signed by the chairman of the board of
directors, if any, or the president or a vice president and by the treasurer or
an assistant treasurer or the secretary or an assistant secretary and may be
sealed with the seal, or a facsimile of seal, of the corporation.
- 13 -
<PAGE>
If a certificate is countersigned by a transfer agent or a registrar, other than
the corporation itself or its employee, any other signatures or countersignature
on the certificate may be facsimile.
If the corporation is authorized and does issue shares of more
than one class, every certificate representing shares issued by the corporation
shall set forth on the face or back of the certificate a full summary or
statement of all of the designations, preferences, qualifications, limitations,
restrictions, and special or relative rights of the shares of each class
authorized to be issued. If the corporation is authorized to issue any preferred
or special class in series, every certificate representing such shares issued by
the corporation shall set forth on the face or back of the certificate a full
summary or statement of all of the variations in the relative rights and
preferences between the shares of each such series so far as the same have been
fixed and determined and the authority of the board of directors to fix and
determine the relative rights and preferences of subsequent series. Such
statement may be omitted from the certificate if it shall be set forth upon the
face or back of the certificate that such statement, in full, will be furnished
by the corporation to any shareholder upon request and without charge.
Each certificate representing shares shall also state that the
corporation is organized under the laws of the State of Illinois; the name of
the person to whom issued; the number and class of shares and the designation of
the series, if any, which such certificate represents; the par value of each
share represented by such certificate, or a statement that such shares are
without par value. Each certificate representing shares shall be consecutively
numbered or otherwise identified.
The name and address of each shareholder, the number and class
of shares held and the date on which the certificates for shares were issued
shall be entered on the books of the corporation. The person in whose name
shares stand on the books of the corporation shall be deemed the owner thereof
for all purposes as regards the corporation. No certificate shall be issued for
any share until such share is fully paid.
SECTION 7.2 LOST CERTIFICATES. If a certificate representing
-----------------
shares of the corporation is alleged to have been lost, stolen or destroyed, the
board of directors may in its discretion, except as may be required by law,
direct that a new certificate be issued. In connection with the issuance of any
such new certificate, the may require the owner of the lost, stolen or destroyed
certificate or his or her legal representative to provide such indemnification,
and may impose such other reasonable requirements, as the shall deem necessary
or desirable.
SECTION 7.3 TRANSFERS OF SHARES. Upon surrender to the
---------------------
corporation or the transfer agent of the corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto, and the old certificate shall be
cancelled and the transaction recorded upon the books of the corporation.
- 14 -
<PAGE>
ARTICLE VIII
------------
FISCAL YEAR
-----------
The fiscal year of the corporation shall begin on January 1
and end on December 31 of each year.
ARTICLE IX
----------
DIVIDENDS
---------
The board of directors may from time to time declare, and the
corporation may pay, dividends on its outstanding and treasury shares in such
manner and upon such terms and conditions as provided by law and the articles of
incorporation.
ARTICLE X
---------
SEAL
----
The corporate seal, if any, shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Illinois." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any manner reproduced.
ARTICLE XI
----------
WAIVER OF NOTICE
----------------
Whenever any notice is required to be given under these
by-laws or under the provisions of the articles of incorporation or under the
provisions of the BCA, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
- 15 -
<PAGE>
ARTICLE XII
-----------
AMENDMENTS
----------
The power to make, alter, amend, or repeal the by-laws of the
corporation shall be vested in the board of directors. The by-Laws shall be
amended, from time to time, exclusively by a resolution adopted by a majority of
the board of directors. The by-laws may contain any provisions for the
regulation and management of the affairs of the corporation not inconsistent
with law or the articles of incorporation.
ARTICLE XIII
------------
REPAYMENT OF DISALLOWED REIMBURSEMENTS
OR EXCESS COMPENSATION
----------------------
Any payments made to a director, officer or employee of the
corporation, including but not limited to, salary, commission, bonus, interest,
rent, travel, or entertainment expense incurred by such director, officer or
employee, which shall be disallowed in whole or in part as a deductible expense
by the Internal Revenue Service, shall be reimbursed by such person to the
corporation to the full extent of such disallowance.
It shall be the duty of the board of directors to enforce
payment of all such amounts disallowed. In lieu of payment by such person,
subject to the determination of the board of directors, proportional amounts may
be withheld from the future compensation payments of such person until the
amount owed to the corporation has been recovered.
- 16 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements of Wintrust Financial Corporation
for the six months ended June 30, 1998 and 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> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 28,869 34,463
<INT-BEARING-DEPOSITS> 33,096 2,018
<FED-FUNDS-SOLD> 31,235 56,590
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 152,313 59,501
<INVESTMENTS-CARRYING> 5,001 5,001
<INVESTMENTS-MARKET> 4,980 4,925
<LOANS> 852,241 650,085
<ALLOWANCE> 5,856 4,432
<TOTAL-ASSETS> 1,176,546 856,945
<DEPOSITS> 1,063,590 772,174
<SHORT-TERM> 1,056 0
<LIABILITIES-OTHER> 14,314 8,554
<LONG-TERM> 26,603 11,253
0 0
0 0
<COMMON> 8,149 8,020
<OTHER-SE> 62,834 56,944
<TOTAL-LIABILITIES-AND-EQUITY> 1,176,546 856,945
<INTEREST-LOAN> 34,600 24,890
<INTEREST-INVEST> 6,747 3,569
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 41,347 28,459
<INTEREST-DEPOSIT> 23,604 15,954
<INTEREST-EXPENSE> 24,433 16,418
<INTEREST-INCOME-NET> 16,914 12,041
<LOAN-LOSSES> 2,340 1,554
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 17,399 12,778
<INCOME-PRETAX> 847 229
<INCOME-PRE-EXTRAORDINARY> 2,005 1,855
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,005 1,855
<EPS-PRIMARY> 0.25 0.25
<EPS-DILUTED> 0.24 0.24
<YIELD-ACTUAL> 3.38 3.49
<LOANS-NON> 5,399 849
<LOANS-PAST> 2,253 969
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 2,456 2,066
<ALLOWANCE-OPEN> 5,116 3,636
<CHARGE-OFFS> (1,835) (787)
<RECOVERIES> 235 29
<ALLOWANCE-CLOSE> 5,856 4,432
<ALLOWANCE-DOMESTIC> 4,553 2,864
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,303 1,568
</TABLE>
