"Indeed, in true entrepreneurial spirit, community banks have used
opportunities provided by the mergers of the past decade to their
advantage in attracting customers that are either ill-served or ignored
by larger, less responsive banks. Community banks have also responded
well to technological challenges.
"Clearly, many franchises will succeed by continuing to focus on
traditional banking. ... Some of the new technologies are beguiling,
but we should not lose sight of the exceptional economic value of
franchises based on old-fashioned, face to face interpersonal banking.
The newer technologies may be awesome but human nature does not change
- we still appreciate a face across the desk more than a computer
screen.
"I am confident, as we enter a new century, that community banks will
show they are up to the task and will remain a vital part of their
local communities and our financial system."
- Alan Greenspan
Chairman of the Federal Reserve Board
March 8, 2000
<PAGE>
SELECTED GROWTH TRENDS
**** Five Year Asset Growth Bar Chart OMITTED ****
**** Three Year Earnings Per Share Growth Bar Chart OMITTED ****
**** Three Year Net Income Growth Bar Chart OMITTED ****
**** Three Year Pre-Tax Income Growth Bar Chart OMITTED ****
**** Five Year Book Value Per Common Share Bar Chart OMITTED ****
**** Three Year Return on Average Equity Bar Chart OMITTED ****
- 2 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data
(at end of year):
Total assets $ 1,679,382 $ 1,348,048 $ 1,053,400 $ 706,037 $ 470,890
Total deposits 1,463,622 1,229,154 917,701 618,029 405,658
Total net loans 1,278,249 992,062 712,631 492,548 258,231
Long-term debt and notes payable 39,400 31,050 20,402 22,057 10,758
Total shareholders' equity 92,947 75,205 68,790 42,620 40,487
- ------------------------------------------------------------------------------------------------------------------------
Selected Statements of Operations Data:
Net interest income $ 47,734 $ 36,764 $ 26,772 $ 14,882 $ 9,700
Total net revenues 57,542 44,839 31,716 22,414 18,244
Income (loss) before income taxes 14,151 4,709 1,058 (2,283) 1,002
Net income (loss) 9,427 6,245 4,846 (973) 1,497
Net income (loss) per common share-basic 1.14 0.77 0.62 (0.16) 0.27
Net income (loss) per common share-diluted 1.10 0.74 0.60 (0.16) 0.24
- ------------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios and Other Data:
Performance Ratios:
Net interest margin 3.54% 3.43% 3.41% 2.91% 2.96%
Core net interest margin (1) 3.64 3.45 3.41 2.91 2.96
Net interest spread 3.23 3.00 2.92 2.40 2.41
Non-interest income to average assets 0.66 0.69 0.58 1.34 2.36
Non-interest expense to average assets 2.65 3.04 3.18 4.05 4.37
Net overhead ratio 2.00 2.36 2.60 2.71 2.01
Return on average assets 0.63 0.53 0.56 (0.17) 0.40
Return on average equity 11.58 8.68 7.88 (2.33) 4.66
Average total assets $ 1,496,566 $ 1,177,745 $ 858,084 $ 562,244 $ 362,125
Average shareholders' equity 81,381 71,906 61,504 41,728 31,173
Ending loan-to-deposit ratio 87.3% 80.7% 77.7% 79.7% 63.7%
Average loan-to-average deposit ratio 86.6 80.1 80.1 69.8 61.3
Average interest earning assets to
average interest bearing liabilities 107.0 108.9 109.9 110.7 111.4
Asset Quality Ratios:
Non-performing loans to total net loans 0.54% 0.55% 0.59% 0.36% 0.74%
Non-performing assets to total assets 0.41 0.45 0.40 0.25 0.41
Allowance for possible loan losses to:
Total loans 0.69 0.71 0.72 0.74 1.07
Non-performing loans 126.10 129.66 121.64 204.15 143.91
Common Share Data at end of year:
Market price per common share $ 15.25 $ 19.63 $ 17.00 $ 14.75 N/A
Book value per common share 10.60 9.23 8.47 6.45 $ 6.94
Other Data at end of year:
Number of:
Bank subsidiaries 6 6 6 5 4
Non-bank subsidiaries 3 2 1 1 1
Banking offices 24 21 17 14 11
========================================================================================================================
<FN>
(1) The core net interest margin excludes the net impact of the Company's 9.00%
Cumulative Trust Preferred Securities offering and certain discretionary
investment leveraging transactions.
</FN>
</TABLE>
- 3 -
<PAGE>
TO OUR FELLOW SHAREHOLDERS,
Welcome to our fourth annual report. Let us start out by saying 1999 was a
terrific year for Wintrust Financial Corporation. We'd like to sincerely thank
all of our employees who went above and beyond in providing our customers with
the best service around. Thanks also to the more than 100 directors of Wintrust
Financial Corporation and our subsidiaries whose advice and contacts have helped
us profitably build our business. And we would like to thank our customers for
trusting us to manage and grow their financial assets. We will continue to do
everything in our power to retain your confidence. And finally, thanks to our
shareholders, many of whom are also customers, for keeping us focused on what we
do best.
In just our third full year as a corporation, we made great progress on a number
of fronts. As a young company, we have finally turned the corner in terms of
creating the proper balance between our financial stability and growth.
Our earnings, especially our core earnings, are now increasing very quickly as
our de novo banks mature, we grow into our overhead and we reap the benefits of
becoming an asset-driven organization. We have also been able to achieve
something that few banks around the country can brag about these days--our
earnings, revenue and assets are all still growing at a very strong rate. We
will continue to purposefully grow our de novo banks, our premium finance
business, our trust and investment business and the financing and fee business
generated by our newest subsidiary, Tricom, Inc.
When reviewing earnings and revenue growth, Wintrust Financial Corporation is
solidly in the top quartile in both categories amongst all publicly traded bank
stocks. When earnings and revenue growth are looked at together, Wintrust
Financial Corporation is clearly one of the top performers in the country.
We have achieved these results, in part, due to our belief in and strict
adherence to the operating philosophy and principles noted below. These guiding
strategies help our community banks and other subsidiaries effectively compete
with the bigger banks and larger corporations who are our competition. These
principles are also our road map for long term growth in shareholder equity.
**** Five Year Net Revenue Growth Bar Chart OMITTED ****
Here are those operating and growth principles that have been and will continue
to be the key to our success:
o Provide the best customer service-- bar none
o Open/operate de novo community banks in affluent markets where deposits per
household leverage is high
o Manage each community bank locally with strong participatory boards,
experienced local management and local decision making
o Be lean and responsive in our decision making and organizational structure
o Employ fewer, but more highly qualified and productive individuals
o Build employee productivity and loyalty with stock incentives and options
o Build customer bases and market share with aggressive (and entertaining!)
marketing and loyalty building programs
o Utilize technology (the "great equalizer") to more effectively deliver
products and services
o Utilize the internet as a new distribution vehicle for current products and
a portal for marketing and distributing new products
o Be asset-driven (i.e. generate more loans than deposits) to augment our
community banks' loan portfolios and maximize our profitability and growth
potential
o Take advantage of the operational and cross-marketing synergy provided by
our diverse organizational structure (banks, Wintrust Asset Management,
First Insurance Funding, Tricom, Inc.)
o Evaluate the acquisition of existing community banks in high opportunity
markets and financial services firms to expand our portfolio of asset
niches and fee revenues
- 4 -
<PAGE>
Let us not forget that we are still an extremely young company most of which has
been grown on a de novo basis. Nine years ago none of our banks existed. On
average our six community banks are less than five years old.
A significant investment in people, facilities, operations and marketing is
necessary to launch each new bank and to reach a critical mass in market share.
Each new bank generally takes about 13-24 months to become profitable. That de
novo burden reduces the Company's earnings and return on equity in the early
years of operation. However, in our short life, we have been able to reach the
number two market share in our mature banks' primary markets and these banks are
now achieving good profitability.
As our young bank group continues to mature, the Company's earnings have
increased markedly. The progression of each bank up the earnings curve has been
consistent. And it bodes well for the future of Wintrust as our young companies
continue to mature and improve their earnings.
Impressive as this is, we have only begun the climb up the mountain. As we said
in our fourth quarter letter to shareholders,
"While we feel that we have made excellent progress on our journey to
improve profitability and franchise value, we feel in some respect like a
mountain climber. That is, after climbing partially up the `mountain' we
look down and realize how far we have come in such a short period of
time, but we look up and see that we've only begun our climb and have
many more lofty goals to reach."
Nevertheless, we sure are enjoying the climb!
**** Five Year Number of Bank Facilities Bar Chart OMITTED ****
We are extremely optimistic about the future. Our continued growth in assets and
earnings and maturation of our young de novo franchises bode well for the future
of Wintrust Financial Corporation and its investors.
Please enjoy the next sections of our 1999 Annual Report, which highlight the
following areas:
o Where We Have Come From
o Year in Review
o Where We are Going
o Audited Consolidated Financial Statements and Notes
o Management's Discussion and Analysis of Financial Condition and Results of
Operations
o Directors and Officers Listing
o Corporate Information
We are grateful for your support of our organization and are enthusiastic about
making the year 2000 another good year in terms of growth in earnings and
assets.
Thank you for being a shareholder.
Sincerely,
/s/ John S. Lillard /s/ Edward J. Wehmer
John S. Lillard Edward J. Wehmer
Chairman President & CEO
- 5 -
<PAGE>
The American Banker recently published its "Century Edition", a book that covers
the last 100 years of banking. We thought you would enjoy some snippets from
this publication that illustrate how the fundamentals of banking really haven't
changed in the last 100 years. It illustrates that the roots of our kind of
community banking stretch far back into the early 1900's.
o "The first decade of the 1900's set a pattern that endured throughout the
century . . . the invisible hand of economics was not the only force at
work. There was also the interplay of people and personalities, visions and
ideas and ideals--and banking through it all remained very much a
people-to-people enterprise.
o "The battle between the big banks and country banks was a recurring motif.
For decades it raged . . . .
o "Though his personal effort to attract new business was successful . . .
Giannini (founder of Bank of America) did something else unheard of in the
stodgy, elitist banking community of his day--advertise. . . . In 1907 . .
. introduced advertising that was probably banking's first branding
campaign. The bank took the `ice' out of service read one early ad. We
endeavor to treat every depositor just as we would like to be treated."
**** Graphic Advertisement OMITTED ****
**** Lake Forest Bank & Trust Logo OMITTED ****
Our story officially began in December 1991 when a group of local residents,
business people and experienced bankers decided that there was a real need for
an independent community bank in Lake Forest, Illinois. All of the local
financial institutions had been taken over by big banks. Decisions were made for
the betterment of the bank's profitability at the expense of the customer.
Operating out of a small storefront on Western Avenue in downtown Lake Forest
with no customers, but armed with a firm belief in the philosophy of offering
superior customer service by a locally run community bank, Lake Forest Bank &
Trust ran our first ad.
Approximately 30,000 customer households and almost $1,700,000,000 in assets
later, the idea of a small community bank has blossomed into one of the fastest
growing community bank groups in the country. Here are some of our highlights:
o Eight year-old community focused banking organization
o Six de novo community banks with 25 locations
o Located in Chicago's most affluent markets
o Wintrust Asset Management Company (trust and investments)
o First Insurance Funding Corp. (commercial premium finance)
o Tricom, Inc. (payroll funding and administrative services)
o Fastest growing de novo bank group in Illinois
- 6 -
<PAGE>
**** Map of Wintrust Financial Corporation Locations OMITTED ****
- 7 -
<PAGE>
YEAR IN REVIEW
1999 Highlights
Wintrust has had a terrific year. We have a lot of good news to talk about. Here
is a short listing of some of your Company's accomplishments in 1999:
o Wintrust generated record earnings for the year, up 51%.
o Our 1999 pre-tax operating earnings increased 201% over 1998 and were over
13 times higher than in 1997.
o During 1999, we grew our assets by 25% over a year ago and since the
inception of the first bank in December 1991, our annual compound growth
rate has been 54%.
o Accordingly, we continue to be one of the fastest growing de novo bank
groups in the country, not only in assets, but in earnings as well.
o Our return on average equity increased 33% for the year and it stood at
12.66% for the fourth quarter of 1999.
o During 1999, all of our community banks reached record asset levels and
improved upon their profitability.
o First Insurance Funding had record growth in premium finance receivables
volume. We now are one of the top five premium finance companies in the
industry.
o Wintrust Asset Management, our trust and investment subsidiary, increased
its assets under management to $442 million from $273 million at the end of
1998.
o In October, we acquired Tricom, Inc. which adds another earning asset
niche, bolsters our fee revenue and is accretive to our earnings per share.
o Our asset quality remains strong, as the level of non-performing assets is
very manageable and favorable compared to our peer group.
o We recently announced the commencement of dividend payments with our first
ever semi-annual cash dividend of $0.05 per common share paid in February
2000.
o Believing our stock to be undervalued, your Board of Directors also
recently announced its approval of a stock buyback program authorizing the
purchase of up to 300,000 shares of the Company's common stock.
**** Five Year Deposit Growth Bar Chart OMITTED ****
THE "BIG MO"
We are truly pleased with the progress made in 1999 and think we have
significant momentum to carry us forward into the coming years. You can feel it
in our community banks and the offices of First Insurance Funding, Wintrust
Asset Management and Tricom. You can feel it in hallways around our
organization. We have "turned the corner" so to speak and are looking forward to
a very strong 2000.
OUR HIDDEN EARNINGS POTENTIAL IS STARTING TO SHINE.
The true indicator of our performance can be seen in the comparison of pre-tax
earnings. Prior to 1999, a large portion of our net income was a result of
recording prior net operating tax loss benefits. However, in 1999, our pre-tax
operating earnings reached $14.2 million, an increase of $9.4 million, or 201%,
over the same twelve-month period a year ago, and an increase of $13.1 million
or 13 times over the 1997 pre-tax earnings level. This clearly illustrates how
strongly our core earnings have improved.
Our strategy of investing heavily in the start-up of our de novo banks continues
to pay off as our banks mature and our core earnings accelerate. Also, the
acquisition of Tricom has been immediately accretive to our bottom line since
its addition in October 1999.
- 8 -
<PAGE>
OUR FOURTH QUARTER "RUN RATE" INDICATES EVEN GREATER EARNINGS GROWTH.
As one of the few bank groups in the country that is aggressively growing both
assets and earnings, looking at our "total year" numbers is somewhat misleading
and can understate our true performance. If we were to annualize the fourth
quarter's net income and earnings per share and project those out for a year,
here's where we stand before any improvement in performance:
o Net after-tax income of $11.2 million
o Diluted earnings per share of $1.28
This would represent a 19% pro-forma increase in net income and a 16% pro-forma
increase in earnings per share over 1999 results, before any improvement. Most
companies would be happy with those increases in year-over-year results but we
have plans to continue to grow the earnings at a higher rate. If we were to
factor in growth, which is reasonable given our track record, the continued
maturation of our young franchise and the positive impact that the Tricom
acquisition is expected to have on our results, we conclude that Wintrust
Financial Corporation should have another impressive year in 2000.
**** 1999 Quarterly Earnings Per Share Growth Bar Chart OMITTED ****
WHY IS BEING "ASSET DRIVEN" SUCH AN IMPORTANT ADVANTAGE?
During 1999, we accomplished our objective of becoming an "asset driven"
organization. That is, the generation of loans is outpacing our growth in
deposits. This is beneficial to the Company because it allows us to immediately
invest new deposit dollars in loans which bear higher interest rates than
alternative short-term investments. Being asset driven also allows us to be more
competitive in designated markets where we want to increase market share because
we are generating sufficient higher yielding assets to invest the new deposits.
Because of our strong loan generation during 1999, we were able to provide the
banks with additional liquidity by selling approximately $69 million of premium
finance receivables to an unrelated financial institution at a pre-tax gain of
over $1.0 million. We anticipate continuing this practice in the future as we
balance growth and earnings.
Being asset driven also allows us to grow to a size that most community banks
can never reach. We think the typical community bank can generate local consumer
and small business loans that represent about 50-60% of their deposit base
without compromising credit quality. We are able to augment our community banks'
loan portfolios with additional earning assets generated by our specialty
finance niches. This not only allows us to improve the profitability of our
community banks by optimizing their earning asset base, but also allows them to
diversify their loan portfolios. Our ability to compete in the future will be
materially aided by this asset strategy.
**** Five Year Loan Growth Bar Chart OMITTED ****
We currently generate additional loan volume from the following specialty asset
niches:
o Commercial premium finance lending
o Temporary staffing industry financing
o Indirect auto lending
o Equipment leasing
o Condominium association lending
o Mortgage warehouse lending
We are also investigating additional specialty lending areas either by de novo
start-up or acquisition.
- 9 -
<PAGE>
PERFORMANCE VERSUS GOALS
We have set high standards for the Company and we want to be held accountable
for our performance and the attainment of our goals. Here are the "high
performing bank" goals that we have set for the Company and by which you should
measure us:
o Core Net Interest Margin of 4 - 4 1/2 %
o Net Overhead Ratio of 1 1/2 - 2 %
o Return on Assets of 1 1/2 %
o Return on Equity of 20 - 25 %
The table below tracks the performance of these goals and our asset quality for
each of the quarters in 1999 as well as the fourth quarter of 1998. We have
generally experienced improvement in these performance measures and have
actually surpassed some of our goals already in our more established banks.
NET INTEREST MARGIN
Growing the net interest margin continues to be our biggest challenge,
especially in a period of rising interest rates. During 1999, the prime rate
increased three times (and twice again through March 2000) and yields on U.S.
Treasury bills steadily increased necessitating the need to raise certain
variable deposit rates. This put increasing pressure on our net interest margin
as our portfolio of assets generally takes longer to re-price than our deposit
base. Over time, however, we believe that higher interest rates will be helpful
to us in creating a higher net interest margin.
**** Four Year Net Interest Margin Bar Chart OMITTED ****
Controlling our funding costs and continuing to be a strong originator of a
diversified loan portfolio is key to us achieving our net interest margin goal.
Recently, our purchase of Tricom and the Company's new Community Advantage(TM)
specialty asset generation program that provides lending and deposit services to
condominium, homeowner and community associations have assisted in improving our
net interest margin. These new sources of business will provide good growth for
our organization and diversify our loan portfolio.
NET OVERHEAD RATIO
We have worked hard to improve upon our cost control results. During the third
quarter of 1999, we attained our goal of operating at a net overhead ratio of
less than 2%. And in the fourth quarter we improved on that performance measure
even more. As we continue to grow into our existing overhead, we more
efficiently leverage our facilities and staff.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------
December 31, September 30, June 30, March 31, December 31,
1999 1999 1999 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Core Net Interest Margin (1) 3.65% 3.59% 3.62% 3.66% 3.41%
Net Overhead Ratio 1.89% 1.91% 2.04% 2.17% 2.24%
Return on Average Equity 12.66% 12.46% 11.55% 9.75% 11.09%
Return on Average Assets 0.68% 0.65% 0.62% 0.55% 0.63%
Non-Performing Assets
as a percent of total assets 0.41% 0.38% 0.33% 0.37% 0.45%
Non-Performing Core Banking Loans as
a percent of Total Core Banking Loans 0.32% 0.29% 0.28% 0.28% 0.38%
===============================================================================================================================
<FN>
(1) By definition, our Core Net Interest Margin excludes certain discretionary
investment leveraging transactions and the net impact of the Company's
9.00% Cumulative Trust Preferred Securities offering.
</FN>
</TABLE>
- 10 -
<PAGE>
**** Four Year Net Overhead Ratio Bar Chart OMITTED ****
ASSET QUALITY
Your management understands that maintaining good credit quality is extremely
important to overall profitability. To that end, we are pleased to report that
non-performing asset levels remain relatively low. In fact, less than 30 credits
comprise the core non-performing loans total. The small number of such
non-performing loans allows management to effectively monitor the status of
these credits. Careful underwriting of loans and diversification of credit risks
contributes to the low level of problem loans.
RETURN ON EQUITY
Given the progress noted above, our earnings have improved and our annual return
on equity has increased to 11.6% in 1999, up from 8.7% in 1998. By balancing
both growth and profitability, we should continue to make progress towards
attaining our financial goals.
ADDITIONAL COMMON EQUITY WAS RAISED
In November 1999, we completed a private placement of 352,942 shares of
additional common stock. The shares sold were priced at market and raised net
proceeds of approximately $6 million. This offering was a cost-effective way to
raise core capital needed for continued growth of our young company. We are
committed to maintaining an efficient capital structure as we go forward.
**** Five Year Total Shareholders' Equity Bar Chart OMITTED ****
WINTRUST DECLARES ITS FIRST DIVIDEND
In January 2000, the Wintrust Board of Directors approved the first semi-annual
cash dividend in the amount of $0.05 per share. The dividend was paid in
February to shareholders of record as of February 10, 2000. This dividend was
possible as a result of our increasing profitability levels and we are pleased
to be commencing the payment of dividends. Annualized, this dividend payment
represents about 9% of 1999's earnings. While most mature banking companies pay
higher levels of dividends, as a younger, growth oriented company, we still
intend to retain the majority of our earnings to fund future growth and continue
to build our franchise. There are still too many good opportunities for future
growth and profitability to stop investing in our expansion now.
STOCK BUYBACK HAS BEEN AUTHORIZED
Also in January 2000, the Wintrust Board approved a stock buyback program
authorizing the purchase of up to 300,000 shares, or approximately 3%, of the
Company's common stock in open market or privately negotiated transactions.
Repurchased shares will be available for issuance under the Company's stock
incentive plan, employee stock purchase plan and other corporate purposes. Such
purchases, at a time when our stock is statistically cheap, would augment
shareholder value.
WHAT'S HAPPENING AT THE BANKS AND NON-BANK SUBSIDIARIES?
Lake Forest Bank & Trust celebrated its eighth birthday in 1999. Total assets
reached $499 million, up 13% versus a year ago. This strengthens our position as
the number two bank in the market. The bank's newest facility, Bank of
Highwood-Fort Sheridan, recently opened. LFB&T now operates seven facilities in
the area including West Lake Forest, Lake Bluff, Highwood and drive-through
facilities.
- 11 -
<PAGE>
**** Picture of Hinsdale Bank & Trust's Staff OMITTED ****
Hinsdale Bank & Trust enjoyed its sixth year of operation, while its Clarendon
Hills branch (Clarendon Hills Bank) celebrated its third birthday and its
Western Springs branch (The Community Bank of Western Springs) is now two years
old.
Total assets increased 25% to $350 million. In total, the bank operates four
facilities including a drive-through/walk-up in downtown Hinsdale. In 2000, we
anticipate opening a separate drive-through/walk-up remote ATM across the
railroad tracks from the Clarendon Hills Bank and a new branch in another nearby
community.
**** Picture of North Shore Community Bank & Trust's Staff OMITTED ****
North Shore Community Bank & Trust reached $360 million in total assets, up 22%
from last year, while it celebrated its fifth birthday. The bank operates seven
facilities in the affluent north shore markets of Wilmette, Winnetka, Glencoe
and now Skokie. Its newest branch was opened in October 1999 in the heart of
Skokie. It has a perfect location with two other big banks located on opposite
corners. That makes it even easier for the big bank refugees to find our safe
haven!
**** Picture of Libertyville Bank & Trust's Staff OMITTED ****
Libertyville Bank & Trust, our fourth community bank in its fourth year of
operation, increased its assets by 18% to $219 million. LB&T added its third
facility in late 1998 when it opened its new walk-in office in southern
Libertyville and is planning to open a new branch in a nearby community in 2000.
**** Picture of Barrington Bank & Trust's Staff OMITTED ****
Barrington Bank & Trust experienced terrific growth in only its third full year
of operation. Total assets reached $177 million, an increase of 48% versus a
year ago. In
- 12 -
<PAGE>
addition to growing its core banking business, this bank enjoyed growth from the
development of the previously mentioned Community Advantage(TM) program. BB&T is
also planning to open a new branch during the latter half of 2000.
**** Picture of Crystal Lake Bank & Trust's Staff OMITTED ****
Crystal Lake Bank & Trust, our youngest bank, turned the ripe old age of two in
late 1999. Its assets reached $89 million in 1999, up 68% versus a year ago. In
September 1999, they opened a new full service facility in south Crystal Lake
and now have a total of three facilities.
WINTRUST ASSET MANAGEMENT COMPANY
Wintrust Asset Management Company, our trust and investment subsidiary,
continues to increase its assets under management and is showing improvement
towards profitability. By the end of the fourth quarter of 1999, assets under
management were just over $440 million.
**** Three Year Trust Revenue Growth Bar Chart OMITTED ****
For the year, Wintrust Asset Management generated approximately $1.2 million in
fee income and is now generating in excess of $120,000 in monthly fee income.
Revenue generated from our trust and investment activities is an important
source of fee income that will help Wintrust diversify its revenue base.
We have assembled a very qualified staff of experienced trust, financial
planning, administrative and investment professionals at Wintrust Asset
Management Company and they are poised to move the business to a higher level of
growth in assets under management.
**** First Insurance Funding Corp. Logo OMITTED ****
HO-HUM.
FIRST INSURANCE FUNDING CORP. HAD ANOTHER RECORD YEAR.
Coming off its third year of better than thirty percent annual growth, FIRST
Insurance Funding Corp. had a remarkable 1999. With approximately $690 million
in volume for the twelve months ending December 31, 1999, FIRST's volume grew by
40% over 1998. This record growth comes as a result of continued investments in
technology, improved efficiency, and targeted sales and marketing. This growth,
coupled with increased automation, reduced per unit costs. In 2000, we expect
continued expansion that will be sourced from internal growth and from our
alliance with Premium Finance Holdings, a sales organization with which FIRST
recently entered into a joint marketing agreement.
Additional growth will come from FIRST's pursuit of alternate distribution
channels, national endorsements and continued investments in technology and
automation.
Also in 2000, FIRST will be moving into a new headquarters building that was
purchased in Northbrook, Illinois. This will lower their occupancy cost and
provide much needed room for growth.
- 13 -
<PAGE>
FIRST's new internet initiative will bring its customers a host of services
currently unavailable in the premium finance industry. The improved service and
accessibility offered by this new web site will allow FIRST's customers to more
easily and efficiently quote, process and record loans, helping FIRST maintain
its low overhead costs while growing its business. And providing financial
services to the agents and the agent's customers is a value-added benefit that
FIRST can offer.
**** Tricom Funding Logo OMITTED ****
OUR NEWEST FAMILY MEMBER -- TRICOM, INC.
Milwaukee-based Tricom, Inc. provides short-term accounts receivable financing
and value-added out-sourced administrative services, such as data processing of
payrolls, billing and cash management services, to clients in the temporary
staffing industry. In October 1999, we purchased 100% of the common stock of
Tricom and are now proud to have them operating as a member of the Wintrust
family.
By virtue of Wintrust's funding resources, we can provide Tricom with additional
capital needed to expand its lending services in a national market. Tricom's
revenue is derived primarily from interest income from lending activities and
fee revenue from administrative services provided to its clients. The
acquisition is consistent with our stated strategy of adding a variety of
diversified earning asset and fee-based business niches to augment our
community-based banking revenues.
1999 was a year when many new highs were recorded at Tricom, from new revenue
and profitability highs to record numbers of clients served and checks
processed. Year-end W-2's processed grew to 70,000 this year, almost 17% above
last year's record of 60,000. The 400,000+ payroll checks processed, also a new
high, meant that each week over 8,000 temporary help workers from around the
country received their paychecks from us. Tricom's staff expanded to over 50
full time people for the first time in its history. Outstanding receivables
exceeded $20 million during 1999 for the first time in Tricom's nine year
history leading to historically high revenue levels.
This acquisition is anticipated to be accretive by at least $0.08 per diluted
common share in the first full year subsequent to the closing date, and
accretive by at least $0.14 per diluted common share if the transaction is
evaluated based on cash basis earnings per share.
This has been a growing business throughout the economic cycle, and the
potential for further growth is outstanding. The credit loss experience of
Tricom's strong management team has been excellent. We are very pleased to have
Tricom as part of the Wintrust team and look forward to their contributions in
the years to come.
- 14 -
<PAGE>
WHERE WE ARE GOING
GROWTH STRATEGIES THAT WORK
Wintrust is one of the fastest growing publicly traded bank groups in the
country. Future growth will come from a variety of current strategies that have
proven successful and from new strategies:
o Growing our current franchises by adding new customers (increased market
share) and new branches (new markets);
o Introducing new de novo banks in high opportunity markets that contain the
right mix of demographic and competitive variables (high wealth, high big
bank competition, low community bank competition);
o Acquiring existing community banks in high opportunity markets;
o Acquiring financial services firms to expand our portfolio of asset niches
and fee revenues; and,
o Utilizing the internet as a new distribution vehicle for current products
and a portal to marketing and distributing new products.
DE NOVO GROWTH STRATEGY
Opportunities for growing our current community bank franchises are still very
strong. 1999 was yet another year filled with big bank mergers and
consolidations. These mergers and consolidations are causing more standardized
products, poorer service, higher fees and many more upset big bank customers.
The big banks' shortcomings should continue to generate incremental business and
market share growth for our community banks in the years to come.
Advertisements targeted at our larger competitors often resonate with people who
have experienced bad service and high charges at big banks. We continue to get a
steady stream of big bank refugees from our big bank competitors. Maybe we
should have thanked them in the opening of our shareholder letter as well!
**** Graphic Advertisement OMITTED ****
GROWTH BY ACQUISITION
We continue to have conversations with numerous Chicagoland community banks with
the goal of merging their community-based bank or branches into the Wintrust
family of banks. We believe we are a logical partner for many smaller community
banks because of our operating style and the fact that we would allow the bank
to continue to operate locally with community bank flair.
We also continually look to add earning asset niche or fee generation
businesses, either as de novo operations or through acquisition (e.g. Wintrust
Asset Management and Tricom). This type of growth will add diversified earning
asset and fee-based business revenues to supplement Wintrust's core banking
revenues.
Your management team and Board of Directors are dedicated to being disciplined
with regard to pricing potential acquisitions to be accretive to earnings per
share. We have rejected several acquisition opportunities that did not meet our
pricing objectives.
We will not acquire financial institutions just for the sake of growth through
- 15 -
<PAGE>
acquisition. Acquisition growth will need to fill strategic goals as to
franchise location, additional diversified earning asset niches, fee-based
business niches to supplement Wintrust's banking revenues or other meaningful
objectives. We will keep evaluating opportunities and will update you regularly
on our progress.
**** Picture of Homepage of www.barringtonbank.com OMITTED ****
IMPORTANT INTERNET INITIATIVES
We also have a unique three-pronged internet strategy that is feasible given our
asset-driven operating philosophy:
1. Offer community banking financial products and services to existing and new
bank customers via the banks' internet web sites.
2. Offer "private label" banking and financial products via the internet to
participating affinity groups. Our first such program is to offer First
Insurance Funding Corp.'s network of independent insurance agents financial
products for themselves and their customers.
3. Introduce a free-standing internet bank to offer banking products outside
of our market area. This should allow us to obtain deposit funding at
targeted rates that will assist us in managing our asset/liability
position, as well as offer products through strategic alliances where we
would receive fee income.
WE PUT THE .COM IN .COMMUNITY BANKING
Our six new community bank web sites that will be introduced the second quarter
of 2000 are among the most sophisticated internet banking services of any
community bank, and rival what the big banks have to offer.
All six of our community banks have their own web sites. You can find them at
the following addresses on the world wide web:
o lakeforestbank.com
o hinsdalebank.com
o nscbank.com
o libertyvillebank.com
o barringtonbank.com
o crystallakebank.com
**** Picture of Inside page of www.barringtonbank.com OMITTED ****
Via these sites, we offer or will offer a number of high tech services and
features including:
o Easy-to-use drop down navigation system that gets you where you want to go
in two clicks or less
o Quick-load construction so pages can be accessed very quickly
o On-line applications and e-mail help screens so products can be opened
on-line
o Convenient on-line bill pay that lets you quickly pay bills for less than
the cost of a stamp
o Instant access to your Wintrust Asset Management trust and investment
accounts so you can look up current account status
- 16 -
<PAGE>
o Value-added "Community Info" section that includes a comprehensive
community calendar and important community internet links.
In our communities, we want to be the source of community information and
services. In doing so, we will provide value-added service for our current
customers and hope to bring non-customers into our bank site. Look for other
value-added community services to be added soon.
SOPHISTICATED SECURITY SYSTEMS
Our on-line Banking, Bill Pay and Trust/Investments are accurate and secure. We
use the most advanced software and systems available that are protected by state
of the art encryption, firewalls and confidential personal passwords. A personal
password, combined with our state-of-the-art software, prohibits any outside
parties from acquiring any data.
BEST CUSTOMER SERVICE, BAR NONE, ON THE INTERNET
Since superior customer service is an integral part of our mission, we believe
providing unsurpassed back office customer service support is also critical to
making our internet banking a success. To that end, we have developed an
internet operations/customer service group that will be responsible for
servicing our new bank web sites. While most of our customers want the benefits
of our old-fashioned banking service, there is a growing demand to provide these
same services via the convenience of the internet. Our banks will be leaders in
this area as well.
FIRST INSURANCE FUNDING'S WEB SITE
A new web site was also launched in December 1999 for First Insurance Funding
Corp. which offers internet access for the following services:
o Information about products & services
o Agent access to a summary of their customer's accounts
o On-line quoting
o Download/upgrade of First's proprietary software
o Customers can access their account statement
**** Picture of FIRST's Web Site OMITTED ****
BUILDING "VALUE" FOR THE FUTURE
Wintrust is still a very young company that is focusing on building value from
two different perspectives. The first is "franchise value" which is based on
building long-term shareholder value by creating de novo community bank
franchises, growing them rapidly to achieve critical mass market share and then
improving profitability as they mature and growth slows. This franchise value
will very likely be supplemented by strategic acquisitions of other financial
institutions or financial service companies in the future.
The second type of value we strive for is "earnings value" which is the standard
way a company is measured by the investment community. Our earnings value has
been diluted by the investments we have made in our early years in building the
company. However, we believe Wintrust has significant hidden stored earnings
potential due to the earnings burden of our start-up banks and trust company.
OUR HIDDEN EARNINGS POTENTIAL
As you look at the asset and earnings growth trends of our six community banks,
they are all marching along a similar path of continued improvement as they
mature. If you were to project all the banks out to nine years (the current age
of our oldest bank franchise) one would see a vastly improved picture in terms
of financial returns.
- 17 -
<PAGE>
Investors in bank stocks are not accustomed to analyzing the potential of
"growth" companies, since most banks are not growing as rapidly as Wintrust,
except through acquisition. We need to help them realize the hidden earnings
potential of Wintrust's young franchises.
STOCK PRICE PERFORMANCE
Over the past two years, Wintrust Financial Corporation had significant annual
growth in net income, net revenues and assets, solid credit quality, improving
cost efficiencies and a unique story to tell. Given these results, one would
expect that our stock price would be significantly ahead of its level of one
year ago. Unfortunately, it is not. Our stock price has performed in line with a
declining Nasdaq Bank Index despite our well above average growth record.
Rather, the market has favored high technology, internet, and ".com" companies.
As Vestor Capital said in January 2000,
"We view the current speculative behavior as a sideshow to fundamental
investing and we know it is only a matter of time before this speculative
bubble will burst. With all the attention on technology companies, we
continue to identify attractive investment opportunities in other business
sectors. By sticking with our fundamental investment discipline, we are
confident the attractively valued, well managed businesses we own in our
clients' and our own portfolios will continue to thrive, grow in value and
be appropriately recognized by the marketplace as the speculative focus on
technology stocks eventually subsides."
Take heart fellow shareholders, companies historically are rewarded for
consistent growth in profits and we think the market will recognize our
performance as we continue to post positive trends.
And finally, all the senior officers of Wintrust and our subsidiaries have
invested significant amounts of their personal resources in the Company in
addition to having stock options. Our management, bank directors and their
families own over 25% of our outstanding stock, so making Wintrust a rewarding
investment is a high priority. We are in this for the long haul, looking to
maximize long-term shareholder value.
INVESTOR RELATIONS PROGRAM
We also continue to make presentations at investor conferences, provide
interviews to financial publications, distribute investor packages to interested
investors through various programs, and make presentations to interested
institutional buyers. We believe that communicating our story is important to
creating awareness about our Company and thereby creating demand for our stock.
The launch of our three new internet initiatives also represent significant
opportunities for us to generate some positive awareness in a ".com" arena that
offers great potential. We continue to have a terrific story to tell.
Currently, six respected investment firms are writing research on Wintrust and
all are recommending the purchase of Wintrust common stock.
o ABN AMRO Incorporated
o Advest, Inc.
o First Union Securities, Inc.
o Howe Barnes Investments, Inc.
o Keefe, Bruyette & Woods, Inc.
o U.S. Bancorp Piper Jaffray
- 18 -
<PAGE>
**** Graphic Advertisement OMITTED ****
- 19 -
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
============================================================================================================================
DECEMBER 31,
------------------------------------------
1999 1998
------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 53,066 33,924
Federal funds sold 28,231 18,539
Interest bearing deposits with banks 2,547 7,863
Available-for-Sale securities, at fair value 205,795 209,119
Held-to-Maturity securities, at amortized cost, fair value of $5,001 in 1998 - 5,000
Loans, net of unearned income 1,278,249 992,062
Less: Allowance for possible loan losses 8,783 7,034
- ----------------------------------------------------------------------------------------------------------------------------
Net loans 1,269,466 985,028
Premises and equipment, net 72,851 56,964
Accrued interest receivable and other assets 35,943 30,082
Goodwill and other intangible assets, net of accumulated
amortization of $520 in 1999 and $258 in 1998 11,483 1,529
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,679,382 1,348,048
============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 154,034 131,309
Interest bearing 1,309,588 1,097,845
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 1,463,622 1,229,154
Short-term borrowings 59,843 -
Notes payable 8,350 -
Long-term debt - trust preferred securities 31,050 31,050
Accrued interest payable and other liabilities 23,570 12,639
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,586,435 1,272,843
- ----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, of which 100,000
shares are designated as Junior Serial Preferred Stock A; no shares issued
and outstanding at December 31, 1999 and 1998 - -
Common stock, no par value; $1.00 stated value; 30,000,000 shares authorized;
8,770,805 and 8,149,946 issued and outstanding at December 31,
1999 and 1998, respectively 8,771 8,150
Surplus 82,792 72,878
Common stock warrants 100 100
Retained earnings (deficit) 3,555 (5,872)
Accumulated other comprehensive loss (2,271) (51)
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 92,947 75,205
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,679,382 1,348,048
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
- 20 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
============================================================================================================================
YEARS ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 97,270 75,369 56,066
Interest bearing deposits with banks 204 2,283 1,764
Federal funds sold 1,536 2,327 3,493
Securities 10,321 8,000 3,788
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 109,331 87,979 65,111
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 56,026 49,069 37,375
Interest on short-term borrowings and notes payable 2,633 1,399 964
Interest on long-term debt - trust preferred securities 2,938 747 -
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 61,597 51,215 38,339
- ----------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 47,734 36,764 26,772
Provision for possible loan losses 3,713 4,297 3,404
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 44,021 32,467 23,368
- ----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Fees on mortgage loans sold 3,206 5,569 2,341
Service charges on deposit accounts 1,562 1,065 724
Trust fees 1,171 788 626
Gain on sale of premium finance receivables 1,033 - -
Administrative services revenue 996 - -
Net securities gains 5 - 111
Other 1,835 653 1,142
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 9,808 8,075 4,944
- ----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 20,808 18,944 14,204
Equipment expense 3,199 2,221 1,713
Occupancy, net 2,991 2,435 1,896
Data processing 2,169 1,676 1,337
Advertising and marketing 1,402 1,612 1,309
Professional fees 1,203 1,654 1,343
Amortization of intangibles 251 120 100
Other 7,655 7,171 5,352
- ----------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 39,678 35,833 27,254
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 14,151 4,709 1,058
Income tax expense (benefit) 4,724 (1,536) (3,788)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 9,427 6,245 4,846
============================================================================================================================
NET INCOME PER COMMON SHARE - BASIC $ 1.14 0.77 0.62
NET INCOME PER COMMON SHARE - DILUTED $ 1.10 0.74 0.60
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
- 21 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
===================================================================================================================================
ACCUMULATED
COMPRE- OTHER
HENSIVE COMMON RETAINED COMPREHENSIVE TOTAL
INCOME PREFERRED COMMON STOCK EARNINGS INCOME SHAREHOLDERS'
(LOSS) STOCK STOCK SURPLUS WARRANTS (DEFICIT) (LOSS) EQUITY
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ - 6,603 52,871 100 (16,963) 9 42,620
Comprehensive Income:
Net income $ 4,846 - - - - 4,846 - 4,846
Other comprehensive income, net of tax:
Unrealized gains on securities, net of
reclassification adjustment 34 - - - - - 34 34
----------
Comprehensive Income 4,880
Common stock issued upon
exercise of stock options - 118 846 - - - 964
Common stock offering - 1,397 18,929 - - - 20,326
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 - 8,118 72,646 100 (12,117) 43 68,790
Comprehensive Income:
Net income 6,245 - - - - 6,245 - 6,245
Other comprehensive loss, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (94) - - - - - (94) (94)
----------
Comprehensive Income 6,151
Common stock issued upon
exercise of stock options - 32 232 - - - 264
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 - 8,150 72,878 100 (5,872) (51) 75,205
Comprehensive Income:
Net income 9,427 - - - - 9,427 - 9,427
Other comprehensive loss, net of tax:
Unrealized losses on securities, net of
reclassification adjustment (2,220) - - - - - (2,220) (2,220)
----------
Comprehensive Income $ 7,207
Common stock issuance, net of costs - 581 9,403 - - - 9,984
Common stock issued upon
exercise of stock options - 32 371 - - - 403
Common stock issued through
employee stock purchase plan - 8 140 - - - 148
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ - 8,771 82,792 100 3,555 (2,271) 92,947
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
Disclosure of reclassification amount and income tax impact: 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising during the year $ (3,460) (153) 166
Less: Reclassification adjustment for gains included in net income 5 - 111
Less: Income tax expense (benefit) (1,245) (59) 21
- ------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) $ (2,220) (94) 34
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
- 22 -
<PAGE>
<TABLE>
<CAPTION>
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
==============================================================================================================================
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997
-------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 9,427 6,245 4,846
Adjustments to reconcile net income to net cash
used for, or provided by, operating activities:
Provision for possible loan losses 3,713 4,297 3,404
Depreciation and amortization 4,246 2,952 2,394
Deferred income tax benefit (835) (1,961) (3,788)
Net (accretion) amortization of securities (490) (340) (670)
Originations of mortgage loans held for sale (263,857) (399,007) (171,960)
Proceeds from sales of mortgage loans held for sale 273,765 390,528 171,192
Gain on sale of premium finance receivables (1,033) - -
Purchase of trading securities (5,558) - -
Proceeds from sale of trading securities 5,567 - -
Gain on sale of trading securities (9) - -
Gain on sale of Available-for-Sale securities (19) - (111)
Loss on sale of Available-for-Sale securities 14 - -
(Increase) decrease in other assets, net (3,585) (12,603) 5,189
Increase (decrease) in other liabilities, net 5,580 1,625 (5,224)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 26,926 (8,264) 5,272
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of Available-for-Sale securities 368,889 481,297 92,336
Proceeds from maturities of Held-to-Maturity securities 5,000 - -
Proceeds from sales of Available-for-Sale securities 15,166 - 420
Purchases of Available-for-Sale securities (383,723) (588,296) (124,522)
Proceeds from sales of premium finance receivables 68,875 - -
Acquisition of Tricom, Inc. of Milwaukee, net of cash acquired (4,227) - -
Net decrease (increase) in interest bearing deposits with banks 5,316 77,237 (66,368)
Net increase in loans (346,778) (273,918) (221,239)
Purchases of premises and equipment, net (17,217) (15,459) (16,063)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (288,699) (319,139) (335,436)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts 234,468 311,453 299,672
Increase (decrease) in short-term borrowings, net 41,254 (35,493) 28,435
Increase (decrease) in notes payable, net 8,350 (20,402) (1,655)
Proceeds from trust preferred securities offering - 31,050 -
Issuance of common stock, net of issuance costs and fractional shares 5,984 - 20,326
Common stock issued upon exercise of stock options 403 264 964
Common stock issued through employee stock purchase plan 148 - -
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 290,607 286,872 347,742
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 28,834 (40,531) 17,578
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 52,463 92,994 75,416
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 81,297 52,463 92,994
==============================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 60,667 51,158 37,499
Income taxes 4,241 787 -
Acquisition of Tricom, Inc. of Milwaukee:
Fair value of assets acquired 22,116 - -
Goodwill recorded from acquisition 10,052 - -
Fair value of liabilities assumed 23,941 - -
NON-CASH INVESTING ACTIVITIES:
Common stock issued for acquisition of Tricom, Inc. of Milwaukee 4,000 - -
Transfer to other real estate owned from loans - 587 -
==============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
- 23 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Wintrust Financial Corporation and
subsidiaries ("Wintrust" or "Company") conform to generally accepted accounting
principles. In the preparation of the consolidated financial statements,
management is required to make certain estimates and assumptions that affect the
reported amounts contained in the consolidated financial statements. Management
believes that the estimates made are reasonable; however, changes in estimates
may be required if economic or other conditions change beyond management's
expectations. Reclassifications of certain prior year amounts have been made to
conform with the current year presentation. The following is a summary of the
more significant accounting policies of the Company.
Description of the Business
Wintrust is a financial services holding company currently engaged in the
business of providing community banking services, trust and investment services,
commercial insurance premium financing, short-term accounts receivable
financing, and certain administrative services, such as data processing of
payrolls, billing and cash management services. Wintrust provides banking
services to customers in the Chicago metropolitan area through its six
wholly-owned banking 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"). On September 30, 1998, Wintrust began providing trust and investment
services at each of the Wintrust banks through Wintrust Asset Management
Company, N.A. ("WAMC"). Previously, the Company provided trust services through
the trust department of Lake Forest Bank. The Company provides financing for the
payment of commercial insurance premiums ("premium finance receivables"), on a
national basis, through First Insurance Funding Corporation ("FIFC"), a
wholly-owned subsidiary of Crabtree Capital Corporation ("Crabtree") which is a
wholly-owned subsidiary of Lake Forest Bank. On October 26, 1999, Hinsdale Bank
acquired Tricom, Inc. of Milwaukee ("Tricom"), a provider of short-term accounts
receivable financing ("Tricom finance receivables") and value-added out-sourced
administrative services, such as data processing of payrolls, billing and cash
management services, to temporary staffing service clients located throughout
the United States.
Principles of Consolidation
The consolidated financial statements of Wintrust have been prepared in
conformity with generally accepted accounting principles and prevailing
practices of the banking industry. Intercompany accounts and transactions have
been eliminated in the consolidated financial statements.
Securities
The Company classifies securities in one of three categories: trading,
held-to-maturity, or available-for-sale. Trading securities are bought
principally for the purpose of selling them in the near term. Held-to-maturity
securities are those securities in which the Company has the ability and
positive intent to hold the security until maturity. All other securities are
currently classified as available-for-sale as they may be sold prior to
maturity.
Held-to-maturity securities are stated at amortized cost which represents actual
cost adjusted for premium amortization and discount accretion using methods that
approximate the effective interest method. Available-for-sale securities are
stated at fair value. Unrealized gains and losses on available-for-sale
securities, net of related taxes, are excluded from earnings until realized,
however, included as other comprehensive income and reported as a separate
component of shareholders' equity.
Trading account securities are stated at fair value; however, the Company did
not maintain any trading account securities at December 31, 1999, 1998 or 1997.
Trading account income or loss is included in other non-interest income.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings,
resulting in the establishment of a new cost basis for the security. Dividend
and interest income are recognized when earned. Realized gains and losses for
securities classified as available-for-sale and held-to-maturity are included in
non-interest income and are derived using the specific identification method for
determining the cost of securities sold.
Loans and Allowance for Possible Loan Losses
Loans, which include lease financing, premium finance receivables and Tricom
finance receivables, are recorded at the principal amount outstanding. Interest
income is
- 24 -
<PAGE>
recognized when earned. Loan origination fees and certain direct origination
costs associated with loans retained in the portfolio are deferred and amortized
over the expected life of the loan as an adjustment of yield using methods that
approximate the effective interest method. Finance charges on premium finance
receivables are earned over the term of the loan based on actual funds
outstanding, beginning with the funding date, using a method which approximates
the effective yield method.
Mortgage loans held for sale are carried at the lower of aggregate cost or
market, after consideration of related loan sale commitments, if any. Fees
received from the sale of these loans into the secondary market are included in
non-interest income.
Interest income is not accrued on loans where management has determined that the
borrowers may be unable to meet contractual principal and/or interest
obligations, or where interest or principal is 90 days or more past due, unless
the loans are adequately secured and in the process of collection. Cash receipts
on non-accrual loans are generally applied to the principal balance until the
remaining balance is considered collectible, at which time interest income may
be recognized when received.
The allowance for possible loan losses is maintained at a level adequate to
cover losses inherent in the portfolio. In estimating potential losses, the
Company evaluates loans for impairment. A loan is considered impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due. Impaired loans are generally considered by
the Company to be commercial and commercial real estate loans that are
non-accrual loans, restructured loans and loans with principal and/or interest
at risk, even if the loan is current with all payments of principal and
interest. Impairment is measured by estimating the fair value of the loan based
on the present value of expected cash flows, the market price of the loan, or
the fair value of the underlying collateral. If the estimated fair value of the
loan is less than the recorded book value, a valuation allowance is established
as a component of the allowance for possible loan losses.
Mortgage Servicing Rights
The Company originates mortgage loans for sale to the secondary market, the
majority of which are sold without retaining servicing rights. There are certain
loans, however, that are originated and sold to a governmental agency, with
servicing rights retained. The Company capitalizes the rights to service these
originated mortgage loans at the time of sale. The capitalized cost of loan
servicing rights is amortized in proportion to, and over the period of,
estimated net future servicing revenue. Mortgage servicing rights are
periodically evaluated for impairment. For purposes of measuring impairment, the
servicing rights are stratified into pools based on one or more predominant risk
characteristics of the underlying loans including loan type, interest rate, term
and geographic location, if applicable. Impairment represents the excess of the
remaining capitalized cost of a stratified pool over its fair value, and is
recorded through a valuation allowance. The fair value of each servicing rights
pool is evaluated based on the present value of estimated future cash flows
using a discount rate commensurate with the risk associated with that pool,
given current market conditions. Estimates of fair value include assumptions
about prepayment speeds, interest rates and other factors which are subject to
change over time. Changes in these underlying assumptions could cause the fair
value of mortgage servicing rights, and the related valuation allowance, if any,
to change significantly in the future.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. For financial reporting purposes depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets ranging from three to ten years for equipment, forty to fifty
years for premises, and the related lease terms for leasehold improvements.
Additions to premises are capitalized. Maintenance and repairs are charged to
expense as incurred.
Other Real Estate Owned
Other real estate owned is comprised of real estate acquired in partial or full
satisfaction of loans and is included in other assets at the lower of cost or
fair market value less estimated selling costs. When the property is acquired
through foreclosure, any excess of the related loan balance over the adjusted
fair market value less expected selling costs, is charged against the allowance
for possible loan losses. Subsequent write-downs or gains and losses upon sale,
if any, are charged to other non-interest expense.
Intangible Assets
Goodwill, representing the cost in excess of the fair value of net assets
acquired, is primarily amortized on a straight-line basis over periods of
fifteen to twenty years. The Company periodically evaluates the carrying value
- 25 -
<PAGE>
and remaining amortization period of intangible assets and other long-lived
assets for impairment, and adjusts the carrying amounts, as appropriate.
Trust Preferred Securities Offering Costs
In connection with the Company's October 1998 offering of 9.00% Cumulative Trust
Preferred Securities ("Trust Preferred Securities"), approximately $1.4 million
of offering costs were incurred, including underwriting fees, legal and
professional fees, and other costs. These costs are included in other assets and
are being amortized over a ten year period as an adjustment of interest expense
using a method that approximates the effective interest method. See Note 10 for
further information about the Trust Preferred Securities.
Trust Assets
Assets held in fiduciary or agency capacity for customers are not included in
the consolidated financial statements as they are not assets of Wintrust or its
subsidiaries. Fee income is recognized on an accrual basis for financial
reporting purposes and is included as a component of non-interest income.
Income Taxes
Wintrust files consolidated Federal and state income tax returns. The
subsidiaries provide for income taxes on a separate return basis and remit to
Wintrust amounts determined to be currently payable.
Wintrust and subsidiaries record income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Cash Equivalents
For purposes of the consolidated statements of cash flows, Wintrust considers
all cash on hand, cash items in the process of collection, non-interest bearing
amounts due from correspondent banks and federal funds sold to be cash
equivalents.
Earnings per Share
Basic earnings per share 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 earnings per share 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.
Stock Option Plans
The Company follows the disclosure requirements of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), rather than the recognition provisions of SFAS No. 123, as
allowed by the statement. The Company follows APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25") and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized by the Company for its stock option plans as the exercise price
is equal to the market value on the option grant date. Further disclosures are
presented in Note 13.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires companies to
capitalize certain costs incurred in connection with internal-use software
projects and is effective for fiscal years beginning after December 15, 1998,
with early adoption permitted. The Company elected early adoption of SOP 98-1 as
of January 1, 1998 and capitalized certain salary costs in both 1998 and 1999
related to the configuration and installation of new software and the
modification of existing software that provided additional functionality. These
costs are being amortized over periods of three to five years.
In April 1998, AcSEC issued Statement of Position 98-5 ("SOP 98-5"), "Reporting
on the Costs of Start-up Activities", which requires that the unamortized
portion of previously capitalized start-up costs be written-off as a cumulative
effect of a change in accounting principle. Subsequent to adoption of SOP 98-5,
start-up and organization costs must be expensed as incurred. In the first
quarter of 1999, in accordance with SOP 98-5, the Company expensed approximately
$200,000 of remaining unamortized deferred organizational costs. This write-off,
however, was not material to be presented as a cumulative effect of a change in
accounting principle.
- 26 -
<PAGE>
Beginning in 1999, all start-up and organizational costs are being expensed as
incurred.
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No.
137 to effectively defer the implementation date of SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" for one year. SFAS No. 133 was
issued in June 1998 and establishes, for the first time, comprehensive
accounting and reporting standards for derivative instruments and hedging
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 either be 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. With the
issuance of SFAS No. 137, this standard is now effective for the Company as of
January 1, 2001. The adoption of this new statement is currently not expected to
have a material effect on the Company's future financial condition, results of
operations, or liquidity.
(2) SECURITIES
A summary of the securities portfolio presenting carrying amounts and gross
unrealized gains and losses as of December 31, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------------------------- ------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZEDUNREALIZED FAIR AMORTIZED UNREALIZEDUNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
Held-to-maturity:
U.S. Treasury $ - - - - 5,000 1 - 5,001
Available-for-sale:
U.S. Treasury 40,587 - (1,416) 39,171 5,650 14 - 5,664
U.S. Government agencies 70,664 - (480) 70,184 54,696 3 (9) 54,690
Municipal securities 4,046 - (8) 4,038 504 - - 504
Corporate notes and other 40,152 2 (1,129) 39,025 142,165 9 (72) 142,102
Mortgage-backed securities 46,613 - (489) 46,124 - - - -
Federal Reserve Bank and
Federal Home Loan Bank stock 7,253 - - 7,253 6,159 - - 6,159
--------------------------------------------- ------------------------------------------
Total securities
available-for-sale 209,315 2 (3,522) 205,795 209,174 26 (81) 209,119
--------------------------------------------- ------------------------------------------
Total securities $ 209,315 2 (3,522) 205,795 214,174 27 (81) 214,120
==============================================================================================================================
</TABLE>
The amortized cost and fair value of securities as of December 31, 1999 and
1998, by contractual maturity, are shown below. Contractual maturity may differ
from actual maturities as borrowers may have the right to call or repay
obligations with or without call or prepayment penalties. Mortgage-backed
securities are not included in the maturity categories in the following maturity
summary as actual maturities may differ from contractual maturities because the
underlying mortgages may be called or prepaid without any penalties.
<TABLE>
<CAPTION>
============================================================================================================================
December 31, 1999 December 31, 1998
-------------------------------- ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------------------- ------------------------------
(in thousands)
Held-to-maturity securites:
<S> <C> <C> <C> <C>
Due in one year or less $ - - 5,000 5,001
-------------------------------- ------------------------------
Available-for-sale securities:
Due in one year or less 66,020 65,841 190,001 189,977
Due in one to five years 69,934 68,086 6,693 6,662
Due in five to ten years 5,949 5,904 6,321 6,321
Due after ten years 13,546 12,587 - -
Mortgage-backed securities 46,613 46,124 - -
Federal Reserve Bank and Federal Home Loan Bank stock 7,253 7,253 6,159 6,159
-------------------------------- ------------------------------
Total available-for-sale securities 209,315 205,795 209,174 209,119
-------------------------------- ------------------------------
Total securities $ 209,315 205,795 214,174 214,120
============================================================================================================================
</TABLE>
In 1999 and 1997, the Company had gross realized gains on sales of
available-for-sale securities of $19,000 and $111,000, respectively. During
1999, gross realized losses on sales of available-for-sale securities totaled
$14,000. In 1998, there were no sales of available-for-sale securities. Proceeds
from sales of available-for-sale securities during 1999
- 27 -
<PAGE>
and 1997 were $15,166,000 and $420,000, respectively. At December 31, 1999 and
1998, securities having a carrying value of $139,185,000 and $104,874,000,
respectively, were pledged as collateral for public deposits, trust deposits and
securities sold under agreements to repurchase.
(3) LOANS
A summary of the loan portfolio, including commercial lease financing
receivables, at December 31, 1999 and 1998 is as follows (in thousands):
==================================================================
1999 1998
--------------------------
Commercial and commercial real estate $ 485,776 366,229
Premium finance receivables 225,239 183,165
Indirect auto 255,434 210,137
Home equity 139,194 111,537
Residential real estate 111,026 91,525
Tricom finance receivables 17,577 -
Installment and other 49,925 34,650
--------------------------
Total loans 1,284,171 997,243
Less: Unearned income 5,922 5,181
--------------------------
Total loans, net of unearned income $ 1,278,249 992,062
==================================================================
Residential mortgage loans held for sale totaled $8,123,000 and $18,031,000 at
December 31, 1999 and 1998, respectively.
Certain residential real estate and home equity loans with balances totaling
approximately $142.1 million at December 31, 1999 were pledged as collateral to
secure the availability of borrowings from certain Federal agency banks.
Certain officers and directors of Wintrust and its subsidiaries and certain
corporations and individuals related to such persons borrowed funds from the
Banks. These loans, totaling $22,148,000 and $19,791,000 at December 31, 1999
and 1998, respectively, were made at substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other borrowers.
(4) ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the allowance for possible loan losses for the years ended December
31, 1999, 1998 and 1997 is as follows (in thousands):
======================================================================
Year Ended December 31,
------------------------------
1999 1998 1997
------------------------------
Allowance at beginning of year $ 7,034 5,116 3,636
Provision 3,713 4,297 3,404
Acquired allowance for loan losses 175 - -
Charge-offs-continuing operations (2,449) (2,737) (1,874)
Charge-offs-discontinued operations - - (241)
Recoveries 310 358 191
------------------------------
Allowance at end of year $ 8,783 7,034 5,116
======================================================================
The provision for possible loan losses is charged to operations and recognized
loan losses (recoveries) are charged (credited) to the allowance. At December
31, 1999, 1998 and 1997, non-accrual loans totaled $4,338,000, $3,137,000 and
$2,440,000, respectively.
At December 31, 1999, 1998 and 1997, loans that were considered to be impaired
totaled $1,768,000, $1,714,000 and $1,139,000, respectively. At December 31,
1999 and 1998, impaired loans totaling $458,000 and $285,000, respectively, had
allocated specific allowance for loan losses of approximately $125,000 at each
year-end. There was no specific allowance for loan losses allocated for impaired
loans as of December 31, 1997. The average balance of impaired loans during
1999, 1998 and 1997 was approximately $1,295,000, $4,167,000 and $990,000,
respectively. During 1999 and 1998, interest income recognized on impaired loans
totaled approximately $14,000 and $155,000, respectively. In 1997, this amount
was insignificant. Management evaluated the value of the impaired loans
primarily by using the fair value of the collateral. During 1999 and 1998, the
effect of non-performing loans reduced interest income by approximately $100,000
and $197,000, respectively. During 1997, this effect was insignificant.
(5) MORTGAGE SERVICING RIGHTS
The remaining principal balance of mortgage loans serviced for others, which are
not included in the Consolidated Statements of Condition, totaled $87.1 million
and $82.1 million at December 31, 1999 and 1998, respectively. The following is
a summary of the changes in mortgage servicing rights for the years ended
December 31, 1999, 1998 and 1997 (in thousands):
=====================================================================
Year Ended December 31,
-----------------------------
1999 1998 1997
-----------------------------
Balance at beginning of year $ 715 313 123
Servicing rights capitalized 214 577 226
Amortization of servicing rights (281) (175) (36)
Valuation allowance - - -
-----------------------------
Balance at end of year $ 648 715 313
=====================================================================
- 28 -
<PAGE>
(6) PREMISES AND EQUIPMENT, NET
A summary of premises and equipment at December 31, 1999 and 1998 is as follows
(in thousands):
===================================================================
1999 1998
-------------------------
Land $ 10,606 9,607
Buildings and improvements 50,591 35,251
Furniture, equipment and
computer software 19,244 12,802
Equipment under leasing contracts 2,704 473
Construction in progress 1,437 6,638
-------------------------
84,582 64,771
Less accumulated depreciation
and amortization 11,731 7,807
-------------------------
Premises and equipment, net $ 72,851 56,964
===================================================================
(7) TIME DEPOSITS
Certificates of deposit in amounts of $100,000 or more approximated $432,982,000
and $346,046,000, respectively, at December 31, 1999 and 1998. Interest expense
related to these deposits approximated $14,365,000, $12,003,000 and $10,954,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
(8) SHORT-TERM BORROWINGS
At December 31, 1999, short-term borrowings totaled $59,843,000 and comprised
$54,277,000 of securities sold under agreements to repurchase, $5,000,000 of
federal funds purchased and $566,000 of other short-term borrowings. There were
no short-term borrowings outstanding as of December 31, 1998. As of December 31,
1999, the weighted average borrowing rate was 5.65%.
(9) NOTES PAYABLE
The notes payable balance of $8,350,000 at December 31, 1999 represented the
balance on a revolving credit line agreement ("Agreement") with an unaffiliated
bank. There was no outstanding notes payable balance as of December 31, 1998.
The original $25 million Agreement was effective September 1, 1996 for one year
and has been renewed on that date in each subsequent year. Currently, the total
amount of the revolving credit line is $40 million and interest is calculated at
a floating rate equal to, at the Company's option, either the lender's prime
rate or LIBOR plus 1.25%. The maturity date is August 30, 2000. The Agreement is
secured by the stock of all Banks, except Crystal Lake Bank, and contains
several restrictive covenants, including the maintenance of various capital
adequacy levels, asset quality and profitability ratios, and certain
restrictions on dividends and other indebtedness. This Agreement may be
utilized, as needed, to provide capital to fund continued growth at its existing
bank subsidiaries, expansion of its trust and investment activities, possible
acquisitions of financial institutions or other finance related companies, or
other general corporate matters.
(10) LONG-TERM DEBT - TRUST PREFERRED SECURITIES
In October 1998, the Company raised $31,050,000 of Trust Preferred Securities.
These proceeds were used to pay-off the outstanding balance of the revolving
credit line and for other corporate purposes. The Trust Preferred Securities
offering increased the Company's regulatory capital under Federal Reserve
guidelines. Interest expense on the Trust Preferred Securities is also
deductible for income tax purposes.
Wintrust Capital Trust I ("WCT"), a statutory business trust and wholly-owned
subsidiary of the Company that was formed solely for the purpose of the above
mentioned offering, issued a total of 1,242,000 Trust Preferred Securities,
including the over-allotment, at a price of $25 per security, which totaled
$31,050,000. These securities represent preferred undivided beneficial interests
in the assets of WCT. WCT also issued $960,000 of common securities, all of
which are owned by the Company. The assets of WCT consist solely of 9.00%
Subordinated Debentures issued by the Company to WCT in the aggregate principal
amount of $32,010,000. Holders of the Trust Preferred Securities are entitled to
receive preferential cumulative cash distributions at the annual rate of 9.00%,
accumulating from September 29, 1998, and payable quarterly in arrears on the
last day of each quarter, the first payment of which occurred on December 31,
1998. Subject to certain limitations, the Company has the right to defer payment
of interest at any time, or from time to time, for a period not to exceed 20
consecutive quarters. The Trust Preferred Securities are subject to mandatory
redemption, in whole or in part, upon repayment of the Subordinated Debentures
at maturity or their earlier redemption. The Subordinated Debentures mature on
September 30, 2028, which may be shortened at the discretion of the Company to a
date not earlier than September 30, 2003, or extended to a date not later than
September 30, 2047, in each case if certain conditions are met, and only after
the Company has obtained Federal Reserve approval, if then required under
applicable guidelines or regulations.
The Company has guaranteed the payment of distributions and payments upon
liquidation or redemption of the Trust Preferred Securities, in each case to the
extent of funds held by WCT. The Company and WCT believe that, taken together,
the obligations of the Company under the
- 29 -
<PAGE>
guarantee, the subordinated debentures, and other related agreements provide, in
the aggregate, a full, irrevocable and unconditional guarantee, on a
subordinated basis, of all of the obligations of WCT under the Trust Preferred
Securities.
(11) MINIMUM LEASE COMMITMENTS
Gross rental expense for all operating leases was $1,016,000, $922,000 and
$798,000, in 1999, 1998 and 1997, respectively. Gross rental income related to
the Company's buildings totaled $415,000, $390,000 and $289,000, in 1999, 1998
and 1997, respectively. In 1999 and 1998, the Company also recorded equipment
lease income of approximately $397,000 and $55,000, respectively. Minimum gross
rental commitments, primarily for office space, and future minimum gross rental
income and equipment lease income as of December 31, 1999 for all noncancelable
leases are as follows (in thousands):
=====================================================================
Future Future Future
minimum minimum minimum
gross gross equipment
rental rental lease
commitments income income
-------------------------------
2000 $ 805 306 695
2001 791 205 598
2002 708 143 472
2003 567 128 358
2004 420 124 170
2005 and thereafter 3,264 80 -
-------------------------------
Total minimum future amounts $ 6,555 986 2,293
=====================================================================
(12) INCOME TAXES
For the years ended December 31, 1999 and 1998, Wintrust had approximately $5.6
million and $571,000, respectively, of current Federal income tax expense and no
current state income tax. For the year ended December 31, 1997, Wintrust had no
current Federal or state income tax expense. In 1999, 1998 and 1997, the Company
recorded net deferred Federal tax benefits of approximately $1.2 million, $2.3
million and $2.9 million, respectively, and net deferred state tax (expense)
benefits of approximately ($393,000), ($271,000) and $890,000, respectively.
During 1999, 1998 and 1997, such amounts exclude approximately $72,000, $78,000
and $316,000 of Federal tax benefits and $18,000, $17,000 and $67,000 of state
tax benefits, respectively, that were recorded directly to shareholders' equity
related to the exercise of certain common stock options.
Income taxes for 1999, 1998 and 1997 differ from the expected tax expense for
those years (computed by applying the applicable statutory U.S. Federal income
tax rate of 35% in 1999 and 34% in 1998 and 1997 to income before income taxes)
as follows (in thousands):
==============================================================================
Year Ended December 31,
------------------------------
1999 1998 1997
------------------------------
Computed "expected" income
tax expense $ 4,953 1,601 360
Increase (decrease) in tax resulting from:
Change in the beginning-of-the-year
balance of the valuation allowance
for deferred tax assets (460) (3,357) (4,204)
Other, net 231 220 56
------------------------------
Income tax expense (benefit) $ 4,724 (1,536) (3,788)
==============================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1999 and 1998 are
presented below (in thousands):
==============================================================================
1999 1998
---------------------------
Deferred tax assets:
Allowance for possible loan losses $ 3,313 2,405
Net unrealized losses on securities 1,249 32
Federal net operating loss carryforward 5,984 6,985
State net operating loss carryforward 660 1,390
Deferred compensation 315 170
Premises and equipment 235 -
Other, net 380 202
---------------------------
Total gross deferred tax assets 12,136 11,184
Less: Valuation allowance 346 806
---------------------------
Total deferred tax assets 11,790 10,378
---------------------------
Deferred tax liabilities:
Premises and equipment - 125
Deferred loan fees 860 1,034
Accrual to cash adjustment 261 711
Other, net 749 640
---------------------------
Total gross deferred tax liabilities 1,870 2,510
---------------------------
Net deferred tax assets $ 9,920 7,868
==============================================================================
During 1997, 1998 and 1999, management determined that a valuation allowance
should be established for a portion of the deferred tax asset based on
management's assessment regarding realization of such deferred tax assets
considering the profitability attained by the Company and its operating
subsidiaries during each of the years and future earnings estimates. Management
believes that realization of the recorded net deferred tax asset is more likely
than not.
At December 31, 1999, Wintrust and its subsidiaries had Federal net operating
losses of approximately $17.1 million and state net operating losses of
approximately $9.2 million. Such amounts are available for carryforward to
offset future taxable income and expire in 2000-2010. Utilization of the net
operating losses are subject to certain statutory limitations. Additionally,
certain of the federal
- 30 -
<PAGE>
net operating losses are only available to be utilized by the respective
companies that generated the losses.
(13) EMPLOYEE BENEFIT AND STOCK PLANS
Prior to May 22, 1997, Wintrust and the holding companies of Lake Forest Bank,
Hinsdale Bank, Libertyville Bank and FIFC maintained various stock option and
rights plans ("Predecessor Plans") which provided options to purchase shares of
Wintrust's common stock at the fair market value of the stock on the date the
option was granted. The Predecessor Plans permitted the grant of incentive stock
options, nonqualified stock options, rights and restricted stock. Collectively,
the Predecessor Plans covered substantially all employees of Wintrust.
Effective May 22, 1997, the Company's shareholders approved the Wintrust
Financial Corporation 1997 Stock Incentive Plan ("Plan"). The Plan amended,
restated, continued and combined all of the Predecessor Plans implemented
previously by the Company or its subsidiaries, including shares covered under
the Company's Stock Rights Plan. The Plan provides that the total number of
shares of Common Stock as to which awards may be granted may not exceed
1,937,359 shares, which number of shares includes 1,777,359 shares of Common
Stock which had already been reserved for issuance under the Predecessor Plans.
The incentive and nonqualified options expire at such time as the Compensation
Committee shall determine at the time of grant, however, in no case shall they
be exercisable later than ten years after the grant.
A summary of the aggregate activity of the Plans for 1999, 1998 and 1997 was as
follows:
================================================================================
Common Range of Weighted Average
Shares Strike Prices Strike Price
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1996 1,149,324 $ 5.80 - 21.13 $10.10
Granted 350,671 18.00 18.00
Reclassification of stock
rights to stock options 103,236 7.75 - 11.62 7.84
Exercised 117,575 5.80 - 16.23 7.72
Forfeited or canceled 26,568 5.80 - 21.13 15.85
-----------------------------------------
Outstanding at
December 31, 1997 1,459,088 5.80 - 21.13 11.90
Granted 150,400 17.88 - 21.75 18.71
Exercised 31,423 5.80 - 14.53 8.30
Forfeited or canceled 53,081 9.30 - 19.86 16.25
-----------------------------------------
Outstanding at
December 31, 1998 1,524,984 5.80 - 21.75 12.49
Granted 261,169 16.69 - 20.06 17.38
Exercised 31,933 7.75 - 14.53 9.79
Forfeited or canceled 41,791 10.77 - 19.25 17.73
-----------------------------------------
Outstanding at
December 31, 1999 1,712,429 $ 5.80 - 21.75 $13.15
================================================================================
At December 31, 1999, 1998 and 1997, the weighted-average remaining contractual
life of outstanding options was 6.2 years, 6.6 years and 7.4 years,
respectively. Additionally, at December 31, 1999, 1998 and 1997, the number of
options exercisable was 1,185,697, 887,514 and 809,520, respectively, and the
weighted-average per share exercise price of those options was $11.23, $9.38 and
$9.08, respectively. Expiration dates for the options range from June 19, 2000
to October 28, 2009.
The following table presents certain information about the outstanding options
and the currently exercisable options as of December 31, 1999:
<TABLE>
<CAPTION>
==============================================================================================================================
Options Outstanding Options Currently Exercisable
- -------------------------------------------------------------- -------------------------------------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Exercise Remaining Number Exercise
Prices of Shares Price Term of Shares Price
- -------------------------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.80 - 6.31 213,944 $ 6.22 1.73 years 213,944 $ 6.22
7.24 - 8.48 270,681 7.91 4.29 years 270,681 7.91
9.30 - 12.42 289,944 10.78 5.40 years 267,064 10.66
12.43 - 16.69 270,790 14.43 6.83 years 182,056 14.00
17.00 - 17.94 217,269 17.18 9.50 years 148,409 17.04
18.00 - 18.00 335,824 18.00 7.94 years 78,426 18.00
18.44 - 21.75 113,977 19.57 7.90 years 25,117 20.38
- -------------------------------------------------------------- -------------------------------------------------------------
$ 5.80 - 21.75 1,712,429 $ 13.15 6.18 years 1,185,697 $ 11.23
==============================================================================================================================
</TABLE>
- 31 -
<PAGE>
The Company applies APB No. 25, and related Interpretations, in accounting for
its stock option plans. Accordingly, no compensation cost has been recognized
for its stock option plans. Had compensation cost for the Company's stock option
plans been determined based on the fair value at the date of grant for awards
under the stock option plans consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (dollars in thousands):
============================================================================
Year Ended December 31,
-------------------------------
1999 1998 1997
-------------------------------
Net income
As reported $ 9,427 6,245 4,846
Pro forma 8,082 5,659 4,488
Earnings per share-Basic
As reported $ 1.14 0.77 0.62
Pro forma 0.98 0.70 0.58
Earnings per share-Diluted
As reported $ 1.10 0.74 0.60
Pro forma 0.94 0.67 0.56
============================================================================
The pro forma amounts indicated above may not be representative of the effects
on reported net income for future years. The fair value of each option grant was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants during the years ended December 31,
1999, 1998 and 1997, respectively: dividend yield of 0.6% for 1999 and 0.0% for
1998 and 1997; expected volatility of 27.5% for 1999, 24.2% for 1998 and 22.5%
for 1997; risk free rate of return of 5.6% for 1999, 5.3% for 1998 and 6.4% for
1997; and, expected life of 7.2 years for 1999, 7.5 years for 1998 and 8.0 years
for 1997. The per share weighted average fair value of stock options granted
during 1999, 1998 and 1997 was $6.98, $7.54 and $8.10, respectively.
Wintrust and its subsidiaries also provide 401(k) Retirement Savings Plans
("401(k) Plans"). The 401(k) Plans cover all employees meeting certain
eligibility requirements. Contributions by employees are made through salary
reductions at their direction, limited to $10,000 in both 1999 and 1998 and
$9,500 in 1997. Employer contributions to the 401(k) Plans are made at the
employer's discretion. Generally, participants completing 501 hours of service
are eligible to share in an allocation of employer contributions. The Company's
expense for the employer contributions to the 401(k) Plans was approximately
$57,000, $52,000 and $41,000 in 1999, 1998 and 1997, respectively.
Effective May 22, 1997, the Company's shareholders approved the Wintrust
Financial Corporation Employee Stock Purchase Plan ("SPP"). The SPP is designed
to encourage greater stock ownership among employees thereby enhancing employee
commitment to the Company. The SPP gives eligible employees the right to
accumulate funds over an offering period to purchase shares of Common Stock. The
Company has reserved 250,000 shares of its authorized Common Stock for the SPP.
All shares offered under the SPP will be either newly issued shares of the
Company or shares issued from treasury, if any. In accordance with the SPP, the
purchase price of the shares of Common Stock may not be lower than the lessor of
85% of the fair market value per share of the Common Stock on the first day of
the offering period or 85% of the fair market value per share of the Common
Stock on the last date for the offering period. The Company's Board of Directors
authorized a purchase price calculation at 90% of fair market value for each of
the first two offering periods of 1999. During 1999, a total of 8,349 shares
were issued to participant accounts and approximately $19,000 was recognized as
compensation expense. The third offering period concludes on March 31, 2000. The
Company plans to continue to periodically offer Common Stock through this SPP
subsequent to March 31, 2000.
The Company does not currently offer other postretirement benefits such as
health care or other pension plans.
(14) REGULATORY MATTERS
Banking laws place restrictions upon the amount of dividends which can be paid
to Wintrust by the Banks. Based on these laws, the Banks could, subject to
minimum capital requirements, declare dividends to Wintrust without obtaining
regulatory approval in an amount not exceeding (a) undivided profits, and (b)
the amount of net income reduced by dividends paid for the current and prior two
years. During 1998, Lake Forest Bank paid cash dividends of $8.25 million to
Wintrust. No cash dividends were paid to Wintrust by the Banks during the years
ended December 31, 1999 and 1997. As of January 1, 2000, the Banks had
approximately $12.6 million available to be paid as dividends to Wintrust,
subject to certain capital limitations.
The Banks are also required by the Federal Reserve Act to maintain reserves
against deposits. Reserves are held either in the form of vault cash or balances
maintained with the Federal Reserve Bank and are based on the average daily
deposit balances and statutory reserve ratios prescribed by the type of deposit
account. At December 31, 1999 and 1998, reserve balances of approximately
$11,672,000 and $8,171,000, respectively, were required.
- 32 -
<PAGE>
The Company and the Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Banks must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company's and the Banks' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and Tier 1 leverage capital
(as defined) to average quarterly assets (as defined). Management believes, as
of December 31, 1999 and 1998, that the Company and the Banks met all minimum
capital adequacy requirements.
As of December 31, 1999 and 1998, the most recent notification from the Banks'
primary federal regulators categorized the Banks as either well capitalized or
adequately capitalized under the regulatory framework for prompt corrective
action. To be categorized as adequately capitalized, the Banks must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set
forth in the following tables. There are no conditions or events since the most
recent notification that management believes would materially affect the Banks'
regulatory capital categories. The Company's and the Banks' actual capital
amounts and ratios as of December 31, 1999 and 1998 are presented in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
================================================================================================================================
December 31, 1999 December 31, 1998
------------------------------------------------------ -------------------------------------------------------
To Be Adequately Capitalized To Be Adequately Capitalized
Actual by Regulatory Definition Actual by Regulatory Definition
------------------------------------------------------ -------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------ -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated $123,466 8.4% $118,312 8.0% $111,811 9.7% $92,390 8.0%
Lake Forest 37,541 8.9 33,779 8.0 30,347 8.8 27,575 8.0
Hinsdale 24,755 9.0 21,975 8.0 21,163 8.3 20,469 8.0
North Shore 27,095 8.5 25,452 8.0 23,760 9.1 20,937 8.0
Libertyville 16,444 9.1 14,470 8.0 14,691 8.8 13,295 8.0
Barrington 14,903 9.8 12,189 8.0 11,328 10.9 8,343 8.0
Crystal Lake 8,893 13.0 5,474 8.0 6,028 12.4 3,882 8.0
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS):
Consolidated $114,683 7.8% $59,156 4.0% $ 98,303 8.5% $46,195 4.0%
Lake Forest 35,106 8.3 16,889 4.0 28,404 8.2 13,788 4.0
Hinsdale 22,839 8.3 10,988 4.0 19,546 7.6 10,234 4.0
North Shore 25,239 7.9 12,726 4.0 22,148 8.5 10,469 4.0
Libertyville 15,224 8.4 7,235 4.0 13,775 8.3 6,648 4.0
Barrington 14,063 9.2 6,094 4.0 10,734 10.3 4,171 4.0
Crystal Lake 8,376 12.2 2,737 4.0 5,677 11.7 1,941 4.0
TIER 1 LEVERAGE CAPITAL (TO AVERAGE QUARTERLY ASSETS):
Consolidated $114,683 7.1% $65,047 4.0% $ 98,303 7.5% $52,344 4.0%
Lake Forest 35,106 6.9 20,274 4.0 28,404 7.0 16,331 4.0
Hinsdale 22,839 6.9 13,227 4.0 19,546 7.2 10,878 4.0
North Shore 25,239 7.1 14,199 4.0 22,148 7.6 11,578 4.0
Libertyville 15,224 6.9 8,845 4.0 13,775 7.5 7,363 4.0
Barrington 14,063 8.3 6,793 4.0 10,734 9.5 4,527 4.0
Crystal Lake 8,376 9.7 3,447 4.0 5,677 12.0 1,888 4.0
================================================================================================================================
</TABLE>
The ratios required for the Banks to be "well capitalized" by regulatory
definition are 10.0%, 6.0%, and 5.0% for the Total Capital-to-Risk Weighted
Assets, Tier 1 Capital-to-Risk Weighted Assets and Tier 1 Leverage
Capital-to-Average Quarterly Assets ratios, respectively.
- 33 -
<PAGE>
(15) COMMITMENTS AND CONTINGENCIES
The Company has outstanding, at any time, a number of commitments to extend
credit to its customers. These commitments include revolving home line and other
credit agreements, term loan commitments and standby letters of credit. These
commitments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the Consolidated Statements of
Condition. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Company uses the same credit policies in making
commitments as it does for on-balance sheet instruments. Commitments to extend
credit at December 31, 1999 and 1998 were $431.9 million and $334.9 million,
respectively. Standby letters of credit amounts were $13.5 million and $10.0
million at December 31, 1999 and 1998, respectively.
In the ordinary course of business, there are legal proceedings pending against
the Company and its subsidiaries. Management considers that the aggregate
liabilities, if any, resulting from such actions would not have a material
adverse effect on the financial position of the Company.
(16) DERIVATIVE FINANCIAL INSTRUMENTS
The Company is a party to certain derivative financial instruments with
off-balance sheet risk in the normal course of business to effectively manage
its exposure to market risk. Market risk is the possibility that, due to changes
in interest rates or other economic conditions, the Company's net interest
income will be adversely affected. The derivative financial instruments that are
currently being utilized by the Company to manage this risk include interest
rate cap contracts. The amounts potentially subject to market and credit risks
are the streams of interest payments under the contracts and not the notional
principal amounts used to express the volume of the transactions. As of December
31, 1999, the Company had $240 million notional principal amount of interest
rate cap contracts that mature in $60 million notional principal amount
intervals on April 30, 2000, September 1, 2000, October 30, 2000 and January 3,
2001. These contracts were purchased to mitigate the effect of rising rates on
certain floating rate deposit products and provide for the receipt of payments
when the 91-day Treasury bill rate exceeds predetermined strike rates that range
from 4.75% to 5.38%. The payment amounts, if any, are determined and received on
a monthly basis and are recorded as an adjustment to net interest income.
Premiums paid for the purchase of interest rate cap contracts are amortized over
the term of the agreement as an adjustment to net interest income. The Company
may enter into other derivative financial instruments in the future to more
effectively manage its market risk.
Periodically, the Company will sell options to a bank or dealer for the right to
purchase certain securities held within the Banks' investment portfolios. These
covered call option transactions are designed to utilize excess capital at
certain Banks and increase the total return associated with holding these
securities as earning assets. The option premium income generated by these
transactions is recognized as other non-interest income if the option expires
unexercised, or as a component of the gain or loss on the underlying security if
the option is exercised by the purchaser. There were no call option agreements
outstanding as of December 31, 1999 or 1998.
- 34 -
<PAGE>
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties. The
following table presents the carrying amounts and estimated fair values of
Wintrust's financial instruments at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
==============================================================================================================================
At December 31, 1999 At December 31, 1998
-------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and demand balances from banks $ 53,066 53,066 33,924 33,924
Federal funds sold 28,231 28,231 18,539 18,539
Interest bearing deposits with banks 2,547 2,547 7,863 7,863
Available-for-Sale securities 205,795 205,795 209,119 209,119
Held-to-Maturity securities - - 5,000 5,001
Loans, net of unearned income 1,278,249 1,272,395 992,062 999,312
Accrued interest receivable 8,843 8,843 6,989 6,989
Financial liabilities:
Non-maturity deposits 609,860 609,860 543,524 543,524
Deposits with stated maturities 853,762 856,600 685,630 691,850
Short-term borrowings 59,843 59,843 - -
Notes payable 8,350 8,350 - -
Long-term borrowings-trust preferred securities 31,050 30,119 31,050 32,059
Accrued interest payable 2,757 2,757 1,827 1,827
Off-balance sheet derivative contracts:
Interest rate cap agreements - positive value 450 464 151 20
==============================================================================================================================
</TABLE>
Cash and demand balances from banks and Federal funds sold: The carrying value
of cash and demand balances from banks approximates fair value due to the short
maturity of those instruments.
Interest-bearing deposits with banks and securities: Fair values of these
instruments are based on quoted market prices, when available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable assets.
Loans: Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are analyzed by type such as commercial, residential real
estate, etc. Each category is further segmented into fixed and variable interest
rate terms.
For variable-rate loans that reprice frequently, estimated fair values are based
on carrying values. The fair value of residential real estate loans is based on
secondary market sources for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value for other loans is estimated
by discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate
inherent in the loan.
Accrued interest receivable and accrued interest payable: The carrying value of
accrued interest receivable and accrued interest payable approximates market
value due to the relatively short period of time to expected realization.
Deposit liabilities: The fair value of deposits with no stated maturity, such as
non-interest bearing deposits, savings, NOW accounts and money market accounts,
is equal to the amount payable on demand as of year-end (i.e. the carrying
value). The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate is estimated using the rates
currently in effect for deposits of similar remaining maturities.
Short-term borrowings: The carrying value of short-term borrowings approximate
fair value due to the relatively short period of time to maturity or repricing.
- 35 -
<PAGE>
Notes payable: The carrying value of notes payable approximate fair value due to
the relatively short period of time to repricing of variable interest rates.
Long-term borrowings: The fair value of long-term borrowings, which consists
entirely of Trust Preferred Securities, was determined based on the quoted
market price as of the last business day of the year.
Interest rate cap agreements: The carrying value of interest rate cap agreements
represent the remaining unamortized cost of the contracts. The fair value is
based on quoted market prices as of the last business day of the year.
Commitments to extend credit and standby letters of credit: The fair value of
commitments to extend credit is based on fees currently charged to enter into
similar arrangements, the remaining term of the agreement, the present
creditworthiness of the counterparty, and the difference between current
interest rates and committed interest rates on the commitments. Because most of
Wintrust's commitment agreements were recently entered into and/or contain
variable interest rates, the carrying value of Wintrust's commitments to extend
credit approximates fair value. The fair value of letters of credit is based on
fees currently charged for similar arrangements.
The above fair value estimates were made at a point in time based on relevant
market information and other assumptions about the financial instruments. As no
active market exists for a significant portion of the Company's financial
instruments, fair value estimates were based on judgements regarding current
economic conditions, future expected cash flows and loss experience, risk
characteristics and other factors. These estimates are subjective in nature and
involve uncertainties and therefore cannot be calculated with precision. Changes
in these assumptions could significantly affect these estimates. In addition,
the fair value estimates only reflect existing on and off-balance sheet
financial instruments and do not attempt to assess the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, the value of depositor relationships,
premises and equipment, intangible assets and the Company's trust and investment
business have not been considered.
(18) WARRANTS TO ACQUIRE COMMON STOCK
The Company has issued warrants to acquire common stock. The warrants entitle
the holder to purchase one share of the Company's common stock at purchase
prices ranging from $14.85 to $15.00 per share. There were 155,433 outstanding
warrants to acquire common stock at December 31, 1999 and 1998, respectively,
with expiration dates ranging from December 2002 through November 2005.
(19) ACQUISITION
On October 26, 1999 (effective as of October 1, 1999), Hinsdale Bank, a
wholly-owned subsidiary of the Company, acquired 100% of the common stock of
Tricom for $8.0 million, consisting of $4.0 million in cash and 227,635 shares
of the Company's common stock. In accordance with the purchase agreement,
$500,000 of the $4.0 million cash portion was deposited into an escrow account
with an unaffiliated bank and will be released to the sellers after March 31,
2000, subject to having met certain conditions of the transaction. The
transaction was recorded using the purchase method of accounting and,
accordingly, a tentative purchase price allocation was completed that included
the $500,000 contingent payment in the purchase price. This tentative allocation
resulted in approximately $10.1 million being allocated to goodwill, which is
being amortized over a 20 year period. The purchase price allocation will be
finalized after the $500,000 contingent payment has been resolved.
Tricom has been in business for approximately ten years and provides short-term
accounts receivable financing and value-added out-sourced administrative
services, such as data processing of payrolls, billing and cash management
services, to temporary staffing service clients located throughout the United
States. Tricom revenue is derived primarily from interest income from financing
activities and fee revenue from administrative services provided to its clients.
- 36 -
<PAGE>
Results of operations for Tricom have been included in the Company's
Consolidated Statements of Income beginning on October 1, 1999, as shown in the
table below. The following pro forma financial information reflects the
Company's results of operations as if Tricom's results would have been included
for the entire twelve-month periods ended December 31, 1999 and 1998 (in
thousands, except per share data):
===============================================================
Year Ended December 31,
---------------------------------
1999 1998
---------------------------------
Net interest income:
As reported $ 47,734 36,764
Tricom included above 826 -
Pro forma 49,764 38,730
Non-interest income:
As reported 9,808 8,075
Tricom included above 1,009 -
Pro forma 12,550 12,198
Net income:
As reported 9,427 6,245
Tricom included above 340 -
Pro forma 9,953 7,066
Earnings per share-Basic:
As reported 1.14 0.77
Tricom included above 0.04 -
Pro forma 1.18 0.84
Earnings per share-Diluted:
As reported 1.10 0.74
Tricom included above 0.04 -
Pro forma 1.14 0.81
===============================================================
(20) SEGMENT INFORMATION
The Company's operations consist of five primary segments: banking, premium
finance, indirect auto, Tricom and trust. Through its six bank subsidiaries
located in several affluent suburban Chicago communities, the Company provides
traditional community banking products and services to individuals and
businesses such as accepting deposits, advancing loans, administering ATMs,
maintaining safe deposit boxes, and providing other related services. The
premium finance operations consist of financing the payment of commercial
insurance premiums, on a national basis, through FIFC. A significant portion of
the loans originated by FIFC are sold to the Banks and are retained in each of
their loan portfolios. The indirect auto segment is operated from one of the
Company's bank subsidiaries and is in the business of providing high quality new
and used auto loans through a large network of auto dealerships within the
Chicago metropolitan area. All loans originated by this segment are currently
retained within the Banks' loan portfolios. The Tricom segment encompasses the
operations of the Company's recent non-bank acquisition, as described in Note
19. The operating segment information of Tricom is included in the following
tables since October 1, 1999, the effective date of the acquisition. The trust
segment is operated through WAMC, which was formed in September 1998 to offer
trust and investment management services at each of the Banks. In addition to
offering these services to existing customers of the Banks, WAMC will be
targeting newly affluent individuals and small to mid-size businesses whose
needs command personalized attention by experienced trust professionals. Prior
to the formation of WAMC, trust services were provided through a department of
the Lake Forest Bank.
Each of the five reportable segments are strategic business units that are
separately managed as they offer different products and services and have
different marketing strategies. In addition, each segment's customer base has
varying characteristics. The banking and indirect auto segments also have a
different regulatory environment than the premium finance, Tricom and trust
segments. While the Company's chief decision makers monitor each of the six bank
subsidiaries' operations and profitability separately, these subsidiaries have
been aggregated into one reportable operating segment due to the similarities in
products and services, customer base, operations, profitability measures, and
economic characteristics.
The segment financial information provided in the following tables has been
derived from the internal profitability reporting system used by management and
the chief decision makers to monitor and manage the financial performance of the
Company. The accounting policies of the segments are generally the same as those
described in the Summary of Significant Accounting Policies in Note 1 to the
Consolidated Financial Statements. The Company evaluates segment performance
based on after-tax profit or loss and other appropriate profitability measures
common to each segment. Certain indirect expenses have been allocated based on
actual volume measurements and other criteria, as appropriate. Intersegment
revenue and transfers are generally accounted for at current market prices. The
other category reflects parent company information.
- 37 -
<PAGE>
The following is a summary of certain operating information for reportable
segments (in thousands):
=============================================================
Year Ended December 31,
--------------------------------
1999 1998 1997
--------------------------------
NET INTEREST INCOME:
Banking $ 44,293 34,245 25,537
Premium finance 12,643 9,714 7,359
Indirect auto 8,201 5,595 3,610
Tricom 826 N/A N/A
Trust 469 359 182
Intersegment eliminations (15,511) (11,168) (8,963)
Other (3,187) (1,981) (953)
--------------------------------
Total $ 47,734 36,764 26,772
- -------------------------------------------------------------
NON-INTEREST INCOME:
Banking $ 7,140 7,700 3,745
Premium finance 1,033 - 147
Indirect auto 1 2 1
Tricom 1,009 N/A N/A
Trust 1,171 788 626
Intersegment eliminations (606) (418) 425
Other 60 3 -
--------------------------------
Total $ 9,808 8,075 4,944
- -------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES (NON-CASH ITEM):
Banking $ 3,774 4,403 2,474
Premium finance 263 401 1,058
Indirect auto 1,665 855 446
Tricom 10 N/A N/A
Trust - - -
Intersegment eliminations (1,999) (1,362) (574)
--------------------------------
Total $ 3,713 4,297 3,404
- -------------------------------------------------------------
DEPRECIATION AND AMORTIZATION (NON-CASH ITEM):
Banking $ 3,245 2,457 1,968
Premium finance 294 284 288
Indirect auto 36 30 23
Tricom 248 N/A N/A
Trust 58 48 22
Intersegment eliminations - (62) (45)
Other 365 195 138
--------------------------------
Total $ 4,246 2,952 2,394
- -------------------------------------------------------------
INCOME TAX EXPENSE (BENEFIT):
Banking $ 5,831 3,046 880
Premium finance 2,697 1,276 236
Indirect auto 1,692 1,168 773
Tricom 238 N/A N/A
Trust (299) (114) 149
Intersegment eliminations (3,726) (5,424) (4,912)
Other (1,709) (1,488) (914)
--------------------------------
Total $ 4,724 (1,536) (3,788)
=============================================================
=============================================================
Year Ended December 31,
--------------------------------
1999 1998 1997
--------------------------------
SEGMENT PROFIT (LOSS):
Banking $ 10,284 5,131 4,112
Premium finance 4,273 2,022 373
Indirect auto 2,680 1,850 1,225
Tricom 340 N/A N/A
Trust (559) (189) 237
Intersegment eliminations (4,764) (99) (114)
Other (2,827) (2,470) (987)
--------------------------------
Total $ 9,427 6,245 4,846
- -------------------------------------------------------------
EXPENDITURES FOR ADDITIONS TO PREMISES AND EQUIPMENT:
Banking $ 14,521 14,644 12,827
Premium finance 1,712 500 3,221
Indirect auto 55 33 28
Tricom 364 N/A N/A
Trust 146 72 12
Intersegment eliminations - (33) (40)
Other 419 243 15
--------------------------------
Total $ 17,217 15,459 16,063
- -------------------------------------------------------------
At December 31,
--------------------------------
1999 1998
--------------------------------
SEGMENT ASSETS:
Banking $ 1,676,983 1,377,641
Premium finance 260,323 234,779
Indirect auto 266,040 219,232
Tricom 29,213 N/A
Trust 2,578 2,886
Intersegment eliminations (559,139) (491,795)
Other 3,384 5,305
--------------------------------
Total $ 1,679,382 1,348,048
=============================================================
The premium finance and indirect auto segment information shown in the above
tables was derived from their internal profitability reports, which assumes that
all loans originated and sold to the banking segment are retained within the
segment that originated the loans. All related loan interest income, allocations
for interest expense, provisions for possible loan losses and allocations for
other expenses are included in the premium finance and indirect auto segments.
The banking segment information also includes all amounts related to these
loans, as these loans are retained within the Banks' loan portfolios.
Accordingly, the intersegment eliminations shown in the above tables includes
adjustments necessary for each category to agree with the related consolidated
financial amounts. The intersegment eliminations amount reflected in the Income
Tax Expense (Benefit) category also includes the recognition of income tax
benefits from the realization of previously unvalued tax loss benefits.
- 38 -
<PAGE>
(21) CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
=========================================================================
CONDENSED BALANCE SHEET
(in thousands):
DECEMBER 31,
1999 1998
--------------------------------
ASSETS
Cash $ 269 2,312
Investment in subsidiaries 130,967 102,634
Other assets 3,115 2,993
--------------------------------
Total assets $ 134,351 107,939
=========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 1,044 724
Notes payable 8,350 -
Long-term debt - trust
preferred securities 32,010 32,010
Shareholders' equity 92,947 75,205
--------------------------------
Total liabilities and
shareholders' equity $ 134,351 107,939
=========================================================================
=========================================================================
CONDENSED STATEMENTS OF INCOME (IN THOUSANDS):
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
---------------------------------
INCOME
Dividends from subsidiary $ - 8,250 -
Other income 60 3 -
---------------------------------
Total income 60 8,253 -
---------------------------------
EXPENSES
Interest expense 3,187 1,981 953
Salaries and employee benefits 252 1,095 333
Amortization of goodwill and
organizational costs 212 161 138
Other expenses 945 724 477
---------------------------------
Total expenses 4,596 3,961 1,901
---------------------------------
Income (loss) before income taxes
and equity in undistributed net
income of subsidiaries (4,536) 4,292 (1,901)
Income tax benefit (1,709) (1,488) (914)
---------------------------------
Income (loss) before equity in
undistributed net income
of subsidiaries (2,827) 5,780 (987)
Equity in undistributed net
income of subsidiaries 12,254 465 5,833
---------------------------------
Net income $ 9,427 6,245 4,846
=========================================================================
=========================================================================
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands):
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
---------------------------------
OPERATING ACTIVITIES:
Net income $ 9,427 6,245 4,846
Adjustments to reconcile net income
to net cash provided by
operating activities:
Amortization of goodwill and
organizational costs 212 161 138
Deferred income taxes (249) 519 (914)
(Increase) decrease in other assets (84) (416) 95
Increase (decrease) in other liabilities 320 568 (111)
Equity in undistributed net income
of subsidiaries (12,254) (465) (5,833)
---------------------------------
Net cash provided by (used for)
operating activities (2,628) 6,612 (1,779)
---------------------------------
INVESTING ACTIVITIES:
Capital infusions to subsidiaries (14,300) (17,026) (17,850)
---------------------------------
Net cash used for
investing activities (14,300) (17,026) (17,850)
---------------------------------
FINANCING ACTIVITIES:
Increase (decrease) in
notes payable, net 8,350 (20,402) (1,655)
Proceeds from long-term debt - 32,010 -
Common stock issuance, net 5,984 - 20,326
Common stock issued upon
exercise of stock options 403 264 964
Common stock issued through
employee stock purchase plan 148 - -
Advances from subsidiaries - - 785
---------------------------------
Net cash provided by
financing activities 14,885 11,872 20,420
---------------------------------
Net increase (decrease) in cash (2,043) 1,458 791
Cash at beginning of year 2,312 854 63
---------------------------------
Cash at end of year $ 269 2,312 854
=========================================================================
- 39 -
<PAGE>
(22) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
common share for 1999, 1998 and 1997 (in thousands, except per share data):
==========================================================================
1999 1998 1997
------------------------------
Net income (A) $ 9,427 6,245 4,846
------------------------------
Average common shares outstanding (B) 8,249 8,142 7,755
Effect of dilutive common shares 309 353 331
------------------------------
Weighted average common shares and
effect of dilutive common shares (C) 8,558 8,495 8,086
------------------------------
Net earnings per average
common share - Basic (A/B) $ 1.14 0.77 0.62
Net earnings per average
common share - Diluted (A/C) $ 1.10 0.74 0.60
==========================================================================
The effect of dilutive common shares outstanding results from stock options,
stock warrants and shares to be issued under the SPP, all being treated as if
they had been either exercised or issued, and are computed by application of the
treasury stock method.
(23) QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
The following is a summary of quarterly financial information for the years
ended December 31, 1999 and 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
============================================================================================================================
1999 QUARTERS 1998 QUARTERS
-------------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
-------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 24,278 26,114 28,084 30,855 19,900 21,447 22,941 23,691
Interest expense 13,462 14,516 15,862 17,757 11,896 12,537 13,068 13,714
-------------------------------------------- -----------------------------------------
Net interest income 10,816 11,598 12,222 13,098 8,004 8,910 9,873 9,977
Provision for possible loan losses 784 933 990 1,006 1,267 1,073 971 986
-------------------------------------------- -----------------------------------------
Net interest income after provision
for possible loan losses 10,032 10,665 11,232 12,092 6,737 7,837 8,902 8,991
Non-interest income, excluding
net securities gains (losses) 2,308 2,118 2,002 3,375 1,683 1,989 2,009 2,394
Net securities gains (losses) - - 15 (10) - - - -
Non-interest expense (1) 9,536 9,528 9,430 11,184 7,932 9,467 8,639 9,795
-------------------------------------------- -----------------------------------------
Income before income taxes 2,804 3,255 3,819 4,273 488 359 2,272 1,590
Income tax expense (benefit) 970 995 1,292 1,467 (554) (604) 118 (496)
-------------------------------------------- -----------------------------------------
Net income $ 1,834 2,260 2,527 2,806 1,042 963 2,154 2,086
============================================ =========================================
Net income per common
share - Basic $ 0.22 0.28 0.31 0.33 0.13 0.12 0.26 0.26
Net income per common
share - Diluted $ 0.22 0.27 0.30 0.32 0.12 0.11 0.25 0.25
============================================================================================================================
<FN>
(1) During the second quarter of 1998, the Company recorded a non-recurring
$1.0 million pre-tax charge related to severance amounts due to the
Company's former Chairman and Chief Executive Officer and certain related
legal fees.
</FN>
</TABLE>
- 40 -
<PAGE>
INDEPENDENT AUDITORS' REPORTS
- --------------------------------------------------------------------------------
The Board of Directors
Wintrust Financial Corporation
We have audited the accompanying consolidated statement of condition of Wintrust
Financial Corporation and subsidiaries (the "Company") as of December 31, 1999,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1999, and the consolidated results of their operations
and their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
February 16, 2000
================================================================================
The Board of Directors
Wintrust Financial Corporation:
We have audited the accompanying consolidated statement of condition of Wintrust
Financial Corporation and subsidiaries (the "Company") as of December 31, 1998,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the two-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wintrust Financial
Corporation and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Chicago, Illinois
March 19, 1999
- 41 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion highlights the significant factors affecting the
operations and financial condition of Wintrust for the three years ended
December 31, 1999. This discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto, and
Selected Financial Highlights appearing elsewhere within this report. This
discussion contains forward-looking statements concerning the Company's business
that are based on estimates and involve risks and uncertainties. Therefore,
future results could differ significantly from management's current expectations
and the related forward-looking statements. See the last section of this
discussion for further information regarding forward-looking statements.
OPERATING SUMMARY
Wintrust's income before income taxes increased by over 200% for the second
consecutive year. In addition, the Company's key operating measures and balance
sheet growth showed impressive improvement in 1999 as evidenced by the table
below (in thousands, except per share data):
===============================================================
YEAR ENDED YEAR ENDED PERCENT
12/31/99 12/31/98 IMPROVEMENT
----------------------------------
Income before income taxes $ 14,151 $ 4,709 200.5%
Net income 9,427 6,245 51.0
Net income per common
share - Diluted 1.10 0.74 48.6
Net revenues 57,542 44,839 28.3
Net interest income 47,734 36,764 29.8
Net interest margin 3.54% 3.43% 3.2
Net overhead ratio 2.00 2.36 15.3
Return on average assets 0.63 0.53 18.9
Return on average equity 11.58 8.68 33.4
Total assets $ 1,679,382 $ 1,348,048 24.6
Total net loans 1,278,249 992,062 28.8
Total deposits 1,463,622 1,229,154 19.1
Book value per common share $ 10.60 $ 9.23 14.8
===============================================================
Please refer to the Consolidated Results of Operations section later in this
discussion for further analysis of the Company's operations for the past three
years.
OVERVIEW AND STRATEGY
Wintrust's operating subsidiaries were organized within the last eight years,
with an average life of its six subsidiary banks of approximately five years.
The Company has grown rapidly during the past few years and its Banks have been
among the fastest growing community-oriented de novo banking operations in
Illinois and the country. Because of the rapid growth, the historical financial
performance of the Banks and FIFC has been affected by costs associated with
growing market share, 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 generally reflects improving
profitability 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 a few 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, FIFC, WAMC and Tricom.
One aspect of this strategy is to continue to pursue specialized earning asset
niches, and to shift the mix of earning assets to higher-yielding loans. Another
aspect of this strategy is a continued focus on less aggressive deposit pricing
at the Banks with significant market share and more established customer bases.
FIFC is the Company's most significant specialized earning asset niche and had
approximately $690 million in premium finance receivable volume during 1999.
Although a large portion of this receivable volume is retained within the Banks'
loan portfolios, FIFC sold approximately $69 million of these receivables to an
unrelated third party in 1999 as a result of continued volume growth. In
addition to recognizing gains on the sale of these receivables, the proceeds
provided the Company with additional liquidity. Consistent with the Company's
strategy to be asset-driven, it is probable that similar future sales of these
receivables will occur depending on the level of new volume growth in relation
to the capacity to retain such loans within the Banks' loan portfolios.
- 42 -
<PAGE>
De Novo Bank Formation and Branch Opening Activity
The following table illustrates the progression of bank and branch openings that
have impacted the Company's growth and results of operations since inception.
<TABLE>
<CAPTION>
==================================================================================================================================
Month Year Bank Location Type of Facility
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C <C
October 1999 North Shore Bank Skokie, Illinois Branch
September 1999 Crystal Lake Bank Crystal Lake, Illinois Branch
June 1999 Lake Forest Bank Lake Forest, Illinois Bank/Corporate expansion
March 1999 Crystal Lake Bank Crystal Lake, Illinois Drive-up/walk-up
January 1999 Hinsdale Bank Western Springs, Illinois (2) New permanent facility
December 1998 Lake Forest Bank Lake Forest, Illinois Branch
October 1998 Libertyville Bank Libertyville, Illinois Branch
September 1998 Crystal Lake Bank Crystal Lake, Illinois New permanent facility
May 1998 North Shore Bank Glencoe, Illinois Drive-up/walk-up
April 1998 North Shore Bank Wilmette, Illinois Walk-up
December 1997 Crystal Lake Bank Crystal Lake, Illinois Bank
November 1997 Hinsdale Bank Western Springs, Illinois (2) Branch
February 1997 Lake Forest Bank Lake Forest, Illinois Drive-up/walk-up
December 1996 Barrington Bank Barrington, Illinois Bank
August 1996 Hinsdale Bank Clarendon Hills, Illinois (1) Branch
May 1996 North Shore Bank Winnetka, Illinois Branch
November 1995 North Shore Bank Wilmette, Illinois Drive-up/walk-up
October 1995 Hinsdale Bank Hinsdale, Illinois Drive-up/walk-up
October 1995 Libertyville Bank Libertyville, Illinois Bank
October 1995 Libertyville Bank Libertyville, Illinois Drive-up/walk-up
October 1995 North Shore Bank Glencoe, Illinois Branch
May 1995 Lake Forest Bank West Lake Forest, Illinois Branch
December 1994 Lake Forest Bank Lake Bluff, Illinois Branch
September 1994 North Shore Bank Wilmette, Illinois Bank
April 1994 Lake Forest Bank Lake Forest, Illinois New permanent facilities
October 1993 Hinsdale Bank Hinsdale, Illinois Bank
April 1993 Lake Forest Bank Lake Forest, Illinois Drive-up/walk-up
December 1991 Lake Forest Bank Lake Forest, Illinois Bank
<FN>
(1) Operates in this location as Clarendon Hills Bank, a branch of Hinsdale
Bank.
(2) Operates in this location as Community Bank of Western Springs, a branch of
Hinsdale Bank.
</FN>
==================================================================================================================================
</TABLE>
The October 1999 acquisition of Tricom is another significant step in the
Company's strategy to pursue specialized earning asset niches. Tricom is a
Milwaukee-based company that has been in business for approximately ten years
and specializes in providing, on a national basis, short-term accounts
receivable financing and value-added out-sourced administrative services, such
as data processing of payrolls, billing and cash management services, to clients
in the temporary staffing industry. On an annual basis, Tricom currently
finances and processes payrolls with associated billings in excess of $200
million and generates approximately $7 million in revenues. By virtue of the
Company's funding resources, this acquisition will provide Tricom with
additional capital necessary to expand its financing services in a national
market. Tricom's revenue principally consists of interest income from financing
activities and fee-based revenues from administrative services. In addition to
expanding the Company's earning asset niches, this acquisition will add to the
level of fee-based income and augment its community-based banking revenues.
Other newer specialized earning asset niches include Lake Forest Bank's MMF
Leasing Services ("MMF") equipment leasing division, a previously established
small business that was acquired in July 1998, and Barrington Bank's recently
established program that provides lending and deposit services to condominium,
homeowner and community associations. In addition, Hinsdale Bank's mortgage
warehouse lending program provides loan and deposit services to approximately
thirty mortgage brokerage companies located predominantly in the Chicago
metropolitan area. The Company plans to continue pursuing the development or
acquisition of other specialty earning asset niches or finance businesses that
generate assets suitable for bank investment and/or secondary market sales.
With the formation of WAMC in September 1998, the Company intends to expand the
trust and investment management services that were previously provided through
the trust department of the Lake Forest Bank. With a separately chartered trust
subsidiary, the
- 43 -
<PAGE>
Company is now better able to offer trust and investment management services to
all communities served by Wintrust banks, which management believes are some of
the best trust markets in Illinois. In addition to offering these services to
existing bank customers at each of the Banks, the Company believes WAMC can
successfully compete for trust business by targeting small to mid-size
businesses and newly affluent individuals whose needs command the personalized
attention offered by WAMC's experienced trust professionals. During the fourth
quarter of 1998, WAMC added experienced trust professionals at North Shore Bank,
Hinsdale Bank and Barrington Bank. As in the past, a full complement of trust
professionals continue to operate from offices at the Lake Forest Bank.
Prospective trust customers at Libertyville Bank and Crystal Lake Bank are
currently being served on an appointment basis, as the need arises. Services
offered by WAMC typically include traditional trust products and services, as
well as investment management, financial planning and 401(k) management
services.
Similar to starting a de novo bank, the introduction of expanded trust services
has caused relatively high overhead levels when compared to fee income generated
by WAMC. The overhead consists 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, to a level that
trust fees cover the overhead of WAMC.
GENERAL
The Company's operating profitability depends on its net interest income,
provision for possible loan losses, non-interest income and non-interest
expense. Net interest income is the difference between the income the Company
receives on its loan and security portfolios and its cost of funds, which
consists of interest paid on deposits, short-term borrowings, notes payable and
trust preferred securities. The provision for possible loan losses reflects the
cost of credit risk in the Company's loan portfolio. Non-interest income
consists of fees on mortgage loans sold, service charges on deposit accounts,
trust fees, gains on sales of premium finance receivables, administrative
services revenue and other miscellaneous fees and income. Non-interest expense
includes salaries and employee benefits as well as occupancy, equipment, data
processing, advertising and marketing, professional fees, amortization of
intangible assets and other operating expenses.
Net interest income is dependent on the amounts and yields of interest-earning
assets as compared to the amounts and rates on interest-bearing liabilities. Net
interest income is sensitive to changes in market rates of interest and the
Company's asset/liability management actions. The provision for loan losses is
dependent on increases in the loan portfolio, management's assessment of the
collectibility of the loan portfolio, net loans charged-off, historical loss
experience, as well as economic conditions and other market factors. Fees on
mortgage loans sold relate to the Company's practice of originating long-term
fixed-rate mortgage loans for sale into the secondary market in order to satisfy
customer demand for such loans while avoiding the interest-rate risk associated
with holding long-term fixed-rate mortgage loans in the Banks' portfolios. These
fees are highly dependent on the mortgage interest rate environment and the
volume of real estate transactions and mortgage refinancing activity. The
Company earns trust fees for managing and administering trust and investment
accounts for individuals and businesses. Gains on sales of premium finance
receivables result from FIFC's sale of a portion of new origination volumes to
an unaffiliated third party. Administrative services revenue results from
various value-added services that Tricom provides to its temporary staffing
service clients such as data processing of payrolls, billing and cash management
services. Miscellaneous fees and income primarily include income generated from
other ancillary banking services, premium income from the sale of covered call
options and rental income from leased equipment. Non-interest expenses are
heavily influenced by the growth of operations, with additional employees
necessary to staff new banks, branch facilities and trust expansion, higher
levels of occupancy and equipment costs, as well as advertising and marketing
expenses necessary to promote the growth. The increase in the number of account
relationships directly affects such expenses as data processing costs, supplies,
postage, loan expenses, and other miscellaneous operating expenses.
- 44 -
<PAGE>
AVERAGE BALANCE SHEETS, INTEREST INCOME AND EXPENSE, AND INTEREST RATE YIELDS
AND COSTS
The following table sets forth the average balances, the interest earned or paid
thereon, and the effective interest rate yield or cost for each major category
of interest-earning assets and interest-bearing liabilities for the years ended
December 31, 1999, 1998, and 1997. The yields and costs include loan origination
fees and certain direct origination costs which are considered adjustments to
yields. Interest income on non-accruing loans is reflected in the year that it
is collected, to the extent it is not applied to principal. Such amounts are not
material to net interest income or net change in net interest income in any
year. Non-accrual loans are included in the average balances and do not have a
material effect on the average yield. Net interest income and the related net
interest margin have been adjusted to reflect tax-exempt income, such as
interest on municipal securities and loans, on a tax-equivalent basis. This
table should be referred to in conjunction with this analysis and discussion of
the financial condition and results of operations (dollars in thousands).
<TABLE>
<CAPTION>
==============================================================================================================================
1999 1998 1997
----------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance(1) Interest Cost Balance(1) Interest Cost Balance(1) Interest Cost
----------------------------------------------------------------------------------------------
Assets
Interest bearing deposits with
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
banks $ 3,840 $ 204 5.31% $ 40,094 $ 2,283 5.69% $ 32,319 $ 1,764 5.46%
Securities (2) 187,258 10,336 5.52 142,770 8,000 5.60 69,887 3,793 5.43
Federal funds sold 30,844 1,536 4.98 43,784 2,327 5.31 63,889 3,493 5.47
Loans, net of unearned
income (2) 1,135,200 97,529 8.59 848,344 75,464 8.90 620,801 56,134 9.04
----------------------------------------------------------------------------------------------
Total earning assets 1,357,142 109,605 8.08 1,074,992 88,074 8.19 786,896 65,184 8.28
----------------------------------------------------------------------------------------------
Cash and due from banks 39,285 26,585 17,966
Allowance for possible loan
losses (7,980) (5,983) (4,522)
Premises and equipment, net 65,539 50,681 35,634
Other assets 42,580 31,470 22,110
----------------------------------------------------------------------------------------------
Total assets $1,496,566 $1,177,745 $ 858,084
==============================================================================================================================
Liabilities and Shareholders' Equity
Deposits - interest bearing:
NOW accounts $ 123,846 $ 3,607 2.91% $ 89,963 $ 2,849 3.17% $ 66,221 $ 2,535 3.83%
Savings and money market
deposits 309,525 11,194 3.62 256,644 10,480 4.08 191,317 8,220 4.30
Time deposits 751,286 41,225 5.49 611,199 35,740 5.85 444,587 26,620 5.99
----------------------------------------------------------------------------------------------
Total interest bearing
deposits 1,184,657 56,026 4.73 957,806 49,069 5.12 702,125 37,375 5.32
----------------------------------------------------------------------------------------------
Short-term borrowings
and notes payable 53,076 2,633 4.96 21,249 1,399 6.58 13,694 964 7.04
Long-term debt - trust preferred
securities(3) 31,050 2,938 9.46 7,915 747 9.44 - - -
----------------------------------------------------------------------------------------------
Total interest bearing
liabilities 1,268,783 61,597 4.85 986,970 51,215 5.19 715,819 38,339 5.36
----------------------------------------------------------------------------------------------
Non-interest bearing deposits 126,388 100,712 73,280
Other liabilities 20,014 18,157 7,481
Shareholders' equity 81,381 71,906 61,504
----------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,496,566 $1,177,745 $ 858,084
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income/spread $ 48,008 3.23% $ 36,859 3.00% $ 26,845 2.92%
Net interest margin 3.54% 3.43% 3.41%
Core net interest margin(4) 3.64% 3.45% 3.41%
==============================================================================================================================
<FN>
(1) Average balances were generally computed using daily balances.
(2) Interest income on tax advantaged securities and loans reflects a
tax-equivalent adjustment based on a marginal federal tax rate of 35% for
1999 and 34% for both 1998 and 1997. This total adjustment reflected in the
above table is $274, $95 and $73 in 1999, 1998 and 1997, respectively.
(3) This category relates to the $31.05 million 9.00% Cumulative Trust
Preferred Securities offering that was completed in October 1998. The rates
shown above are higher than the 9.00% coupon rate due to amortization of
offering costs, including underwriting fees, legal and professional fees,
and other related costs. See Note 10 to the Consolidated Financial
Statements for further information about the Trust Preferred Securities.
(4) The core net interest margin excludes the net impact of the Company's 9.00%
Cumulative Trust Preferred Securities offering and certain discretionary
investment leveraging transactions.
</FN>
</TABLE>
- 45 -
<PAGE>
CHANGES IN INTEREST INCOME AND EXPENSE
The following table shows the dollar amount of changes in interest income and
expense by major categories of interest-earning assets and interest-bearing
liabilities attributable to changes in volume or rate or both, for the periods
indicated (in thousands):
<TABLE>
<CAPTION>
============================================================================================================================
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1999 COMPARED TO 1998 1998 COMPARED TO 1997
---------------------------------------------------------------------------
CHANGE CHANGE CHANGE CHANGE
DUE TO DUE TO TOTAL DUE TO DUE TO TOTAL
RATE VOLUME CHANGE RATE VOLUME CHANGE
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest bearing deposits with banks $ (142) (1,937) (2,079) 79 440 519
Federal funds sold (138) (653) (791) (95) (1,071) (1,166)
Securities (116) 2,452 2,336 127 4,080 4,207
Loans (2,695) 24,760 22,065 (925) 20,255 19,330
---------------------------------------------------------------------------
Total interest income (3,091) 24,622 21,531 (814) 23,704 22,890
---------------------------------------------------------------------------
INTEREST EXPENSE:
NOW accounts (247) 1,005 758 (489) 803 314
Savings and money market deposits (1,280) 1,994 714 (426) 2,686 2,260
Time deposits (2,323) 7,808 5,485 (637) 9,757 9,120
Short-term borrowings and notes payable (417) 1,651 1,234 (66) 501 435
Long-term debt-trust preferred securities 2 2,189 2,191 - 747 747
---------------------------------------------------------------------------
Total interest expense (4,265) 14,647 10,382 (1,618) 14,494 12,876
---------------------------------------------------------------------------
Net interest income $ 1,174 9,975 11,149 804 9,210 10,014
============================================================================================================================
</TABLE>
The changes in net interest income are created by various changes in both
interest rates and volumes and, therefore, require significant analysis.
However, it is clear that the change in the Company's net interest income for
the periods under review was predominantly impacted by the growth in the volume
of the overall interest-earning assets (specifically loans) and interest-bearing
deposit liabilities. In the table above, volume variances are computed using the
change in volume multiplied by the previous year's rate. Rate variances are
computed using the change in rate multiplied by the previous year's volume. The
change in interest due to both rate and volume has been allocated between
factors in proportion to the relationship of the absolute dollar amounts of the
change in each.
ANALYSIS OF FINANCIAL CONDITION
The dynamics of community bank balance sheets is generally dependent upon the
ability of management to attract additional deposit accounts to fund the growth
of the institution. As several of the Company's banks are still less than five
years old, the generation of new deposit relationships to gain market share and
establish themselves in the community as the bank of choice is particularly
important. When determining a community to establish a de novo bank, the Company
generally will only enter a community where it believes the bank can gain the
number one or two position in deposit market share. This is usually accomplished
by initially paying competitively high deposit rates to gain the relationship
and then by introducing the customer to the Company's unique way of providing
local banking services.
Deposits. Over the past three years, the Company has experienced significant
growth in both the number of accounts and the balance of deposits primarily as a
result of de novo bank formations, new branch openings and strong marketing
efforts. Total deposit balances increased 19.1% to $1.46 billion at December 31,
1999 as compared to $1.23 billion at December 31, 1998, which increased 33.9%
when compared to the balance of $917.7 million at December 31, 1997.
As can be seen from the following table, the composition of the deposit base has
remained relatively consistent when comparing the ending balances as of December
31, 1999, 1998 and 1997 (dollars in thousands):
- 46 -
<PAGE>
<TABLE>
<CAPTION>
==================================================================================
1999 1998 1997
----------------------------------------------------------------------------------
Ending Percent Ending Percent Ending Percent
Balance of Total Balance of Total Balance of Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing deposits $ 154,034 11% $ 131,309 11% $ 92,840 10%
NOW accounts 130,625 9 114,284 9 83,301 9
Savings and money market deposits 325,201 22 297,932 24 216,338 24
Time deposits 853,762 58 685,629 56 525,222 57
----------------------------------------------------------------------------------
Total deposits $ 1,463,622 100% $ 1,229,154 100% $ 917,701 100%
=============================================================================================================================
</TABLE>
Additionally, growth in the deposit base continues to be generated by each of
the Banks. The following table presents deposit balances by the Banks and the
relative percentage of total deposits held by each Bank at December 31 for the
past three years (dollars in thousands):
<TABLE>
<CAPTION>
=============================================================================================================================
1999 1998 1997
----------------------------------------------------------------------------------
Deposit Percent Deposit Percent Deposit Percent
Balances of Total Balances of Total Balances of Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lake Forest Bank $ 416,642 29% $ 371,900 30% $ 287,765 31%
Hinsdale Bank 296,127 20 259,333 21 206,197 22
North Shore Bank 327,130 22 270,030 22 245,184 27
Libertyville Bank 191,085 13 171,735 14 112,658 12
Barrington Bank 156,859 11 109,130 9 64,803 7
Crystal Lake Bank 75,779 5 47,026 4 1,094 1
----------------------------------------------------------------------------------
Total deposits $ 1,463,622 100% $ 1,229,154 100% $ 917,701 100%
==================================================================================
Percentage increase from
prior year-end 19.1% 33.9% 48.5%
=============================================================================================================================
</TABLE>
Short-term borrowings. Short-term borrowings predominantly include securities
sold under agreements to repurchase and federal funds purchased and totaled
$59.8 million at December 31, 1999. There were no short-term borrowings
outstanding as of December 31, 1998. This funding category fluctuates based on
daily liquidity needs of the Banks, FIFC and Tricom.
Notes payable. As of December 31, 1999, notes payable totaled $8.4 million and
represented the outstanding balance on the Company's $40 million revolving
credit line with an unaffiliated bank. At December 31, 1998, there were no notes
payable outstanding as the proceeds from the October 1998 Trust Preferred
Securities offering were used to pay-off the previous outstanding balance on
this revolving credit line. This revolving credit line is available for
corporate purposes such as to provide capital to fund continued growth at
existing bank subsidiaries, expansion of WAMC, possible future acquisitions and
for other general corporate matters. See Note 9 to the Consolidated Financial
Statements for further discussion of the terms of this revolving credit line.
Long-term debt - trust preferred securities. As of December 31, 1999 and 1998,
this category totaled $31.05 million of 9.00% Cumulative Trust Preferred
Securities, which were publicly sold in an offering that was completed on
October 9, 1998. The proceeds were used to pay-off the outstanding balance on
the revolving credit line, as mentioned above. The Trust Preferred Securities
offering increased the Company's regulatory capital, and provided for the
continued growth of its banking and trust franchise. The ability to treat these
Trust Preferred Securities as regulatory capital under Federal Reserve
guidelines, coupled with the Federal income tax deductibility of the related
interest expense, provides the Company with a cost-effective form of capital.
See Note 10 to the Consolidated Financial Statements for further discussion of
these Trust Preferred Securities.
Total assets and earning assets. The Company's total assets were $1.68 billion
at December 31, 1999, an increase of $331.3 million, or 24.6%, when compared to
$1.35 billion at December 31, 1998, which increased $294.6 million, or 28.0%,
over the December 31, 1997 total of $1.05 billion. Earning assets totaled $1.51
billion at December 31, 1999, an increase of $282.2 million, or 22.9%, from the
balance of $1.23 billion a year earlier. Earning assets as a percentage of total
assets dropped to 90.2% as of December 31, 1999 when compared to
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91.4% as of December 31, 1998. This decline was due mainly to an unusually high
level of cash and due from bank balances maintained at the end of 1999 in
connection with the Company's contingency and liquidity planning for the Year
2000 issue. The increases in total assets and earning assets since December 31,
1998 were primarily attributable to the $234.5 million increase in deposits,
which mainly resulted from continued market share growth. The Company had a
total of 24 banking facilities at the end of 1999 compared to 21 at the end of
1998.
Loans. Total loans, net of unearned income, continued on a solid growth track
during 1999 and totaled $1.28 billion at December 31, 1999, an increase of
$286.2 million, or 28.8%, over the December 31, 1998 balance of $992.1 million.
This growth occurred in all core and specialty loan categories. Total loans, net
of unearned income, comprised 84.4% of total earning assets at December 31, 1999
as compared to 80.5% at December 31, 1998. This shift toward higher yielding
earning assets is consistent with management's objective of being an
asset-driven organization whereby loan generation is on a faster pace than
deposit funding. The following table presents loan balances, net of unearned
income, by category as of December 31, 1999 and 1998 (dollars in thousands):
=========================================================================
1999 1998
--------------------------------------
Percent Percent
Balances of Total Balances of Total
--------------------------------------
Commercial and
commercial real estate $ 485,776 38% $ 366,229 37%
Indirect auto, net 255,410 20 209,983 21
Premium finance, net 219,341 17 178,138 18
Home equity 139,194 11 111,537 11
Residential real estate 111,026 9 91,525 9
Tricom finance receivables 17,577 1 - -
Other loans 49,925 4 34,650 4
--------------------------------------
Total loans, net $ 1,278,249 100% $ 992,062 100%
=========================================================================
Specialty Loan Categories
In order to minimize the time lag typically experienced by de novo banks in
redeploying deposits into higher yielding earning assets, the Company has
developed lending programs focused on specialized earning asset niches that
generally have large volumes of homogeneous assets that can be acquired for the
Banks' portfolios and possibly sold in the secondary market to generate fee
income. These specialty niches also diversify the Banks' loan portfolios and add
higher yielding earning assets that help to improve the net interest margin.
Currently, the Company's two largest loan niches function as separate operating
segments and consist of the premium finance and indirect auto segments. Other
specialty loan programs include finance receivables from the October 1999 Tricom
acquisition, medical and municipal equipment leases through a division of Lake
Forest Bank, mortgage broker warehouse lending through Hinsdale Bank, and
commercial loans through the Community Advantage program at Barrington Bank,
which began in mid-1999 to provide lending and deposit services to condominium,
homeowner and community associations. Management continues to evaluate other
specialized types of earning assets to assist with the deployment of deposit
funds and to diversify the earning asset portfolio.
Premium finance receivables. The Company originates commercial premium finance
receivables through FIFC, which currently sells them to the Banks and an
unrelated third party; however, these receivables could be funded in the future
through an asset securitization facility. All premium finance receivables,
however financed, are subject to the Company's stringent credit standards, and
substantially all such loans are made to commercial customers. The Company
rarely finances consumer insurance premiums. Premium finance receivables totaled
$219.3 million at December 31, 1999 and increased $41.2 million, or 23.1%, from
the $178.1 million balance a year earlier. In addition to this growth, FIFC sold
approximately $69 million of new 1999 volume to an unrelated third party and
recognized approximately $1.0 million in gains from the sales of these loans.
During 1999, loan originations totaled almost $690 million, an increase of over
40% from the prior year volume level. In July 1999, a program agreement was
signed with Dallas-based Premium Finance Holdings ("PFH") to originate premium
finance receivables referred by PFH, which is anticipated to add almost $200
million in volume in 2000. The addition of the PFH relationship coupled with
other business development efforts including new product offerings and targeted
marketing programs have been the primary factors for the volume growth during
1999. With continued growth expectations in 2000, it is probable that the
Company will continue selling a portion of these new receivables to unrelated
third parties.
Indirect auto loans. The Company finances fixed rate automobile loans sourced
indirectly through an established network of unaffiliated automobile dealers
located throughout the Chicago metropolitan area. These indirect auto loans are
secured by new and used automobiles and generally have an original maturity of
36 to 60 months with the average actual maturity estimated to be approximately
35 to 40 months. The risk associated with this portfolio is diversified amongst
many individual borrowers. The Company utilizes credit underwriting
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standards that management believes results in a high quality portfolio. The
Company does not currently originate any significant level of sub-prime loans,
which are made to individuals with impaired credit histories at generally higher
rates, and accordingly, with higher levels of credit risk. Management
continually monitors the dealer relationships and the Banks are not dependent on
any one dealer as a source of such loans. The Company began to originate these
loans in mid-1995 and has consistently increased the level of outstanding loans.
As of December 31, 1999, net indirect auto loans were the second largest loan
category and totaled $255.4 million, an increase of $45.4 million, or 21.6%,
over the previous year-end balance. This increase was the result of higher
volumes from a strong auto market, favorable auto loan rates and new dealer
relationships.
Tricom finance receivables. The October 1999 acquisition of Tricom added this
newest category to the Company's loan portfolio. These receivables consist of
high-yielding short-term accounts receivable financing to clients in the
temporary staffing industry located throughout the United States. Typically,
Tricom will also provide value-added out-sourced administrative services to many
of these clients, such as data processing of payrolls, billing and cash
management services, which generates additional fee income. As of December 31,
1999, Tricom had approximately 170 clients and outstanding finance receivables
of $17.6 million.
Core Loan Categories
Commercial and commercial real estate loans, the largest loan category, totaled
$485.8 million at December 31, 1999 and increased $119.5 million, or 32.6%, over
the December 31, 1998 balance of $366.2 million. This category comprised 38% of
the loan portfolio at the end of 1999 and the increase over the prior year-end
balance was mainly due to the combination of increased business development
efforts, a favorable interest rate environment and a continued healthy economy.
Home equity loans totaled $139.2 million as of December 31, 1999 and increased
$27.7 million, or 24.8%, when compared to the December 31, 1998 balance of
$111.5 million. This increase was mainly the result of increased line of credit
usage and special marketing programs. Unused commitments on home equity lines of
credit have increased approximately $20 million, or 12%, over the balance at
December 31, 1998 and totaled $188.3 million at December 31, 1999.
Residential real estate loans totaled $111.0 million at December 31, 1999, and
increased $19.5 million, or 21.3%, over the prior year-end balance due mainly to
the low mortgage interest rate environment earlier in 1999 and the related high
levels of refinancing activity. Mortgage loans held for sale are included in
this category and totaled $8.1 million and $18.0 million at December 31, 1999
and 1998, respectively. The Company collects a fee on the sale of these loans
into the secondary market to avoid the interest-rate risk associated with these
loans, as they are predominantly long-term fixed rate loans. The remaining loans
in this category are maintained within the Banks' loan portfolios and comprise
mostly adjustable rate mortgage loans and shorter-term fixed rate mortgage
loans.
Liquidity Management Assets. Funds that are not utilized for loan originations
are used to purchase investment securities and short-term money market
investments, to sell as federal funds and to maintain in interest-bearing
deposits with banks. The balances of these assets fluctuate frequently based on
deposit inflows and loan demand. As a result of anticipated significant growth
in the development of de novo banks, it has been Wintrust's policy to generally
maintain its securities portfolio in short-term, liquid, and diversified high
credit quality securities 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. The aggregate carrying value of these
earning assets declined slightly to $236.6 million at December 31, 1999 from
$240.5 million at December 31, 1998. As a percent of total earning assets, total
liquidity management assets declined to 15.6% at December 31, 1999 from 19.5% at
December 31, 1998. A detail of the carrying value of the individual categories
as of December 31, 1999 and 1998 is set forth in the following table (in
thousands):
=======================================================================
1999 1998
-----------------------------
Federal funds sold $ 28,231 18,539
Interest-bearing deposits with banks 2,547 7,863
Securities 205,795 214,119
-----------------------------
Total liquidity management assets $ 236,573 240,521
=======================================================================
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CONSOLIDATED RESULTS OF OPERATIONS
Overview of the Company's profitability characteristics. The following
discussion of Wintrust's results of operations requires an understanding that
the Company's bank subsidiaries have all been started as new banks since
December 1991 and have an average life of approximately five years. The
Company's premium finance company, FIFC, began limited operations in 1991 as a
start-up company. The Company's trust and investment company, WAMC, began
operations in September 1998. Previously, the Company's Lake Forest Bank
operated a trust department on a much smaller scale than WAMC. Tricom, the
Company's newest subsidiary, started operations as a new company in 1989.
Accordingly, Wintrust is still a young Company that has a strategy of continuing
to build its customer base and securing broad product penetration in each
marketplace that it serves. The Company has expanded its banking offices from 5
in 1994 to 24 at the end of 1999, adding three new offices in 1999 and four new
offices in 1998. In addition, WAMC hired experienced trust professionals in the
last half of 1998, who are located within the banking offices of four of the six
subsidiary banks. These expansion activities have understandably suppressed
faster, opportunistic earnings. However, as the Company matures and existing
banks become more profitable, the start-up costs associated with future bank and
branch openings and other new financial services ventures will not have as
significant an impact on earnings. Additionally, the Company's more mature banks
have several operating ratios that are either comparable or better than peer
group data, suggesting that as the banks become more established, the overall
earnings level will continue to increase.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
DECEMBER 31, 1998
Earnings summary. Net income for the year ended December 31, 1999 totaled $9.4
million and increased $3.2 million, or 51.0%, over the prior year. Net income
per basic common share totaled $1.14 in 1999 versus $0.77 in 1998, an increase
of $0.37 per share, or 48.1%. On a diluted basis, net income per common share
totaled $1.10 in 1999 as compared to $0.74 in 1998, an increase of $0.36 per
share, or 48.6%. Excluding the impact of the 1998 non-recurring charge mentioned
later in the non-interest expense section, the increase in net income for the
year ended December 31, 1999 would have been $2.6 million, or 37.5%, over 1998.
On a diluted basis, net income per common share would have increased $0.29, or
35.8%.
The increase in net income during 1999 was most favorably impacted by a $11.0
million increase in net interest income that primarily resulted from a higher
earning asset base, particularly from growth in the loan portfolio. A $1.7
million increase in non-interest income also contributed to the higher 1999
earnings and was mainly the result of gains from the sale of premium finance
receivables, higher levels of deposit service charges, growth in trust fee
income and the addition of administrative service revenues resulting from the
October 1999 acquisition of Tricom. Partially offsetting these increases was a
$2.4 million decline in fees from the sale of mortgage loans into the secondary
market due to significantly lower levels of mortgage origination volumes,
particularly refinancing activity, caused by the increases in mortgage interest
rates. A $3.8 million increase in total non-interest expense during 1999 also
offset a portion of the income growth, and was due primarily to the growth and
expansion experienced by the Company during 1999 coupled with the Tricom
acquisition.
A significant factor that contributed to the prior year net income was the
recognition of income tax benefits from the realization of previously unvalued
tax loss benefits. Due to the prior year recognition of tax benefits, the
Company's true growth in profitability over the past year has been masked.
Therefore, a comparison of pre-tax operating income is more representative of
the Company's improvement in operating results. On a pre-tax basis, operating
income totaled $14.2 million in 1999, an increase of $8.4 million, or 148%, over
1998, exclusive of the previously mentioned prior year non-recurring charge.
This significant improvement in operating results has been primarily the result
of enhanced performance of the Company's more established subsidiaries and the
fourth quarter 1999 acquisition of Tricom. For further information regarding the
recognition of income tax benefits, please refer to the Income Taxes section of
this discussion and analysis.
Net interest income. Net interest income totaled $47.7 million for the year
ended December 31, 1999, an increase of $11.0 million, or 29.8%, when compared
to 1998. This increase was primarily attributable to a 26.2% increase in average
earning assets, including a 33.8% increase in average loans and a 2.1% decline
in average securities and other liquidity management assets. Total average loans
as a percentage of total average earning assets increased to 83.6% in 1999 from
78.9% in 1998 as a result of solid loan growth. This improved loan proportion
creates a higher net interest margin, as loans earn interest at a higher rate
than the Company's other earning assets. The net interest margin increased from
3.43% in 1998 to 3.54% in 1999. The core net interest margin, which excludes the
impact of the 9.00% Cumulative Trust Preferred Securities offering and certain
discretionary investment leveraging transactions, was 3.64% in 1999, an increase
of 19 basis points over the core margin of 3.45% in 1998. These margin increases
were the result of a decline in overall funding cost rates and loan growth. The
total deposit funding cost rate declined 39 basis points since the prior year
and was 4.73% for the year ended December 31, 1999. This improvement was due
mainly to less aggressive deposit pricing in the markets
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of the more mature banks that have already established significant market share.
The average earning asset yield declined to 8.08% in 1999 as compared to 8.19%
in 1998, due mostly to the 31 basis point decline in the average loan yield to
8.59% in 1999. This decline was due primarily to a lower average prime lending
rate of 8.00% in 1999 versus an average prime lending rate of 8.36% in 1998.
Please refer to the previous sections of this discussion entitled "Average
Balance Sheets, Interest Income and Expense, and Interest Rate Yields and Costs"
and "Changes in Interest Income and Expense" for detailed tables of information
and further discussion of the components of net interest income and the impact
of rate and volume changes.
Provision for possible loan losses. The provision for possible loan losses
totaled $3.7 million for the year ended December 31, 1999, a $584,000 decline
from the total of $4.3 million in 1998. The higher provision in 1998 was
necessary to cover increased loan charge-offs that occurred at one banking
office in early 1998. Management believes the allowance for possible loan losses
is adequate to provide for inherent losses in the portfolio. There can be no
assurances, however, that future losses will not exceed the amounts provided
for, thereby affecting future results of operations. The amount of future
additions to the allowance for possible loan losses will be dependent upon the
economy, changes in real estate values, interest rates, the regulatory
environment, the level of past-due and non-performing loans, and other factors.
Non-interest income. For the year ended December 31, 1999, total non-interest
income was $9.8 million and increased $1.7 million, or 21.5%, when compared to
$8.1 million in 1998.
The October 1999 acquisition of Tricom added approximately $1.0 million of
administrative services revenue to total non-interest income in 1999. This
revenue comprises income from administrative services, such as data processing
of payrolls, billing and cash management services, to temporary staffing service
clients located throughout the United States. Tricom also earns interest and fee
income from providing short-term accounts receivable financing to this same
client base, as mentioned earlier in this discussion.
During 1999, approximately $69 million of premium finance receivables were sold
by FIFC to an unrelated third party and resulted in the recognition of
approximately $1.0 million in gains, which are shown as a separate category of
non-interest income. There were no sales of premium finance receivables in 1998.
Consistent with Wintrust's strategy to be asset-driven, it is probable that
similar future sales of premium finance receivables will occur depending on the
level of new volume growth in relation to the capacity to retain such loans
within the Banks' loan portfolios.
Fees on mortgage loans sold, the largest category of non-interest income,
includes income from originating and selling residential real estate loans into
the secondary market. For the year ended December 31, 1999, these fees totaled
$3.2 million, a decline of $2.4 million, or 42.4%, from the 1998 total of $5.6
million. This decline was due to significantly lower levels of mortgage
origination volumes, particularly refinancing activity, caused by the increases
in mortgage interest rates.
Service charges on deposit accounts totaled $1.6 million for the year ended
December 31, 1999 and increased $497,000, or 46.7%, when compared to the 1998
total of $1.1 million. This increase was due mainly to a higher deposit base and
a larger number of accounts at both the mature banks and the newer de novo
banks. 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.
Trust fees totaled $1.2 million for the year ended December 31, 1999, an
increase of $383,000, or 48.6%, over 1998. This increase was the result of new
business development efforts generated by a larger staff of experienced trust
officers that were added in late 1998 with the formation of WAMC. Wintrust is
committed to growing the trust and investment business in order to better
service its customers and create a more diversified revenue stream. However, as
the introduction of expanded trust and investment services continues to unfold,
it is expected that overhead levels will be high when compared to the fee income
that is generated. This overhead will consist primarily of the salaries and
benefits of experienced trust professionals. It is anticipated that trust fees
will eventually increase to a level sufficient to cover this overhead within a
few years.
Other non-interest income totaled $1.8 million for the year ended December 31,
1999 and increased $1.2 million, or 181%, over the 1998 total of $653,000. This
increase was due primarily to $508,000 in premium income from certain call
option transactions and a $355,000 increase in rental income from equipment
leased through the MMF division of Lake Forest Bank, a small business that was
acquired in mid-1998. The call option transactions were
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designed to utilize the excess capital at certain banks, increase the total
return associated with holding certain securities as earning assets, and yield
additional fee income.
Non-interest expense. For the year ended December 31, 1999, total non-interest
expense was $39.7 million and increased $3.8 million, or 10.7%, over 1998.
Excluding the prior year non-recurring $1.0 million pre-tax charge related to
severance amounts due to the Company's former Chairman and Chief Executive
Officer and certain related legal fees, total non-interest expense would have
increased $4.8 million, or 13.9%, over 1998. The increases in non-interest
expense were predominantly caused by the continued growth and expansion of the
Banks, as discussed in earlier sections of this analysis, the development of
WAMC and the October 1999 acquisition of Tricom. For example, the increase in
total operating expenses from 1998 to 1999 for Barrington Bank and Crystal Lake
Bank were $485,000 and $600,000, respectively, and the September 1998 start-up
of WAMC added $1.5 million to total 1999 non-interest expense when compared to
the 1998 total. In addition, the October 1999 acquisition of Tricom added $1.2
million to 1999 non-interest expense. Since December 31, 1998, total deposits
have grown 19.1% and total loan balances have risen 28.8%, requiring higher
levels of staffing and other operating costs, such as occupancy, equipment,
advertising and data processing, to both attract and service the larger customer
base.
Despite the growth and the related increases in many of the non-interest expense
categories, Wintrust's ratio of non-interest expense to total average assets
declined from 3.04% in 1998 to 2.65% in 1999, and is favorable to the Company's
most recent peer group ratio. In addition, the net overhead ratio for 1999
declined to 2.00% as compared to the 1998 ratio of 2.36%. The improvement in
this ratio has caused this key indicator of overhead to reach the upper end of
Wintrust's previously stated performance goal range of 1.50% - 2.00%.
Salaries and employee benefits for the year ended December 31, 1999 totaled
$20.8 million, an increase of $2.8 million, or 15.3%, from the 1998 total,
excluding the impact of the prior year non-recurring charge mentioned earlier.
This increase was directly caused by higher staffing levels necessary to support
the continued growth of the Banks, the late 1998 hiring of several experienced
trust professionals in conjunction with the start-up of WAMC, approximately
$600,000 related to the October 1999 acquisition of Tricom, and normal salary
increases. For the year ended December 31, 1999, salaries and employee benefits
as a percent of average assets was 1.39% versus 1.53% in 1998, exclusive of the
non-recurring charge.
Equipment expense, which includes furniture, equipment and computer software
depreciation and repairs and maintenance costs, totaled $3.2 million for year
ended December 31, 1999, a $978,000, or 44.0%, increase over the 1998 total.
This increase was caused mainly by higher levels of depreciation expense related
to the opening of new facilities, the expansion of existing facilities, the
acquisition of Tricom and other growth as discussed earlier.
Net occupancy expenses for the year ended December 31, 1999 increased $556,000,
or 22.8%, to $3.0 million as compared to $2.4 million for 1998. This increase
was due mainly to the opening of three additional facilities in 1999, the
expansion of the Lake Forest Bank and corporate office facilities, and the
acquisition of Tricom.
Data processing expenses totaled $2.2 million for the year ended December 31,
1999, an increase of $493,000, or 29.4%, when compared to 1998. This increase
was due primarily to the additional transactional charges related to the larger
deposit and loan portfolios, which increased, on an average basis, 23.9% and
33.8%, respectively, in 1999 when compared to the prior year.
Advertising and marketing expenses totaled $1.4 million for the year ended
December 31, 1999, a decline of $210,000, or 13.0%, when compared to 1998. In
the prior year, higher levels of marketing costs were necessary to attract loans
and deposits at the newly chartered Crystal Lake Bank and Barrington Bank and to
announce the expansion of trust and investment services through WAMC.
Professional fees, which includes legal, audit and tax fees, external loan
review costs and normal regulatory exam assessments, totaled $1.2 million for
the year ended December 31, 1999, a decline of $451,000, or 27.3%, from the 1998
total. This decline was caused by a higher level of fees in 1998 related to
certain non-performing loan work-outs and approximately $100,000 in legal fees
related to the non-recurring severance charge mentioned earlier.
Amortization of intangibles expense totaled $251,000 for the year ended December
31, 1999 as compared to $120,000 for the same period in 1998. The $131,000
increase was due to goodwill and other intangibles amortization from the October
1999 Tricom acquisition and amortization expense from the mid-1998 acquisition
of MMF. Based on existing intangible assets at December
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31, 1999, this category of expense will increase to approximately $715,000 in
2000 to reflect the inclusion of a full year of amortization for the Tricom
acquisition.
Other non-interest expenses for the year ended December 31, 1999 totaled $7.7
million and increased $484,000, or 6.7%, over the prior year. This category
includes loan expenses, correspondent bank service charges, insurance, postage,
stationery and supplies, telephone, directors fees, organizational cost
amortization, and other sundry expenses. In 1998, one subsidiary bank recorded a
$600,000 operations loss. Without this prior year expense, the 1999 increase
would have been $1.1 million, or 16.5%. This increase was generally caused by
the Company's expansion activities and the Tricom acquisition, as discussed
earlier, including increased costs from the origination and servicing of a
larger base of deposit and loan accounts.
Income taxes. The Company recorded income tax expense of $4.7 million for the
year ended December 31, 1999 as compared to $1.5 million of income tax benefits
in 1998. 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. As the entities become
profitable, the recognition of previously unvalued tax loss benefits become
available, subject to certain limitations, to offset tax expense generated from
profitable operations. The income tax benefit recorded in 1998 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. Accordingly, unlike prior periods, the
Company's results in 1999 and future years will not benefit significantly from
the recognition of net operating loss carryforwards. The value of prior net
operating losses recognized for financial statement reporting purposes for 1999
and 1998 was approximately $460,000 and $3.4 million, respectively. Please refer
to Note 12 to the Consolidated Financial Statements for further discussion and
analysis of the Company's tax position.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
DECEMBER 31, 1997
Earnings summary. Net income for the year ended December 31, 1998 totaled $6.2
million and increased $1.4 million, or 28.9%, over the prior year. Net income
per basic common share totaled $0.77 in 1998 versus $0.62 in 1997, an increase
of $0.15 per share, or 24.2%. On a diluted basis, net income per common share
totaled $0.74 in 1998 as compared to $0.60 in 1997, an increase of $0.14 per
share, or 23.3%.
In the second quarter of 1998, net income was unfavorably impacted by the
previously mentioned non-recurring $1.0 million pre-tax charge. Excluding this
charge, on an after-tax basis, net income for the year ended December 31, 1998
would have been $6.9 million, or $0.81 per diluted common share, an increase of
$2.0 million, or 41.5%, over 1997.
Net income for 1998 was favorably impacted by a higher earning asset base and
resulted in net interest income increasing by $10.0 million over the 1997 total.
Fees recognized on mortgage loans sold into the secondary market, primarily on a
servicing released basis, also was a key factor for the earnings growth during
1998. These fees increased $3.2 million in 1998 when compared to the 1997 level
and were mainly the result of a low mortgage interest rate environment that
created a high level of refinancing activity and fueled a healthy residential
real estate market. A $8.6 million increase in total non-interest expense during
1998 as compared to 1997 offset a portion of this income growth, and was due
primarily to the growth and expansion experienced by the Company during 1998.
Another significant factor that contributed to net income for both 1998 and 1997
was the recognition of income tax benefits from the realization of previously
unvalued tax loss benefits. For the years ended December 31, 1998 and 1997, the
Company recorded income tax benefits of $1.5 million and $3.8 million,
respectively. These income tax benefits reflected management's determination
that certain of the Company's subsidiaries' earnings histories 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 non-recurring charge
mentioned above, the Company recorded operating income of $5.7 million and $1.1
million in 1998 and 1997, respectively. This significant improvement in 1998
operating results was due to the
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enhanced performance of the Company's more established subsidiaries.
Net interest income. Net interest income totaled $36.8 million for the year
ended December 31, 1998, an increase of $10.0, or 37.3%, when compared to 1997.
This increase was primarily attributable to a 36.6% increase in average earning
assets, including a 36.7% increase in average loans and a 36.5% increase in
average securities and other liquidity management assets. Total average loans as
a percentage of total average earning assets remained constant at 78.9% in both
1998 and 1997. The average loan to average deposit ratio also remained constant
at 80.1% for both 1998 and 1997. The net interest margin increased slightly
during 1998 to 3.43% as compared to 3.41% in 1997. The average earning asset
yield declined to 8.19% in 1998 as compared to 8.28% in 1997, due mostly to the
14 basis point decline in the average loan yield to 8.90% in 1998. This decline
was due primarily to the reductions in the prime lending rate during the last
half of 1998 in addition to competitive pressures on commercial loan rates. The
average prime rate during 1997 was 8.48% compared to 8.36% during 1998. A 20
basis point decline in the cost of average interest bearing deposits to 5.12% in
1998 helped to offset the lower loan yield. This improvement was due to a
general decline in rates and less aggressive deposit pricing in the markets of
the more mature banks that have already established significant market share.
Please refer to the previous sections of this discussion entitled "Average
Balance Sheets, Interest Income and Expense, and Interest Rate Yields and Costs"
and "Changes in Interest Income and Expense" for detailed tables of information
and further discussion of the components of net interest income and the impact
of rate and volume changes.
Provision for possible loan losses. The provision for possible loan losses
increased by $893,000 in 1998 when compared to the prior year, and totaled $4.3
million. This increase was necessary to cover higher loan charge-offs and also
to maintain the allowance for possible loan losses at an appropriate level,
considering the growth experienced in the loan portfolio.
Non-interest income. Total non-interest income increased $3.1 million, or 63.3%,
to $8.1 million for the year ended December 31, 1998, when compared to $4.9
million in 1997.
Fees on mortgage loans sold for the year ended December 31, 1998 rose $3.2
million, or 137.9%, in comparison to 1997, and totaled $5.6 million.
Historically low mortgage interest rates and the related high levels of
refinancing activity were the major reasons for this significant revenue
increase.
Service charges on deposit accounts continued to increase throughout 1998 when
compared to 1997, predominantly as a result of higher deposit balances and a
larger number of accounts. Service charges totaled $1.1 million for the year
ended December 31, 1998, an increase of $341,000, or 47.1%, over 1997.
Trust fees totaled $788,000 for the year ended December 31, 1998, an increase of
$162,000, or 25.9%, over 1997 due primarily to new business development efforts
and the September 1998 start-up of WAMC.
Non-interest expense. For the year ended December 31, 1998, total non-interest
expense was $35.8 million and increased $8.6 million, or 31.5%, over 1997.
Excluding the non-recurring $1.0 million pre-tax charge recorded in 1998, as
discussed earlier, total non-interest expense would have increased $7.6 million,
or 27.8%, over 1997. The increases in non-interest expense were predominantly
caused by the continued growth of the Company. For example, the late 1997
start-up of the Crystal Lake Bank added $1.7 million to total 1998 non-interest
expense, and the 1998 incremental increase of non-interest expense at Barrington
Bank, which began operating in December 1996, was $728,000. As of December 31,
1998, when compared to the prior year-end balances, total deposits increased
33.9% and total loans rose 39.2%, which required higher levels of staffing and
other operating costs, such as occupancy, advertising and data processing, to
both attract and service the larger customer base.
Salaries and employee benefits for the year ended December 31, 1998 totaled
$18.9 million, an increase of $4.7 million, or 33.4%, from the same period in
1997. Approximately $900,000 of the $1.0 million non-recurring charge recorded
in 1998 related to a severance accrual and, excluding this charge, the increase
over 1997 would have been $3.8 million, or 27.0%. The increase was directly
caused by higher staffing levels necessary 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, 5) the
addition of the new medical and municipal equipment leasing division in July
1998, 6) additional staffing to service the larger deposit and loan portfolios
and 7) normal salary increases. For the year ended December 31, 1998, salaries
and employee benefits, exclusive of the
- 54 -
<PAGE>
non-recurring charge, as a percent of average assets was 1.53% versus 1.66% in
1997, ratios that are comparable to the Company's peer group.
Equipment expense totaled $2.2 million for year ended December 31, 1998, a
$508,000, or 29.7%, increase over the 1997 amount. This increase was mainly due
to higher levels of depreciation expense related to the opening of additional
facilities and other growth as discussed earlier.
Net occupancy expenses for the year ended December 31, 1998 increased $539,000,
or 28.4%, to $2.4 million as compared to $1.9 million for the prior year. This
increase was due primarily to the December 1997 start-up of the Crystal Lake
Bank and the opening of three additional facilities during 1998.
Data processing expenses totaled $1.7 million for the year ended December 31,
1998, an increase of $339,000, or 25.4%, when compared to the prior year period.
The increase was mainly due to the Crystal Lake Bank opening and additional
transactional charges related to the larger deposit and loan portfolios, which
increased, on an average basis, 36.5% and 36.7%, respectively, in 1998 when
compared to the prior year.
Advertising and marketing expenses totaled $1.6 million for the year ended
December 31, 1998, an increase of $303,000, or 23.1%, over 1997. Higher levels
of marketing costs were necessary during 1998 to attract loans and deposits at
the Crystal Lake Bank, Barrington Bank and other new branch facilities, to
introduce new loan promotions at FIFC, and to announce the expansion of trust
and investment services through WAMC.
Professional fees totaled $1.7 million for the year ended December 31, 1998, an
increase of $311,000, or 23.2%, over 1997. This increase was primarily due to
growth in the Company, legal fees related to certain non-performing loan
work-outs, and approximately $100,000 in legal fees related to the non-recurring
severance charge mentioned earlier.
Other non-interest expenses for the year ended December 31, 1998 totaled $7.3
million and increased $1.8 million, or 33.7%, over the prior year. Included in
the increase was a $600,000 operations loss at one subsidiary bank.
The operational controls and systems of this bank and all other Banks were
reviewed and additional controls and procedures were put into place, where
considered necessary. The remaining increase in this category of expenses was
generally caused by the Company's expansion activities, as discussed earlier,
including increased costs from the origination and servicing of a larger base of
deposit and loan accounts. Total non-interest expense as a percent of total
average assets was 3.04% in 1998, an improvement from 3.18% in 1997.
Income taxes. The Company recorded income tax benefits of $1.5 million and $3.8
million for the years ended December 31, 1998 and 1997, respectively. As noted
earlier, the Company recorded income tax benefits that 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. The value of prior net operating losses recognized for
financial statement reporting purposes for 1998 and 1997 was approximately $3.4
million and $4.2 million, respectively.
OPERATING SEGMENT RESULTS
As described in Note 20 to the Consolidated Financial Statements, the Company's
operations consist of five primary segments: banking, premium finance, indirect
auto, Tricom and trust. The Company's profitability is primarily dependent on
the net interest income, provision for possible loan losses, non-interest income
and operating expenses of its banking segment. The net interest income of the
banking segment includes income and related interest costs from portfolio loans
that were purchased from the premium finance and indirect auto segments. For
purposes of internal segment profitability analysis, management reviews the
results of its premium finance and indirect auto segments as if all loans
originated and sold to the banking segment were retained within that segment's
operations.
The banking segment's net interest income for the year ended December 31, 1999
totaled $44.3 million as compared to $34.2 million for the same period in 1998,
an increase of $10.0 million, or 29.3%. The increase in net interest income for
1998 when compared to the total of $25.5 million in 1997 was $8.7 million, or
34.1%. These increases were the direct result of growth in the loan portfolio
and an improved net interest margin, as discussed in the Consolidated Results of
Operations section. The banking segment's non-interest income totaled $7.1
million in 1999, a decline of $560,000, or 7.3%, when compared to the 1998 total
of $7.7 million. This decline was due to a $2.4 million reduction in fees from
the sale of residential mortgage loans, which was partially offset by increases
in deposit service charges, call option premium income and leased equipment
rental income, as discussed earlier in the Consolidated Results of Operations
section. The reduction in mortgage fees was
- 55 -
<PAGE>
mainly caused by increases in mortgage interest rates, which significantly
lowered mortgage origination volumes, particularly refinancing activity. In
1998, non-interest income for the banking segment totaled $7.7 million and
increased $4.0 million, or 105.6%, over the total of $3.7 million in 1997. This
increase was primarily the result of higher levels of fees from the sale of
residential mortgage loans and general growth of the Company, as more fully
explained in the Consolidated Results of Operations section of this discussion.
The banking segment's net after-tax profit totaled $10.3 million for the year
ended December 31, 1999, an increase of $5.2 million, or 100.4%, as compared to
the 1998 total of $5.1 million. The total segment profit in 1998 increased $1.0
million over the $4.1 million that was recorded in 1997. These after-tax segment
profit increases were primarily the result of higher levels of net interest
income, as noted above, and the general continued maturation and related
profitability improvements of the more established de novo bank subsidiaries.
Net interest income for the premium finance segment totaled $12.6 million for
the year ended December 31, 1999 and increased $2.9 million, or 30.2%, over the
$9.7 million in 1998. This increase resulted from higher levels of premium
finance receivables produced from various business development efforts including
a new program agreement with PFH, as mentioned earlier, and other new product
offerings and targeted marketing programs. In 1998, net interest income
increased $2.4 million, or 32.0%, over the 1997 total of $7.4 million due to new
programs and targeted marketing efforts. The premium finance segment
non-interest income for the year ended December 31, 1999 totaled $1.0 million
and related to gains from the sale of premium finance receivables, as more fully
discussed in the Consolidated Results of Operations section. Net after-tax
profit of the premium finance segment totaled $4.3 million for the year ended
December 31, 1999, as compared to $2.0 million in 1998 and and $373,000 in 1997.
The improvements in profitability during both 1998 and 1999 were due mainly to
the combination of higher volumes and the implementation of additional
collection procedures and upgraded systems.
Net interest income for the indirect auto segment totaled $8.2 million in 1999,
a $2.6 million, or 46.6%, increase over 1998 as a result of a 42.7% increase in
average outstanding loans. In 1998, total net interest income of $5.6 million
increased $2.0 million, or 55.0%, over the 1997 total of $3.6 million, due to
higher average outstanding loans. The indirect auto segment after-tax profit
totaled $2.7 million for the year ended December 31, 1999, an increase of
$830,000, or 44.9%, over the 1998 total of $1.8 million. In 1998, after-tax
segment profit increased $625,000, or 51.0%, over the 1997 total of $1.2
million. These increases were the result of growth in the Chicago area
automobile dealer network and increased loan volumes, which produced higher
levels of average outstanding loans.
The Tricom segment is the Company's newest reportable operating segment that was
created from the October 1999 acquisition. This segment's results of operations
began to be included in the Company's consolidated earnings as of October 1,
1999, the effective date of the acquisition. For the year ended December 31,
1999, the Tricom segment added $826,000 to the Company's net interest income,
$1.0 million to the Company's non-interest income and $340,000 to the Company's
net income. Please refer to Note 19 to the Consolidated Financial Statements for
further information related to Tricom including a description of the business
and certain pro forma financial information.
As mentioned earlier, the trust segment relates to the operations of WAMC, a
trust and investment subsidiary that began operations on September 30, 1998.
Trust segment results prior to WAMC relate to the operations of the trust
department of Lake Forest Bank and, accordingly, certain expenses of the bank
were allocated as indirect costs to the trust segment. In addition to trust and
investment management fees that are recorded as non-interest income, and in
connection with internal profitability analysis, the trust segment includes net
interest income related to certain trust account balances that are maintained
with the Lake Forest Bank. This net interest income totaled $469,000 for 1999 as
compared to $359,000 in 1998 and $182,000 in 1997. Trust fee income totaled $1.2
million in 1999 as compared to $788,000 in 1998, an increase of $383,000, or
48.6%, due mainly to new business development efforts from a larger staff of
experienced trust officers. The increase in 1998 when compared to the 1997 total
of $626,000 was $162,000, or 25.9%. The trust segment after-tax loss totaled
$559,000 for the year ended December 31, 1999 as compared to a loss of $189,000
in 1998 and a profit of $237,000 in 1997. The losses in both 1999 and 1998 were
due to the start-up of WAMC and the related salary and employee benefit costs of
hiring experienced trust professionals. See the Overview and Strategy section of
this discussion for further explanation of the trust segment expansion through
WAMC.
- 56 -
<PAGE>
ASSET-LIABILITY MANAGEMENT
As a continuing part of its financial strategy, the Company attempts to manage
the impact of fluctuations in market interest rates on 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.
Interest rate risk arises when the maturity or repricing periods and interest
rate indices of the interest earning assets, interest bearing liabilities, and
off-balance sheet financial instruments are different, creating a risk that
changes in the level of market interest rates will result in disproportionate
changes in the value of, and the net earnings generated from, the Company's
interest earning assets, interest bearing liabilities and off-balance sheet
financial instruments. The Company continuously monitors not only the
organization's current net interest margin, but also the historical trends of
these margins. In addition, management 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 is identified, management then would take appropriate actions with
its asset-liability structure to counter these potential adverse situations.
Please refer to earlier sections of this discussion and analysis for further
discussion of the net interest margin.
As the Company's primary source of interest bearing liabilities is customer
deposits, the Company's ability to manage the types and terms of such deposits
may be somewhat limited by customer preferences and local competition in the
market areas in which the Company operates. The rates, term and interest rate
indices of the Company's interest earning assets result primarily from the
Company's strategy of investing in loans and short-term securities that permit
the Company to limit its exposure to interest rate risk, together with credit
risk, while at the same time achieving a positive interest rate spread.
One method utilized by financial institutions to limit interest rate 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.
As of December 31, 1999, the Company had $240 million notional principal amount
of interest rate cap contracts that mature in $60 million notional principal
amount intervals on April 30, 2000, September 1, 2000, October 30, 2000 and
January 3, 2001. These contracts were purchased to mitigate the effect of rising
rates on certain floating rate deposit products. During 1999, the Company also
entered into certain covered call option transactions related to certain
securities held by the Company. These transactions were designed to utilize
excess capital at certain banks and increase the total return associated with
holding these securities as earning assets. The Company may enter into other
derivative financial instruments in the future to effectively manage its
interest rate risk.
The Company's exposure to interest rate risk is reviewed on a regular basis by
management and the boards of directors of the Banks 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 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 of December 31,
1999 (dollars in thousands):
- 57 -
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
Time to Maturity or Repricing
-------------------------------------------------------------------------
0-90 91-365 1-5 Over 5
Days Days Years Years Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rate sensitive assets (RSA) $ 642,780 323,969 493,991 218,642 1,679,382
Rate sensitive liabilities (RSL) 849,674 383,295 118,163 328,250 1,679,382
Cumulative gap (GAP = RSA - RSL) (1) (206,894) (266,220) 109,608
Cumulative RSA/RSL (1) 0.76 0.78 1.08
RSA/Total assets 0.38 0.19 0.29
RSL/Total assets (1) 0.51 0.23 0.07
GAP/Total assets (1) (12)% (16)% 7%
GAP/Cumulative RSA (1) (32)% (28)% 8%
=============================================================================================================================
<FN>
(1) The GAP amount and related ratios do not reflect $240 million notional
principal amount of interest rate caps, as discussed in the ~ following
paragraph.
</FN>
</TABLE>
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 and does not reflect the impact of
off-balance sheet interest rate cap contracts. As of December 31, 1999, the
Company had $240 million notional principal amount of interest rate caps that
reprice on a monthly basis. These interest rate caps, which mature in intervals
throughout the next 12 months, were purchased to mitigate the effect of rising
rates on certain floating rate deposit products. When the gap position in the
above table is adjusted for the impact of these interest rate caps, the
Company's short-term gap position becomes relatively neutral in that the level
of rate sensitive assets that reprice within one year approximately match the
level of rate sensitive liabilities that reprice within one year.
Management uses an additional measurement tool to evaluate its asset-liability
sensitivity that determines exposure to changes in interest rates by measuring
the percentage change in net interest income due to changes in interest 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 interest income
assuming an instantaneous permanent parallel shift in the yield curve of 200
basis points, both upward and downward. This analysis also includes the impact
of the interest rate cap agreements mentioned above. Utilizing this measurement
concept, the interest rate risk of the Company, expressed as a percentage change
in net interest income over a two-year time horizon due to changes in interest
rates, at December 31, 1999, is as follows:
=========================================================================
+200 Basis -200 Basis
Points Points
---------------------------
Percentage change in net interest
income due to an immediate 200
basis point shift in the yield curve 2.9% 0.1%
=========================================================================
LIQUIDITY AND CAPITAL RESOURCES
The following table reflects various measures of the Company's capital at
December 31, 1999 and 1998:
=========================================================================
December 31,
-------------------------
1999 1998
-------------------------
Average equity-to-average asset ratio 5.4% 6.1%
Leverage ratio 7.1 7.5
Tier 1 risk-based capital ratio 7.8 8.5
Total risk-based capital ratio 8.4 9.7
Dividend payout ratio 0.0 0.0
=========================================================================
The Company's consolidated leverage ratio (Tier 1 capital/total fourth quarter
average assets less intangibles) was 7.1 % at December 31, 1999, which is in
excess of the "well capitalized" regulatory level. Consolidated Tier 1 and total
risk-based capital ratios were 7.8% and 8.4%, respectively. Based on guidelines
established by the Federal Reserve Bank, a bank holding company is required to
maintain a ratio of Tier 1 capital to risk-based assets of 4.0% and a ratio of
total capital to risk-based assets of 8.0% in order to be deemed "adequately
capitalized".
The Company's principal source of funds at the holding company level are from
dividends from its subsidiaries, borrowings on its revolving credit line with an
unaffiliated bank, proceeds from trust preferred securities offerings or
additional equity offerings. Refer to Notes 9 and 10 of the
- 58 -
<PAGE>
Consolidated Financial Statements for further information on the Company's
revolving credit line and Trust Preferred Securities offering, respectively. In
November 1999, the Company completed a private placement of 352,942 shares of
common stock, which were priced at market, and received net proceeds of
approximately $6.0 million.
Banking laws impose restrictions upon the amount of dividends which can be paid
to the holding company by the Banks. Based on these laws, the Banks could,
subject to minimum capital requirements, declare dividends to the Company
without obtaining regulatory approval in an amount not exceeding (a) undivided
profits, and (b) the amount of net income reduced by dividends paid for the
current and prior two years. In addition, the payment of dividends may be
restricted under certain financial covenants in the Company's revolving credit
line agreement. At January 1, 2000, subject to minimum capital requirements at
the Banks, approximately $12.6 million was available as dividends from the Banks
without prior regulatory approval. There were no dividends paid by the
subsidiaries to the holding company in either 1999 or 1997. During 1998, Lake
Forest Bank paid dividends of $8.25 million to the holding company.
In January 2000, the Company's Board of Directors approved the first semi-annual
cash dividend on its common stock. The dividend, in the amount of $0.05 per
share, was paid on February 24, 2000 to shareholders of record as of February
10, 2000. Additionally, in January 2000, the Board of Directors approved a stock
repurchase program authorizing the purchase of up to 300,000 shares of common
stock, from time to time, in open market or privately negotiated transactions.
The shares authorized to be repurchased represent approximately 3% of the
Company's currently outstanding shares. Shares repurchased, if any, would be
available for issuance under the Company's stock incentive plan, employee stock
purchase plan and other corporate purposes.
Liquidity management at the Banks involves planning to meet anticipated funding
needs at a reasonable cost. Liquidity management is guided by policies,
formulated and monitored by the Company's senior management and each Bank's
asset/liability committee, which take into account the marketability of assets,
the sources and stability of funding and the level of unfunded commitments. The
Banks' principal sources of funds are deposits, short-term borrowings and
capital contributions from the holding company. In addition, the Banks are
eligible to borrow under Federal Home Loan Bank advances, another source of
short-term liquidity.
The Banks' core deposits, the most stable source of liquidity for community
banks due to the nature of long-term relationships generally established with
depositors and the security of deposit insurance provided by the FDIC, are
available to provide long-term liquidity. At December 31, 1999, approximately
61% of the Company's total assets were funded by core deposits with balances
less than $100,000, as compared to approximately 66% at the end of 1998. The
remaining assets were funded by other funding sources such as core deposits with
balances in excess of $100,000, public funds, purchased funds, and the capital
of the Banks.
Liquid assets refers to money market assets such as Federal funds sold and
interest bearing deposits with banks, as well as available-for-sale debt
securities and held-to-maturity securities with a remaining maturity less than
one year. Net liquid assets represent the sum of the liquid asset categories
less the amount of assets pledged to secure public funds. At December 31, 1999,
net liquid assets totaled approximately $57.2 million, compared to approximately
$116.5 million at December 31, 1998.
The Banks routinely accept deposits from a variety of municipal entities.
Typically, these municipal entities require that banks pledge marketable
securities to collateralize these public deposits. At December 31, 1999 and
1998, the Banks had approximately $139.2 million and $104.9 million,
respectively, of securities collateralizing such public deposits and other
short-term borrowings. Deposits requiring pledged assets are not considered to
be core deposits, and the assets that are pledged as collateral for these
deposits are not deemed to be liquid assets.
The Company is not aware of any known trends, commitments, events, regulatory
recommendations or uncertainties that would have any adverse effect on the
Company's capital resources, operations or liquidity.
CREDIT RISK AND ASSET QUALITY
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
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<PAGE>
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 economic conditions in the
market area.
Summary of Loan Loss Experience. The following table summarizes average loan
balances, changes in the allowance for possible loan losses arising from
additions to the allowance which have been charged to earnings, and loans
charged-off and recoveries on loans previously charged-off for the periods shown
(dollars in thousands).
<TABLE>
<CAPTION>
=============================================================================================================================
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 7,034 5,116 3,636 2,763 1,702
Total loans charged-off:
Core banking loans (837) (1,636) (448) (190) (43)
Premium finance (456) (455) (1,126) (207) (247)
Indirect auto (1,156) (646) (300) (123) -
Discontinued leasing operations - - (241) (583) (109)
-----------------------------------------------------------------------------
Total loans charged-off (2,449) (2,737) (2,115) (1,103) (399)
Total recoveries 310 358 191 41 30
-----------------------------------------------------------------------------
Net loans charged-off (2,139) (2,379) (1,924) (1,062) (369)
Provision for possible loan losses 3,713 4,297 3,404 1,935 1,430
Acquired allowance for possible loan losses 175 - - - -
-----------------------------------------------------------------------------
Balance at end of year $ 8,783 7,034 5,116 3,636 2,763
=============================================================================
Year-end total loans, net of unearned income $ 1,278,249 992,062 712,631 492,548 258,231
Average total loans, net of unearned income 1,135,200 848,344 620,801 347,076 183,614
Allowance as percent of year-end total loans 0.69% 0.71% 0.72% 0.74% 1.07%
Net loans charged-off to average total loans 0.19 0.28 0.31 0.31 0.20
Net loans charged-off to the provision for
possible loan losses 57.61 55.36 56.52 54.88 25.80
=============================================================================================================================
</TABLE>
Net charge-offs of core banking loans for the year ended December 31, 1999
totaled $795,000 as compared to a total of $1.4 million for 1998. Included in
the prior year net charge-offs was approximately $815,000 attributable to loans
originated at one banking office and reflect what management believes to be an
isolated problem that has been resolved. Core loan net charge-offs as a
percentage of average core loans were 0.12% in 1999 as compared to 0.29% in
1998, the reduction due to the prior year issue noted above.
Premium finance receivable net charge-offs for the year ended December 31, 1999
totaled $289,000 as compared to $328,000 recorded in 1998. Net charge-offs were
0.14% of average premium finance receivables in 1999 versus 0.18% in 1998.
Indirect auto loan net charge-offs totaled $1.1 million for the year ended
December 31, 1999 as compared to $604,000 in 1998. Net charge-offs as a
percentage of average indirect auto loans were 0.44% in 1999 in comparison to
0.36% in 1998. The higher level of net charge-offs in 1999 was the result of an
in-depth review of all problem credits and the implementation of a more
aggressive charge-off policy.
- 60 -
<PAGE>
The allowance for possible loan losses as a percentage of total net loans at
December 31, 1999 and 1998 was 0.69% and 0.71%, respectively. Management
believes that the allowance for possible loan losses is adequate to provide for
losses inherent in the portfolio.
Past Due Loans and Non-performing Assets. The following table classifies the
Company's non-performing loans as of December 31 for each of last five years
(dollars in thousands):
<TABLE>
<CAPTION>
=============================================================================================================================
1999 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Past Due greater than 90 days and still accruing:
Core banking loans $ 713 800 868 75 121
Indirect auto loans 391 274 11 20 -
Premium finance receivables 1,523 1,214 887 - 21
-------------------------------------------------------------------------
Total 2,627 2,288 1,766 95 142
-------------------------------------------------------------------------
Non-accrual loans:
Core banking loans 1,895 1,487 782 448 684
Indirect auto loans 298 195 29 - -
Premium finance receivables 2,145 1,455 1,629 1,238 1,094
-------------------------------------------------------------------------
Total non-accrual loans 4,338 3,137 2,440 1,686 1,778
-------------------------------------------------------------------------
Total non-performing loans:
Core banking loans 2,608 2,287 1,650 523 805
Indirect auto loans 689 469 40 20 -
Premium finance receivables 3,668 2,669 2,516 1,238 1,115
-------------------------------------------------------------------------
Total non-performing loans 6,965 5,425 4,206 1,781 1,920
-------------------------------------------------------------------------
Other real estate owned - 587 - - -
-------------------------------------------------------------------------
Total non-performing assets $ 6,965 6,012 4,206 1,781 1,920
=========================================================================
Total non-performing loans by
category as a percent of
its own respective category:
Core banking loans 0.32% 0.38% 0.37% 0.15% 0.39%
Indirect auto loans 0.27 0.22 0.03 0.02 0.00
Premium finance receivables 1.67 1.50 1.96 2.15 7.22
Total non-performing loans 0.54 0.55 0.59 0.36 0.74
Total non-performing assets to total assets 0.41 0.45 0.40 0.25 0.41
Non-accrual loans to total loans 0.34 0.32 0.34 0.34 0.69
Allowance for possible loan losses as a
percentage of non-performing loans 126.10 129.66 121.64 204.15 143.91
=============================================================================================================================
</TABLE>
NON-PERFORMING CORE BANKING LOANS AND OTHER REAL ESTATE OWNED
Total non-performing loans for the Company's core banking business (all loans
other than indirect auto loans and premium finance receivables) were $2.6
million as of December 31, 1999, an increase from the $2.3 million as of
December 31, 1998. As a percentage of total core banking loans, however,
non-performing core banking loans declined to 0.32% at the end of 1999 versus
0.38% a year earlier. Although the outstanding core loan portfolio has increased
33% from a year ago, the amount of non-performing core loans has only increased
14% from the prior year total. Non-performing core banking loans consist
primarily of a small number of commercial and real estate loans, which
management believes are well secured and in the process of collection. In fact,
the loans comprising the non-performing core loan category total less than 30
individual credits. The small number of such non-performing loans allows
management to effectively monitor the status of these credits and work with the
borrowers to resolve these problems. The other real estate owned balance of
$587,000 as of December 31, 1998 consisted of one local residential real estate
property that was sold during 1999 at a small loss.
- 61 -
<PAGE>
NON-PERFORMING PREMIUM FINANCE RECEIVABLES
The table below presents the level of non-performing premium finance receivables
as of December 31, 1999 and 1998, and the amount of net charge-offs for the
years then ended.
================================================================================
As of % of Premium As of % of Premium
12/31/99 Finance Rec. 12/31/98 Finance Rec.
-----------------------------------------------
Non-performing premium
finance receivables $3,668,000 1.67% $2,669,000 1.50%
Net charge-offs of premium
finance receivables 289,000 0.14 328,000 0.18
================================================================================
It is important to note that the ratio of net charge-offs is substantially less
than the ratio of non-performing assets. The ratio of non-performing premium
finance receivables fluctuates throughout the year due to the nature and timing
of canceled account collections from insurance carriers. Due to the nature of
collateral for premium finance receivables, it customarily takes 60-150 days to
convert the collateral into cash collections. Accordingly, the level of
non-performing premium finance receivables is not necessarily indicative of the
loss inherent in the portfolio. In the event of default, the Company has the
power to cancel the insurance policy and collect the unearned portion of the
premium from the insurance carrier. In the event of cancellation, the cash
returned in payment of the unearned premium by the insurer should generally be
sufficient to cover the receivable balance, the interest and other charges due.
Due to notification requirements and processing time by most insurance carriers,
many receivables will become delinquent beyond 90 days while the insurer is
processing the return of the unearned premium. Management continues to accrue
interest until maturity as the unearned premium is ordinarily sufficient to
pay-off the outstanding balance and contractual interest due.
The amount of non-performing premium finance receivables at and prior to
December 31, 1996 were significantly less because, prior to October 1996, the
Company had sold its originated receivables to a securitization facility. In
October 1996, the Company began retaining all originated receivables, and the
Company terminated the securitization facility during the third quarter of 1997.
NON-PERFORMING INDIRECT AUTO LOANS
Total non-performing indirect automobile loans were $689,000 at December 31,
1999 as compared to $469,000 at the end of 1998. The ratio of these
non-performing loans has increased slightly to 0.27% of total net indirect
automobile loans at December 31, 1999 from 0.22% at December 31, 1998. Despite
the increase in the level of non-performing loans, these ratios continue to be
below standard industry ratios for this type of loan category. 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 are still
considered performing and, accordingly, are not included in non-performing
loans. 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 potential problem loans as of December 31, 1999 and 1998
were approximately $14.4 million and $5.1 million, respectively. The December
31, 1999 balance included one local residential real estate development loan
totaling $5.7 million that is well secured and actively monitored.
Loan Concentrations. Loan concentrations are considered to exist when there are
amounts loaned to a multiple number of borrowers engaged in similar activities
which would cause them to be similarly impacted by economic or other conditions.
The Company had no concentrations of loans exceeding 10% of total loans at
December 31, 1999 or 1998, except for loans included in the indirect auto and
premium finance operating segments.
- 62 -
<PAGE>
EFFECTS OF 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. Accordingly,
changes in inflation are not expected to have a material impact on the Company.
An analysis of the Company's asset and liability structure provides the best
indication of how the organization is positioned to respond to changing interest
rates.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. During the last half of 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company incurred approximately $125,000 in costs during 1999 in connection
with remediating and testing its systems. This cost does not include internal
salary and employee benefit costs for persons that were involved with the Year
2000 project. The Company is not aware of any material problems resulting from
Year 2000 issues, either with its products or services, its internal systems, or
the products and services of third party data processing providers and other
vendors. The Company will continue to monitor its mission critical computer
applications and those of its third party data processing providers and other
vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
EFFECTS OF NEW ACCOUNTING PRINCIPLE
In June 1999, the FASB issued SFAS No. 137 to effectively defer the
implementation date of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" for one year. SFAS No. 133 was issued in June 1998 and
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 either be reported in earnings or as other
comprehensive income in the statements of shareholders' equity, depending on the
type of instrument and whether or not it is considered a hedge. With the
issuance of SFAS No. 137, this standard is now effective for the Company as of
January 1, 2001. The adoption of this new statement is currently not expected to
have a material effect on the Company's future financial condition, results of
operations, or liquidity.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and is including this
statement for purposes of invoking these safe harbor provisions. Such
forward-looking statements may be deemed to include, among other things,
statements relating to the Company's projected growth, anticipated improvements
in earnings, earnings per share and other financial performance measures, and
management's long-term performance goals, as well as statements relating to the
anticipated effects on financial results of condition from expected development
or events, 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 and investment 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 start-up
phase of generating deposits and the time lag typically involved in
redeploying deposits into attractively priced loans and other higher
yielding earning assets. Similarly, the expansion of trust and investment
services through the Company's newer trust subsidiary, WAMC, is expected to
be in a start-up phase for the next few years, before becoming profitable.
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 that may develop in the existing portfolio of
loans and leases, there can be no assurance that the allowance will prove
sufficient to cover actual future loan or lease losses.
- 63 -
<PAGE>
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 The extent of the Company's preparedness efforts, and that of its outside
data processing providers, software vendors, and customers, in implementing
and testing Year 2000 compliant hardware, software and systems, and the
effectiveness of appropriate contingency plans that have been developed.
o Unforeseen future events that may cause slower than anticipated development
and growth of the Tricom business, changes in the temporary staffing
industry or difficulties integrating the Tricom acquisition.
o Changes in the economic environment, competition, or other factors, may
influence the anticipated growth rate of loans and deposits, the quality of
the loan portfolio and loan and deposit pricing.
- 64 -
<PAGE>
DIRECTORS & OFFICERS
- --------------------------------------------------------------------------------
WINTRUST FINANCIAL CORPORATION
- ---------------------------------------
DIRECTORS
Joseph Alaimo
Peter Crist
Bruce K. Crowther
Maurice F. Dunne, Jr.
William C. Graft
Kathleen R. Horne
John Leopold
John S. Lillard
James E. Mahoney
James B. McCarthy
Marguerite Savard McKenna
Albin F. Moschner
Thomas J. Neis
Hollis W. Rademacher
J. Christopher Reyes
Peter Rusin
John N. Schaper
John J. Schornack
Ingrid S. Stafford
Jane R. Stein
Katharine V. Sylvester
Lemuel H. Tate
Edward J. Wehmer
Larry V. Wright
OFFICERS
John S. Lillard
Chairman
Edward J. Wehmer
President & Chief Executive Officer
David A. Dykstra
Executive Vice President &
Chief Financial Officer
Lloyd M. Bowden
Executive Vice President/Technology
Robert F. Key
Executive Vice President/Marketing
Todd A. Gustafson
Vice President/Finance
Richard J. Pasminski
Vice President/Controller
David J. Galvan
Vice President/Investments
Jolanta K. Slusarski
Vice President/Compliance
Jay P. Ross
Assistant Vice President/Database Marketing
LAKE FOREST BANK & TRUST COMPANY
- ---------------------------------------
DIRECTORS
Craig E. Arnesen
Maurice F. Dunne, Jr.
Maxine P. Farrell
Francis Farwell
Eugene. Hotchkiss
Moris T. Hoversten
John S. Lillard
Frank Mariani
John J. Meierhoff
Albin F. Moschner
Genevieve Plamondon
Hollis W. Rademacher
J. Christopher Reyes
Babette Rosenthal
Ellen Stirling
Edward J. Wehmer
EXECUTIVE OFFICERS
Edward J. Wehmer
Chairman
Craig E. Arnesen
President and CEO
John J. Meierhoff
Executive Vice President/Lending
LOANS
Frank W. Strainis
Senior Vice President
Rachele L. Wright
Senior Vice President/Mortgage Loans
Kathryn Walker-Eich
Vice President/Commercial Loans
Mark R. Schubring
Vice President/Lending
Kurt K. Prinz
Vice President/Lending
Janice C. Nelson
Vice President/Consumer Lending
Lori Higgins
Assistant Vice President/Loan Operations
Maria Santello
Loan Administration Officer
Laura Cascarano
Loan Administration Officer
Susan Potash
Loan Servicing Officer
MMF LEASING SERVICES
David E. Gross
Vice President
Richard A. Eichner
Assistant Vice President
James C. Miller
Leasing Officer
PERSONAL BANKING
Lynn Van Cleave
Vice President/Personal Banking
Twila D. Hungerford
Assistant Vice President/Personal Banking
Susan G. Mineo
Assistant Vice President/Personal Banking
Piera Dallabattista
Personal Banking Officer
Lee Cankar
Personal Banking Officer
OPERATIONS/FINANCE/OTHER
Mary Ann Gannon
Vice President/Operations
Richard J. Pasminski
Vice President/Controller
Margaret Zacher
Assistant Controller
Kathleen E. Bickmore
Assistant Cashier
Pamela Barker
Operations Officer
Elizabeth K. Pringle
Network Administrator
Andrea Levitt
Administration Officer
- 65 -
<PAGE>
HINSDALE BANK & TRUST COMPANY
- ---------------------------------------
DIRECTORS
Peter Crist
Diane Dean
Donald Gallagher
Elise Grimes
Robert D. Harnach
Dennis J. Jones
Douglas J. Lipke
James B. McCarthy
James P. McMillin
Mary Martha Mooney
Frank J. Murnane, Sr.
Richard B. Murphy
Joel Nelson
Margaret O'Brien Stock
Hollis W. Rademacher
Ralph J. Schindler
Katharine V. Sylvester
Edward J. Wehmer
Lorraine Wolfe
EXECUTIVE OFFICERS
Dennis J. Jones
Chairman & CEO
Richard B. Murphy
President
David LaBrash
President - Clarendon Hills Bank
Stephen C. Pleimling
President - The Community Bank of Western Springs
LOANS
Richard Stefanski
Senior Vice President/Indirect Lending
Eric Westberg
Senior Vice President/Mortgages
Kay Olenec
Senior Vice President/Mortgages
Colleen Ryan
Senior Vice President/Commercial Lending
Robert D. Meyrick
Vice President/Indirect Lending
Cora Mae Corley
Assistant Vice President
Pat Gray
Assistant Vice President
Kathy Oergel
Commercial Lending Officer
Maria Chialdikis
Loan Processing Officer
PERSONAL BANKING/OPERATIONS
Anne O'Neill
Vice President & Cashier
Michelle Kennedy
Vice President/Controller
Michelle Paetsch
Assistant Vice President
Amy Boburka
Assistant Vice President
Kim Fernandez
Operations Officer
Patricia Mayo
Operations Officer
Kevin Barry
Personal Banking Officer
NORTH SHORE COMMUNITY BANK & TRUST COMPANY
- ------------------------------------------
DIRECTORS
Brian C. Baker (non-voting)
Gilbert W. Bowen
T. Tolbert Chisum
Thomas J. Dammrich
Joseph DeVivo
Maurice F. Dunne, Jr.
James Fox (Director Emeritus)
John W. Haben
Randolph M. Hibben
Gayle Inbinder
Thomas J. McCabe, Jr.
Marguerite Savard McKenna
Robert H. Meeder
Donald L. Olson
Hollis W. Rademacher
John J. Schornack
Ingrid S. Stafford
Lemuel H. Tate (Chairman)
Elizabeth C. Warren
Edward J. Wehmer
Stanley R. Weinberger
Richard J. Witry
EXECUTIVE OFFICERS
Randolph M. Hibben
President & CEO
Donald F. Krueger
Executive Vice President/Operations
Robert H. Meeder
Executive Vice President/Lending
LOANS
Henry L. Apfelbach
Senior Vice President/Mortgages
Lauretta Burke
Senior Vice President/Lending/Manager - Skokie
Robert Clausen
Vice President/Commercial Lending
Mary Carole Gavula
Vice President/Mortgages
- 66 -
<PAGE>
Frank McCabe
Vice President/Lending - Glencoe
Susan Mundy
Vice President/Mortgages
James L. Sefton
Vice President/Lending
Gina Stec
Vice President/Lending - Winnetka
Susan J. Weisbond
Vice President/Lending/Manager - Glencoe
Mark A. Stec
Assistant Vice President/Mortgages
Romelia Lemus
Loan Officer
Ann T. Tyler
Loan Administration Officer
PERSONAL BANKING/OPERATIONS
John A. Barnett
Vice President/Controller
James P. Waters
Vice President/Personal Banking
Catherine W. Biggam
Assistant Vice President/Personal Banking
Eric Jordan
Assistant Vice President/Personal Banking / Manager-Winnetka
David Morse
Assistant Vice President/Personal Banking - Skokie
Leslie A. Niemark
Assistant Vice President/Personal Banking - Glencoe
Jennifer A. Waters
Assistant Vice President/Human Resources/Marketing
Beatrice Borre
Personal Banking Officer
LIBERTYVILLE BANK & TRUST COMPANY
- ---------------------------------------
DIRECTORS
Bert Carstens
Robert O. Dunn
David A. Dykstra
Bert Getz, Jr.
Donald Gossett
Jeffrey A. Harger
Scott Lucas
James E. Mahoney
Susan Milligan
William Newell
Hollis W. Rademacher
John N. Schaper
Jane R. Stein
Jack Stoneman
Edward J. Wehmer
Edward R. Werdell
EXECUTIVE OFFICERS
Bert Carstens
Chairman & CEO
Edward R. Werdell
President
COMMERCIAL BANKING
Brian B. Mikaelian
Executive Vice President
William J. Westerman
Executive Vice President
Michael A. Buchert
Second Vice President
Betty Berg
Vice President/Commercial
Banking Services
RESIDENTIAL REAL ESTATE
Michael Spies
Vice President/Residential Real Estate
Rosemarie Garrison
Mortgage Loan Officer
PERSONAL BANKING
Sharon Worlin
Vice President
Ursula Schuebel
Second Vice President
Bobbie Callese
Second Vice President
Deborah Motzer
Personal Banking Officer
Julie Rolfsen
Personal Banking Officer
OPERATIONS/FINANCE
Suzanne Chamberlain
Vice President/Operations
Lynn Dohnalik
Vice President/Cashier
Dwayne Nicholson
Operations Officer/MIS
Deborah Wrigley
Operations Officer
- 67 -
<PAGE>
BARRINGTON BANK & TRUST COMPANY
- ---------------------------------------
DIRECTORS
James H. Bishop
Raynette Boshell
Edwin C. Bruning
Dr. Joel Cristol
Bruce K. Crowther
Scott A. Gaalaas
William C. Graft
Penny Horne
Peter Hyland
Dr. Lawrence Kerns
Sam Oliver
Mary F. Perot
Hollis W. Rademacher
Peter Rusin
George L. Schueppert
Dr. Richard Smith
Richard P. Spicuzza
W. Bradley Stetson
Dan T. Thomson
Charles VanFossan
Edward J. Wehmer
Tim Wickstrom
EXECUTIVE OFFICERS
James H. Bishop
Chairman & CEO
W. Bradley Stetson
President
LOANS
Linda J. Schiff
Senior Vice President
Barbara Ringquist-Tomasello
Vice President
John D. Haniotes
Vice President
Charlotte Neault
Assistant Vice President
Christopher P. Marrs
Assistant Vice President
Karen G. Smith
Loan Administration Officer
PERSONAL BANKING/OPERATIONS
Ronald A. Branstrom
Senior Vice President & Retail Banking
James Weiler
Vice President/Controller
Gloria B. Andersen
Assistant Vice President
CRYSTAL LAKE BANK & TRUST COMPANY
- ---------------------------------------
DIRECTORS
Charles D. Collier
Henry L. Cowlin
Linda Decker
John W. Fuhler
Diana Kenney
Dorothy Mueller
Thomas Neis
Marshall Pedersen
Hollis W. Rademacher
Candy Reedy
Nancy Riley
Robert Robinson
Robert Staley
Edward J. Wehmer
Donald Franz
EXECUTIVE OFFICERS
Charles D. Collier
President & CEO
Jim Thorpe
Executive Vice President/Loans
Pam Umberger
Senior Vice President/Operations
LOANS
Monica Garver
Vice President/
Manager Residential Loans
Mark J. Peteler
Vice President/Construction Loans
PERSONAL BANKING/OPERATIONS
Pamela L. Bialas
Assistant Vice President
Peter Fidler
Controller
- 68 -
<PAGE>
WINTRUST ASSET MANAGEMENT COMPANY
- ---------------------------------------
DIRECTORS
Joseph Alaimo
Robert Acri
Bert A. Getz, Jr.
Robert Harnach
Randolph M. Hibben
John S. Lillard
Hollis W. Rademacher
Richard P. Spicuzza
Robert Staley
Edward J. Wehmer
Stanley Weinberger
OFFICERS
Edward J. Wehmer
Chairman
Joseph Alaimo
President & CEO
Robert C. Acri
Executive Vice President
Claire Rosati
Executive Vice President
Jeanette E. Amstutz
Vice President/Lake Forest
Susan Gavinski
Assistant Vice President
Anita E. Morris
Vice President/Lake Forest
Laura H. Olson
Vice President/Lake Forest
Sandra L. Shinsky
Vice President/Lake Forest
T. Tolbert Chisum
Managing Director of Marketing/North Shore
Mary Anne Martin
Vice President/North Shore
Jennifer Czerwinski
Vice President/North Shore
Elizabeth Martin
Trust Officer/North Shore
Judith Richards
Trust Officer/North Shore
Edward Edens
Vice President/Hinsdale
Gerald Leenheers
Vice President/Hinsdale
Ann Wiesbrock
Vice President/Hinsdale
Timothy J. Keefe
Vice President/Barrington
Michael Peifer
Vice President/Barrington
- ---------------------------------------
FIRST INSURANCE FUNDING CORP.
- ---------------------------------------
DIRECTORS
Frank J. Burke
David A. Dykstra
Hollis W. Rademacher
Edward J. Wehmer
EXECUTIVE OFFICERS
Frank J. Burke
President & CEO
Joseph G. Shockey
Executive Vice President
Robert G. Lindeman
Executive Vice President/Information Technology
FINANCE/MARKETING/OPERATIONS
Michelle H. Perry
Vice President/Controller
Matthew E. Doubleday
Vice President/Marketing
Luther J. Grafe
Vice President/Loan Operations
Mark C. Lucas
Vice President/Asset Management
G. David Wiggins
Vice President/Loan Origination
Mark A. Steenberg
Vice President/Customer Service
Helene A. Torrenga
Assistant Vice President
- ---------------------------------------
TRICOM, INC. OF MILWAUKEE
- ---------------------------------------
DIRECTORS
John Leopold
Julie Ann Blazei
Edward J. Wehmer
David A. Dykstra
Mary Martha Mooney
Katharine V. Sylvester
Hollis W. Rademacher
SENIOR STAFF
John Leopold
President
Julie Ann Blazei
Operations and Technology Manager
Mary Jo Heim
Accounting Manager
Linda Walsch
Client Services Manager
- 69 -
<PAGE>
CORPORATE LOCATIONS
================================================================================
WINTRUST FINANCIAL CORPORATION
727 North Bank Lane
Lake Forest, IL 60045
(847) 615-4096
www.wintrust.com
LAKE FOREST BANK & TRUST COMPANY
Lake Forest Locations
Main Bank
727 North Bank Lane
Lake Forest, IL 60045
(847) 234-2882
www.lakeforestbank.com
Main Drive-thru
780 North Bank Lane
Lake Forest, IL 60045
West Lake Forest
810 South Waukegan Avenue
Lake Forest, IL 60045
(847) 615-4080
West Lake Forest Drive-thru
911 Telegraph Road
Lake Forest, IL 60045
(847) 615-4097
Lake Forest Place
1100 Pembridge Drive
Lake Forest, IL 60045
Lake Bluff
103 East Scranton Avenue
Lake Bluff, IL 60044
(847) 615-4060
Bank of Highwood - Fort Sheridan
128 Washington Avenue
Highwood, IL 60040
(847) 266-7600
MMF Leasing Services
263 East Westminster
Lake Forest, IL 60045
(847) 604-5060
HINSDALE BANK & TRUST COMPANY
Hinsdale Locations
Main Bank
25 East First Street
Hinsdale, IL 60521
(630) 323-4404
www.hinsdalebank.com
Drive-thru
130 West Chestnut
Hinsdale, IL 60521
(630) 655-8025
Clarendon Hills Bank
200 West Burlington Avenue
Clarendon Hills, IL 60514
(630) 323-1240
The Community Bank of Western Springs
1000 Hillgrove Avenue
Western Springs, IL 60558
(708) 246-7100
NORTH SHORE COMMUNITY BANK ~& TRUST COMPANY
Wilmette Locations
Main Bank
1145 Wilmette Avenue
Wilmette, IL 60091
(847) 853-1145
www.nscbank.com
Drive-thru
720 12th Street
Wilmette, IL 60091
Glencoe Locations
362 Park Avenue
Glencoe, IL 60022
(847) 835-1700
Drive-thru
633 Vernon Avenue
Glencoe, IL 60022
Winnetka Location
794 Oak Street
Winnetka, IL 60093
(847) 441-2265
Skokie Location
5049 Oakton Street
Skokie, IL 60077
(847) 933-1900
LIBERTYVILLE BANK & TRUST COMPANY
Main Bank
507 North Milwaukee Avenue
Libertyville, IL 60048
(847) 367-6800
www.libertyvillebank.com
Drive-thru
201 Hurlburt Court
Libertyville, IL 60048
(847) 247-4045
South Libertyville
1167 South Milwaukee Avenue
Libertyville, IL 60048
(847) 367-6800
BARRINGTON BANK & TRUST COMPANY
Main Bank
201 S. Hough Street
Barrington, IL 60010
(847) 842-4500
www.barringtonbank.com
CRYSTAL LAKE BANK & TRUST COMPANY
Main Bank
70 N. Williams Street
Crystal Lake, IL 60014
(815) 479-5200
www.crystallakebank.com
Drive-thru
27 N. Main Street
Crystal Lake, IL 60014
South Crystal Lake
1000 McHenry Avenue
Crystal Lake, IL 60014
(815) 479-5715
WINTRUST ASSET MANAGEMENT COMPANY
727 North Bank Lane
Lake Forest, IL 60045
(847) 234-2882
25 East First Street
Hinsdale, IL 60521
(630) 323-4404
1145 Wilmette Avenue
Wilmette, IL 60091
(847) 853-1145
794 Oak Street
Winnetka, IL 60093
(847) 441-2265
201 S. Hough Street
Barrington, IL 60010
(847) 842-4500
FIRST INSURANCE FUNDING CORP.
520 Lake Cook Road, Suite 300
Deerfield, IL 60015
(847) 374-3000
www.firstinsurancefunding.com
TRICOM, INC. OF MILWAUKEE
11270 West Park Place
Suite 100
Milwaukee, WI 53224
(414) 410-2200
www.tricom.com
- 70 -
<PAGE>
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
PUBLIC LISTING AND MARKET SYMBOL
The Company's Common Stock is traded on The Nasdaq Stock Market(R) under the
symbol WTFC. The stock abbreviation appears as "WintrstFnl" in the Wall Street
Journal.
WEBSITE LOCATION
The Company maintains a financial relations internet website at the following
location: www.wintrust.com
ANNUAL MEETING OF SHAREHOLDERS
May 25, 2000
Michigan Shores Club
911 Michigan Avenue
Wilmette, Illinois
10:00 A.M.
FORM 10-K
The Form 10-K Annual Report to the Securities and Exchange Commission will be
available to holders of record upon written request to the Secretary of the
Company. The information is also available on the Internet at the Securities and
Exchange Commission's website. The address for the web site is:
http://www.sec.gov.
TRANSFER AGENT
Illinois Stock Transfer Company
209 West Jackson Boulevard
Suite 903
Chicago, Illinois 60606
Telephone: (312) 427-2953
Facsimile: (312) 427-2879
PRIMARY MARKET MAKERS FOR WINTRUST FINANCIAL CORPORATION COMMON STOCK
ABN AMRO Incorporated
Advest, Inc.
First Union Securities, Inc.
Howe Barnes Investments, Inc.
Sandler O'Neill & Partners
U.S. Bancorp Piper Jaffray
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