UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission File Number 0-21923
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Illinois 36-3873352 ---------------------------------------- ------------------------------------ (State of incorporation of organization) (I.R.S. Employer Identification No.) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of issuer's class of common stock, as of the last practicable date.
Common Stock - no par value, 8,660,080 shares, as of August 9, 2000.
TABLE OF CONTENTS PART I. -- FINANCIAL INFORMATION Page ---- ITEM 1. Financial Statements.__________________________________________ 1-8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. ______________________________________ 8-27 ITEM 3. Quantitative and Qualitative Disclosures About Market Risks. __ 28-30 PART II. -- OTHER INFORMATION ITEM 1. Legal Proceedings. ____________________________________________ 31 ITEM 2. Changes in Securities. ________________________________________ 31 ITEM 3. Defaults Upon Senior Securities. ______________________________ 31 ITEM 4. Submission of Matters to a Vote of Security Holders.___________ 31 ITEM 5. Other Information. ____________________________________________ 31 ITEM 6. Exhibits and Reports on Form 8-K. _____________________________ 32 Signatures ____________________________________________________ 33 Exhibit Index _________________________________________________ 34 |
PART I
ITEM 1 FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (In thousands) June 30, December 31, June 30, 2000 1999 1999 ------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 56,552 $ 53,066 $ 40,170 Federal funds sold 67,658 28,231 56,640 Interest-bearing deposits with banks 189 2,547 3,047 Available-for-Sale securities, at fair value 219,361 205,795 185,233 Loans, net of unearned income 1,400,824 1,278,249 1,137,169 Less: Allowance for possible loan losses 9,792 8,783 7,677 ------------------------------------------------------------------------------------------------------------------------- Net loans 1,391,032 1,269,466 1,129,492 Premises and equipment, net 80,771 72,851 66,302 Accrued interest receivable and other assets 36,780 35,943 32,912 Goodwill and other intangible assets, net 11,126 11,483 1,343 ------------------------------------------------------------------------------------------------------------------------- Total assets $ 1,863,469 $1,679,382 $1,515,139 ========================================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing $ 173,967 $ 154,034 $ 124,642 Interest bearing 1,455,225 1,309,588 1,210,083 ------------------------------------------------------------------------------------------------------------------------- Total deposits 1,629,192 1,463,622 1,334,725 Short-term borrowings 46,783 59,843 50,105 Notes payable 4,850 8,350 5,100 Long-term debt - trust preferred securities 51,050 31,050 31,050 Accrued interest payable and other liabilities 33,236 23,570 14,977 ------------------------------------------------------------------------------------------------------------------------- Total liabilities 1,765,111 1,586,435 1,435,957 ------------------------------------------------------------------------------------------------------------------------- Shareholders' equity: Preferred stock - - - Common stock 8,850 8,771 8,172 Surplus 83,603 82,792 73,138 Common stock warrants 100 100 100 Treasury stock, at cost (1,314) - - Retained earnings (deficit) 9,554 3,555 (1,779) Accumulated other comprehensive loss (2,435) (2,271) (449) ------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 98,358 92,947 79,182 ------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 1,863,469 $ 1,679,382 $ 1,515,139 ========================================================================================================================= |
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 --------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $31,064 $23,340 $ 59,802 $45,003 Interest bearing deposits with banks 4 50 20 121 Federal funds sold 489 377 736 570 Securities 3,517 2,347 6,825 4,698 --------------------------------------------------------------------------------------------------------------------------------- Total interest income 35,074 26,114 67,383 50,392 --------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 18,299 13,216 34,898 25,766 Interest on short-term borrowings and notes payable 1,093 566 2,200 743 Interest on long-term debt - trust preferred securities 833 734 1,568 1,469 --------------------------------------------------------------------------------------------------------------------------------- Total interest expense 20,225 14,516 38,666 27,978 --------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 14,849 11,598 28,717 22,414 Provision for possible loan losses 1,223 933 2,364 1,717 --------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for possible loan losses 13,626 10,665 26,353 20,697 --------------------------------------------------------------------------------------------------------------------------------- NON-INTEREST INCOME Fees on mortgage loans sold 742 919 1,225 2,217 Service charges on deposit accounts 479 347 948 681 Trust fees 494 250 966 475 Gain on sale of premium finance receivables 996 263 2,237 263 Administrative services revenue 1,141 - 2,154 - Net securities gains (losses) (28) - (25) - Other 680 339 1,277 790 --------------------------------------------------------------------------------------------------------------------------------- Total non-interest income 4,504 2,118 8,782 4,426 --------------------------------------------------------------------------------------------------------------------------------- NON-INTEREST EXPENSE Salaries and employee benefits 6,793 5,193 13,128 10,272 Occupancy, net 1,140 669 2,150 1,345 Equipment expense 1,137 702 2,286 1,330 Data processing 699 511 1,379 993 Advertising and marketing 322 363 571 732 Professional fees 357 276 652 586 Amortization of intangibles 179 35 357 70 Other 2,262 1,779 4,475 3,736 --------------------------------------------------------------------------------------------------------------------------------- Total non-interest expense 12,889 9,528 24,998 19,064 --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 5,241 3,255 10,137 6,059 Income tax expense 1,922 995 3,696 1,965 --------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 3,319 $ 2,260 $ 6,441 $ 4,094 ================================================================================================================================= NET INCOME PER COMMON SHARE = BASIC $ 0.38 $ 0.28 $ 0.73 $ 0.50 ================================================================================================================================= NET INCOME PER COMMON SHARE = DILUTED $ 0.37 $ 0.27 $ 0.72 $ 0.48 ================================================================================================================================= Weighted average common shares outstanding 8,760 8,169 8,779 8,162 Dilutive potential common shares 211 335 212 330 --------------------------------------------------------------------------------------------------------------------------------- Average common shares and dilutive common shares 8,971 8,504 8,991 8,492 ================================================================================================================================= |
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) (In thousands, except share data) Accumulated other Total Compre- Common Retained compre- share- hensive Common stock earnings Treasury hensive holders' income stock Surplus warrants (deficit) Stock income(loss) equity ---------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 $ 8,150 $ 72,878 $ 100 $ (5,872) $ - $ (51) $ 75,205 Comprehensive Income: Net income $ 4,094 - - - 4,094 - - 4,094 Other Comprehensive Income (Loss), net of tax: Unrealized losses on securities, net of reclassification adjustment (399) - - - - - (399) (399) -------- Comprehensive Income $ 3,695 ======== Common stock issued upon exercise of stock options 17 194 - - - - 211 Common stock issued through employee stock purchase plan 5 66 - - - - 71 ------------------------------------- --------------------------------------------------------------------------------- Balance at June 30, 1999 $ 8,172 $ 73,138 $ 100 $ (1,778) $ - $ (450) $ 79,182 ===================================== ================================================================================= Balance at December 31, 1999 $ 8,771 $ 82,792 $ 100 $ 3,555 $ - $ (2,271) $ 92,947 Comprehensive Income: Net income $ 6,441 - - - 6,441 - - 6,441 Other Comprehensive Income (Loss), net of tax: Unrealized losses on securities, net of reclassification adjustment (164) - - - - - (164) (164) -------- Comprehensive Income $ 6,277 ======== Cash dividends declared on common stock - - - (442) - - (442) Purchase of treasury stock, 85,700 shares at cost - - - - (1,314) - (1,314) Common stock issued upon exercise of stock options 75 759 - - - - 834 Common stock issued through employee stock purchase plan 4 52 - - - - 56 ------------------------------------- --------------------------------------------------------------------------------- Balance at June 30, 2000 $ 8,850 $ 83,603 $ 100 $ 9,554 $ (1,314) $ (2,435) $ 98,358 ===================================== ================================================================================= Six Months Ended June 30, 2000 1999 -------- -------- Disclosure of reclassification amount: Unrealized holding losses arising during the period $ (272) $ (625) Less: Reclassification adjustment for losses included in net income (25) - Less: Income tax benefit (83) (226) -------------------- Net unrealized losses on securities $ (164) $ (399) ==================== |
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) For the Period Ended June 30, ------------------------------------------------------------------------------------------------------------------- 2000 1999 ------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 6,441 $ 4,094 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 2,364 1,717 Depreciation and amortization 3,734 1,887 Deferred income tax benefit (786) (1,030) Net accretion/amortization of securities 805 (489) Originations of mortgage loans held for sale (75,135) (163,430) Proceeds from sales of mortgage loans held for sale 83,258 169,915 Purchase of trading securities (2,940) - Proceeds from sale of trading securities 2,945 - Gain on sale of trading securities (5) - Gain on sale of premium finance receivables (2,237) (263) Loss on sale of Available-for-Sale securities 25 - Increase (decrease) in other assets, net 82 (1,665) Increase in other liabilities, net 9,667 2,338 ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 28,218 13,074 ------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from maturities of Available-for-Sale securities 66,032 240,762 Proceeds from maturities of Held-to-Maturity securities - 5,000 Proceeds from sale of Available-for-Sale securities 9,808 - Purchases of Available-for-Sale securities (90,533) (217,012) Proceeds from sale of premium finance receivables 135,663 20,343 Net decrease in interest-bearing deposits with banks 2,358 4,816 Net increase in loans (265,479) (172,746) Purchases of premises and equipment, net (11,298) (10,948) ------------------------------------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (153,449) (129,785) ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Increase in deposit accounts 165,570 105,571 Increase (decrease) in short-term borrowings, net (13,060) 50,105 Proceeds from notes payable 6,500 5,100 Repayment of notes payable (10,000) - Proceeds from trust preferred securities offering 20,000 - Common stock issued upon exercise of stock options 834 211 Common stock issued through employee stock purchase plan 56 71 Purchase of treasure shares (1,314) - Dividends paid (442) - ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 168,144 161,058 ------------------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 42,913 44,347 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 81,297 52,463 ------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $124,210 $ 96,810 =================================================================================================================== |
See accompanying notes to unaudited consolidated financial statements.
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of Wintrust Financial Corporation and Subsidiaries ("Wintrust" or "Company") presented herein are unaudited, but in the opinion of management reflect all necessary adjustments of a normal or recurring nature for a fair presentation of results as of the dates and for the periods covered by the consolidated financial statements.
Wintrust is a bank holding company currently engaged in the business of providing community banking services through its banking subsidiaries to customers in the Chicago metropolitan area, trust and investment services, financing of commercial insurance premiums, and financing and administrative services to the temporary services industry.
As of June 30, 2000, Wintrust had six wholly-owned bank subsidiaries (collectively, "Banks"), all of which started as de novo institutions, including Lake Forest Bank & Trust Company ("Lake Forest Bank"), Hinsdale Bank & Trust Company ("Hinsdale Bank"), North Shore Community Bank & Trust Company ("North Shore Bank"), Libertyville Bank & Trust Company ("Libertyville Bank"), Barrington Bank & Trust Company, N.A. ("Barrington Bank") and Crystal Lake Bank & Trust Company, N.A. ("Crystal Lake Bank").
The Company provides financing of commercial insurance premiums ("premium finance receivables") on a national basis, through its subsidiary, First Insurance Funding Corporation ("FIFC"). FIFC is a wholly-owned subsidiary of Crabtree Capital Corporation ("Crabtree") which is a wholly-owned subsidiary of Lake Forest Bank. On September 30, 1998, Wintrust began operating a wholly-owned trust and investment subsidiary, Wintrust Asset Management Company, N.A. ("WAMC"), which currently provides trust and investment services at four of the Wintrust banks. Previously, the Company provided trust services through the trust department of Lake Forest Bank. In October 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 clients located throughout the United States.
The accompanying consolidated financial statements are unaudited and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations or cash flows in accordance with generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report and Form 10-K for the year ended December 31, 1999. Operating results for the three-month and six-month periods presented are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform with the current period presentation.
For the purposes of the Consolidated Statements of Cash Flows, the Company considers cash and cash equivalents to include cash and due from banks and federal funds sold which have an original maturity of 90 days or less.
The following table shows the computation of basic and diluted earnings per share (in thousands, except per share data):
For the Three Months For the Six Months Ended June 30, Ended June 30, --------------------------------------------------------------------- 2000 1999 2000 1999 ---------------- --------------- ---------------- -------------- Net income (A) $ 3,319 $ 2,260 $ 6,441 $ 4,094 ================ =============== ================ ============== Average common shares outstanding (B) 8,760 8,169 8,779 8,162 Effect of dilutive common shares 211 335 212 330 ---------------- --------------- ---------------- -------------- Weighted average common shares and effect of dilutive common shares (C) 8,971 8,504 8,991 8,492 ================ =============== ================ ============== Net income per average common share - Basic (A/B) $ 0.38 $ 0.28 $ 0.73 $ 0.50 ================ =============== ================ ============== Net income per average common share - Diluted (A/C) $ 0.37 $ 0.27 $ 0.72 $ 0.48 ================ =============== ================ ============== |
The effect of dilutive common shares outstanding results from stock options, stock warrants and shares to be issued under the Employee Stock Purchase Plan, all being treated as if they had been either exercised or issued, and are computed by application of the treasury stock method.
In October 1998, the Company completed an offering of $31.05 million of 9.00% Cumulative Trust Preferred Securities. Also, in June 2000, the Company completed an additional offering of $20 million of 10.50% Cumulative Trust Preferred Securities. For purposes of generally accepted accounting principles, these securities are considered to be debt securities and not a component of shareholders' equity. The Trust Preferred Securities offerings have increased Wintrust's regulatory capital under Federal Reserve guidelines. Interest expense on the Trust Preferred Securities is also deductible for income tax purposes. For further information on the first offering of Trust Preferred Securities, please refer to Note 10 of the Company's Consolidated Financial Statements included in the Annual Report and Form 10-K for the year ended December 31, 1999.
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 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. Inter-segment revenue and transfers are generally accounted for at current market prices. The other category, as shown in the following table, reflects parent company information.
The net interest income and segment profit 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; thereby causing the inter-segment elimination amounts shown in the following table.
The following table is a summary of certain operating information for reportable segments for the three-month and six-month periods ended June 30, 2000 and 1999 (in thousands):
For the Three Months For the Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 ---------------- ---------------- ---------------- --------------- NET INTEREST INCOME: Banking $ 13,814 $ 10,965 $ 26,408 $ 21,021 Premium Finance 3,256 2,921 6,392 6,053 Indirect Auto 1,778 2,033 3,653 3,897 Tricom 836 - 1,633 - Trust 119 124 241 232 Inter-segment eliminations (3,883) (3,678) (7,643) (7,287) Other (1,071) (767) (1,967) (1,502) ---------------- ---------------- ---------------- --------------- Total $ 14,849 $ 11,598 $ 28,717 $ 22,414 ================ ================ ================ =============== NON-INTEREST INCOME: Banking $ 2,026 $ 1,761 $ 3,740 $ 3,901 Premium Finance 996 263 2,237 263 Indirect Auto - - - - Tricom 1,150 - 2,167 - Trust 494 250 966 475 Inter-segment eliminations (162) (156) (328) (213) ---------------- ---------------- ---------------- --------------- Total $ 4,504 $ 2,118 $ 8,782 $ 4,426 ================ ================ ================ =============== - 7 - |
SEGMENT PROFIT (LOSS): Banking $ 3,407 $ 2,527 $ 6,254 $ 4,888 Premium Finance 1,069 939 2,400 1,883 Indirect Auto 487 738 1,037 1,409 Tricom 387 - 670 - Trust (94) (180) (215) (412) Inter-segment eliminations (916) (1,054) (1,993) (2,260) Other (1,021) (710) (1,712) (1,414) ---------------- ---------------- ---------------- --------------- Total $ 3,319 $ 2,260 $ 6,441 $ 4,094 ================ ================ ================ =============== SEGMENT ASSETS: Banking $1,877,503 $1,540,944 Premium Finance 322,695 280,019 Indirect Auto 239,698 254,608 Tricom 32,060 - Trust 2,559 2,417 Inter-segment eliminations (617,534) (567,412) Other 6,488 4,563 ---------------- ---------------- Total $1,863,469 $1,515,139 ================ ================ |
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition as of June 30, 2000, compared with December 31, 1999, and June 30, 1999, and the results of operations for the three-month and six-month periods ended June 30, 2000 and 1999 should be read in conjunction with the Company's unaudited consolidated financial statements and notes contained in this report. This discussion contains forward-looking statements that involve risks and uncertainties and, as such, future results could differ significantly from management's current expectations. See the last section of this discussion for further information on forward-looking statements.
OVERVIEW AND STRATEGY
The Company's operating subsidiaries were organized within the last nine years, with an average life of its six subsidiary banks of approximately five years. Wintrust 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 performance of the Banks, FIFC and WAMC 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 operating subsidiaries, 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 to continue for up to two more years before its operations become profitable.
Lake Forest Bank, Hinsdale Bank, North Shore Bank, Libertyville Bank, Barrington Bank and Crystal Lake Bank began operations in December 1991, October 1993, September 1994, October 1995, December 1996 and December 1997, respectively. Subsequent to those initial dates of operations, each of the Banks, except Barrington Bank, have established additional full-service banking facilities. FIFC began operations in 1990 and is primarily engaged in the business of financing insurance premiums written through independent insurance agents or brokers on a national basis for commercial customers. On September 30, 1998, WAMC began operations and offers a full range of trust and investment services at many of the Wintrust banks.
Crystal Lake Bank, since moving into its permanent location in downtown Crystal Lake in September 1998, opened a new drive-thru facility in March 1999 and a new full-service branch facility in south Crystal Lake in September 1999. In October 1999, North Shore Bank opened a new full-service branch facility in Skokie, Illinois. In February 2000, the Lake Forest Bank opened a new temporary branch facility in Highwood, Illinois. A permanent facility in Highwood is currently under construction and should be open later this year. Expenses related to these new banking operations and predominantly impact only the 2000 operating results presented in this discussion and analysis.
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 lending 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 maintain the mix of earning assets such that loans, which are higher-yielding, are kept at a level of between 85% and 90% of our deposit funds. Another aspect of this strategy is a continued focus on less aggressive deposit pricing at those Banks with significant market share and more established customer bases.
FIFC has been the Company's most significant specialized earning asset niche and is expected to reach in excess of $900 million in premium finance receivable volume during 2000. The majority of these receivables have been retained within the Banks' loan portfolios as part of the strategy noted above. However, since the second quarter of 1999, as a result of the continued solid growth in loan originations, FIFC has, from time to time, sold a portion of new receivables to an unrelated third party. In addition to recognizing gains on the sale of these receivables, the proceeds have provided the Company with additional liquidity. It is possible that similar future sales may occur depending on the level of new volume growth in relation to the desired capacity within the Banks' loan portfolios.
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. 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 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 finance businesses that generate assets suitable for bank investment and/or secondary market sales.
With the formation of WAMC, the Company is expanding the trust and investment management services that had already been provided prior to October 1998 through the trust department of the Lake Forest Bank. With a separately chartered trust subsidiary, the 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 that is offered by WAMC's experienced trust professionals. Since the fourth quarter of 1998, WAMC has provided the services of experienced trust professionals at North Shore Bank, Hinsdale Bank and Barrington Bank. As in the past, a full complement of trust professionals continues to operate from offices at the Lake Forest Bank. Prospective trust and investment 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 will 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 initial fee income generated to date. The overhead consists primarily of the salaries and benefits of experienced trust professionals. Management currently anticipates that WAMC's efforts to attract trust business will begin to generate sufficient trust fees to absorb the overhead of WAMC and make that entity a contributor to the Company's profits within the next two years.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income for the quarter ended June 30, 2000 totaled $3.3 million, an increase of $1.1 million, or 47%, over the second quarter of 1999. On a per share basis, net income for the second quarter of 2000 totaled $0.37 per diluted common share, a $0.10 per share, or 37%, increase over the second quarter of 1999. The return on average equity for the second quarter of 2000 increased to 13.86% from 11.55% for the prior year quarter.
For the six months ended June 30, 2000, net income totaled $6.4 million, or $0.72 per diluted common share, an increase of $2.3 million, or 57%, and $0.24 per diluted share, when compared to the same period in 1999.
NET INTEREST INCOME
The following tables present a summary of the Company's net interest income and related net interest margins, calculated on a fully taxable equivalent basis, for the three-month and six-month periods ended June 30, 2000 and 1999:
For the Quarter Ended For the Quarter Ended June 30, 2000 June 30, 1999 ----------------------------------------- --------------------------------------- (dollars in thousands) Average Interest Rate Average Interest Rate ---------------------- ---------------- ------------- ---------- --------------- ------------- --------- Liquidity management assets (1) (2) $249,621 $ 4,038 6.51% $ 213,506 $ 2,776 5.22% Loans, net of unearned income (2) 1,367,470 31,181 9.17 1,108,933 23,390 8.46 ---------------- ------------- ---------- --------------- ------------- --------- Total earning assets 1,617,091 35,219 8.76% 1,322,439 26,166 7.94% ---------------- ------------- ---------- --------------- ------------- --------- Interest-bearing deposits 1,399,332 18,299 5.26% 1,150,344 13,216 4.61% Short-term borrowings and notes payable 70,450 1,093 6.24 55,400 566 4.10 Long-term debt - trust preferred securities 34,610 833 9.63 31,050 734 9.46 ---------------- ------------- ---------- --------------- ------------- --------- Total interest-bearing liabilities 1,504,392 20,225 5.41% 1,236,794 14,516 4.71% ---------------- ------------- ---------- --------------- ------------- --------- Tax equivalent net interest income $ 14,994 $ 11,650 ============= ============= Net interest margin 3.73% 3.53% ========== ========= Core net interest margin(3) 3.94% 3.76% ========== ========= ------------------------------- (1) Liquidity management assets include securities, interest earning deposits with banks and federal funds sold. (2) Interest income on tax advantaged loans and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35% and 34% in 2000 and 1999, respectively. This total adjustment is $145,000 and $52,000 for the quarters ended June 30, 2000 and 1999, respectively. (3) The core net interest margin excludes the interest expense associated with the Company's Trust Preferred Securities. |
For the Six Months Ended For the Six Months Ended June 30, 2000 June 30, 1999 ----------------------------------------- --------------------------------------- (dollars in thousands) Average Interest Rate Average Interest Rate ---------------------- ---------------- ------------- ---------- --------------- ------------- --------- Liquidity management assets (1) (2) $239,279 $ 7,619 6.40% $ 207,772 $ 5,394 5.24% Loans, net of unearned income (2) 1,340,473 60,025 9.01 1,068,225 45,090 8.51 ---------------- ------------- ---------- --------------- ------------- --------- Total earning assets 1,579,752 67,644 8.61% 1,275,997 50,484 7.98% ---------------- ------------- ---------- --------------- ------------- --------- Interest-bearing deposits 1,366,164 34,898 5.14% 1,122,122 25,766 4.63% Short-term borrowings and notes payable 72,472 2,200 6.10 36,340 743 4.12 Long-term debt - trust preferred securities 32,830 1,568 9.55 31,050 1,469 9.46 ---------------- ------------- ---------- --------------- ------------- --------- Total interest-bearing liabilities 1,471,466 38,666 5.28% 1,189,512 27,978 4.74% ---------------- ------------- ---------- --------------- ------------- --------- Tax equivalent net interest income $ 28,978 $ 22,506 ============= ============= Net interest margin 3.69% 3.56% ========== ========= Core net interest margin(3) 3.89% 3.79% ========== ========= ------------------------------- (1) Liquidity management assets include securities, interest earning deposits with banks and federal funds sold. (2) Interest income on tax advantaged loans and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35% and 34% in 2000 and 1999, respectively. This total adjustment is $261,000 and $92,000 for the six-month periods ended June 30, 2000 and 1999, respectively. (3) The core net interest margin excludes the interest expense associated with the Company's Trust Preferred Securities. |
Net interest income is defined as the difference between interest income and fees on earning assets and interest expense on deposits, borrowings and long-term debt. The related net interest margin represents the net interest income on a tax-equivalent basis as a percentage of average earning assets during the period.
Tax-equivalent net interest income for the quarter ended June 30, 2000 totaled $15.0 million, an increase of $3.3 million, or 29%, as compared to the $11.7 million recorded in the same quarter of 1999. This increase mainly resulted from loan growth, the October 1999 acquisition of Tricom, Inc. of Milwaukee ("Tricom") and management's ability to control funding costs in the current interest rate environment. Tax-equivalent interest and fees on loans for the quarter ended June 30, 2000 totaled $31.2 million, an increase of $7.8 million, or 33%, over the prior year quarterly total of $23.4 million. This growth was predominantly due to a $259 million, or 23%, increase in average total loans.
For the second quarter of 2000, the net interest margin was 3.73%, an increase of 20 basis points when compared to the margin of 3.53% in the prior year quarter. The core net interest margin, which excludes the net impact of the Company's Trust Preferred Securities offerings was 3.94% for the second quarter of 2000, an increase of 18 basis points over the core net interest margin of 3.76% for the second quarter of 1999. The improved margin resulted primarily from higher yields on both loans and securities coupled with solid loan growth and the addition of Tricom.
The rate paid on interest-bearing deposits averaged 5.26% for the second quarter of 2000 versus 4.61% for the same quarter of 1999, an increase of 65 basis points. This increase was caused by continued increases in market rates, which was somewhat offset by management's decision to be less aggressive on its deposit pricing. The rate paid on short-term borrowings and notes payable increased to 6.24% in the second quarter of 2000 as compared to 4.10% in the same quarter of 1999, due primarily to a higher outstanding balance under the company's revolving credit agreement with an unaffiliated bank and a higher rate environment for the Company's short-term funding sources.
The yield on total earning assets for the second quarter of 2000 was 8.76% as compared to 7.94% in 1999, an increase of 82 basis points resulting primarily from increases in the prime lending rate, general market rate increases on liquidity management assets, and the acquisition of Tricom. The second quarter 2000 loan yield of 9.17% increased 71 basis points when compared to the prior year quarterly yield of 8.46% and was due primarily to a higher average prime lending rate of 9.24% during the second quarter of 2000 versus an average prime lending rate of 7.75% for the second quarter of 1999. The Company's loan portfolio does not re-price in a parallel fashion to increases in the prime rate due to a portion of the portfolio being longer-term fixed rate loans.
For the first six months of 2000, tax equivalent net interest income totaled $29.0 million and increased $6.5 million, or 29%, over the $22.5 million recorded in the same period of 1999. This increase was also mainly due to a combination of loan growth and the addition of Tricom. Interest and fees on loans, on a tax equivalent basis, totaled $60.0 million for the first six months of 2000, and increased $14.9 million, or 33%, over the same period of 1999. Average loans for the first six months of 2000 grew $272 million, or 25%, over the average for the first six months of 1999. The net interest margin for the first six months of 2000 was 3.69%, an increase of 13 basis points when compared to the same period in 1999. The core net interest margin was 3.89% for the first six months of 2000 and increased 10 basis points over the prior year period. Consistent with the second quarter margin improvement as noted above, the year-to-date margin increase was mainly the result of loan growth, the addition of Tricom and the ability to control funding costs in a rising rate environment.
The following table presents a reconciliation of the Company's tax-equivalent net interest income, calculated on a tax equivalent basis, between the three and six-month periods ended June 30, 1999 and June 30, 2000. The reconciliation sets forth the change in the tax-equivalent net interest income as a result of changes in volumes, changes in rates and the change due to the combination of volume and rate changes (in thousands):
Three Month Six Month Period Period ------ ------ Tax equivalent net interest income for the period ended June 30, 1999.......... $ 11,650 $ 22,506 Change due to average earning assets fluctuations (volume)................. 2,728 5,653 Change due to interest rate fluctuations (rate)............................ 563 827 Change due to rate/volume fluctuations (mix)............................... 53 (8) -------------------- ------------------- Tax equivalent net interest income for the period ended June 30, 2000 ......... $ 14,994 $ 28,978 ==================== =================== |
NON-INTEREST INCOME
For the second quarter of 2000, non-interest income totaled $4.5 million and increased $2.4 million, or 113%, over the prior year quarter. For the first six months of 2000, non-interest income totaled $8.8 million and increased $4.4 million, or 98%, when compared to the same period in 1999. Gains from the sale of premium finance receivables, revenues from Tricom and increases in trust fees, deposit services charges and leased equipment rental income were partially offset by a lower level of fees from the sale of mortgage loans. The following table presents non-interest income by category (in thousands):
Three Months Ended Six Months Ended June 30, June 30, ----------------------------------- ---------------------------------- 2000 1999 2000 1999 ----------------- ---------------- ---------------- --------------- Fees on mortgage loans sold $ 742 $ 919 $ 1,225 $ 2,217 Service charges on deposit accounts 479 347 948 681 Trust fees 494 250 966 475 Administrative services revenue 1,141 - 2,154 - Gain on sale of premium finance receivables 996 263 2,237 263 Securities gains (losses), net (28) - (25) - Other income 680 339 1,277 790 ----------------- ---------------- ---------------- --------------- Total non-interest income $ 4,504 $ 2,118 $ 8,782 $ 4,426 ================= ================ ================ =============== |
Fees on mortgage loans sold include income from originating and selling residential real estate loans into the secondary market. For the quarter ended June 30, 2000, these fees totaled $742,000, a decline of $177,000, or 19%, from the prior year quarter. For the first six months of 2000, fees on mortgage loans sold totaled $1.2 million and declined $1.0 million, or 45%, when compared to the same period of 1999. These declines were due to lower levels of mortgage origination volumes, particularly refinancing activity, caused by the recent increases in mortgage interest rates.
Service charges on deposit accounts totaled $479,000 for the second quarter of 2000, an increase of $132,000 when compared to the same quarter of 1999. For the first six months of 2000, deposit service charges totaled $948,000 and increased $267,000 when compared to the same period of 1999. These increases were due to a
higher deposit base and a larger number of accounts at the banking subsidiaries. The majority of deposit service charges relates 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 $494,000 for the second quarter of 2000, a $244,000, or 98%, increase over the same quarter of 1999. For the first six months of 2000, trust fees totaled $966,000 and increased $491,000, or 103%, over the same period of 1999. The increases were mainly the result of new business development efforts from the staff of experienced trust officers added since late 1998 with the formation of Wintrust Asset Management Company. 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 initial fee income that is generated. It is anticipated that trust fees will eventually increase to a level sufficient to absorb this overhead within the next two years.
The administrative services revenue contributed by Tricom, which was acquired in October 1999, added $1.1 million to total non-interest income in the second quarter of 2000 and $2.2 million for the first six months of 2000. 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, which is included in the net interest income category.
As a result of strong loan originations during the second quarter of 2000, approximately $62 million of premium finance receivables were sold to an unrelated third party and resulted in the recognition of a $1.0 million gain. Through the first six months of 2000, approximately $133 million of premium finance receivables have been sold resulting in a year-to-date gain of $2.2 million. The Company currently has a philosophy of maintaining its average loan-to-deposit ratio in the range of 85-90%. During the second quarter of 2000, the ratio was approximately 87.6%. Accordingly, the Company sold excess premium finance receivables volume to an unrelated third party financial institution. Consistent with Wintrust's strategy to be asset-driven and the desire to maintain our loan-to-deposit ratio in the aforementioned range, it is probable that similar sales of premium finance receivables will occur in the future.
Other non-interest income for the second quarter totaled $680,000 and increased $341,000 over the prior year quarterly total of $339,000. For the first six months of 2000, other non-interest income totaled $1.3 million and increased $487,000, or 62%, over the same period of 1999. These increases were due primarily to increases in rental income from equipment leased through the MMF Leasing Services division of the Lake Forest Bank of $203,000 and $417,000, respectively, for the three and six months periods of 2000 compared 1999.
NON-INTEREST EXPENSE
Non-interest expense for the second quarter of 2000 totaled $12.9 million and increased $3.4 million, or 35%, from the second quarter 1999 total of $9.5 million. For the first six months of 2000, non-interest expense totaled $25.0 million and increased $5.9 million, or 31%, when compared to the prior year period. The continued growth and expansion of the de novo banks, the development of the trust and investment business, and the October 1999 acquisition of Tricom were the primary causes for this increase. Since June 30, 1999,
total deposits have grown 22% and total loan balances have risen 23%, requiring higher levels of staffing and other costs to both attract and service the larger customer base. The following table presents non-interest expense by category (in thousands):
Three Months Six Months Ended June 30, Ended June 30, ------------------------------------ ----------------------------------- 2000 1999 2000 1999 ------------------- ---------------- ------------------------------------ Salaries and employee benefits $ 6,793 $ 5,193 $ 13,128 $ 10,272 Occupancy, net 1,140 669 2,150 1,345 Equipment expense 1,137 702 2,286 1,330 Data processing 699 511 1,379 993 Advertising and marketing 322 363 571 732 Professional fees 357 276 652 586 Other 2,441 1,814 4,832 3,806 ------------------- ---------------- ------------------------------------ Total non-interest expense $ 12,889 $ 9,528 $ 24,998 $ 19,064 =================== ================ ==================================== |
Salaries and employee benefits expense totaled $6.8 million for the second quarter of 2000, an increase of $1.6 million, or 31%, as compared to the prior year quarter total of $5.2 million. For the first six months of 2000, salaries and employee benefits expense totaled $13.1 million and increased $2.9 million, or 28%, when compared to the first six months of 1999. These increases were primarily due to the acquisition of Tricom, the expansion of the trust and investment business and the addition of four additional banking offices since June 30, 1999. As a percent of average total assets, on an annualized basis, salaries and employee benefits were 1.51% and 1.48% for the first six months of 2000 and 1999, respectively. The slight increase in this ratio is primarily a result of the administrative services staffing at Tricom in 2000. Since Tricom was not acquired until the fourth quarter of 1999, the 1999 ratio does not reflect those salaries and employee benefits.
For the second quarter of 2000, occupancy costs, equipment expense and data processing increased $471,000 (70%), $435,000 (62%) and $188,000 (37%), respectively, over the prior year first quarter. For the first six months of 2000, the respective increases were $805,000 (60%), $956,000 (72%) and $386,000 (39%). These increases were due to the general growth of the Company including the opening of several new banking facilities as discussed in the Overview and Strategy section, the acquisition of Tricom and the development of the trust and investment business.
Other non-interest expense, for the six months ended June 30, 2000, totaled $4.8 million and increased $1.0 million, or 27%, due mainly to the factors mentioned earlier. This category of expense includes loan expenses, correspondent bank service charges, postage, insurance, stationary and supplies, goodwill amortization and other sundry expenses. Goodwill and other intangibles amortization expense totaled $179,000 and $357,000 for the three and six month periods of 2000, respectively, compared to $35,000 and $70,000 for the same periods of 1999, respectively. The increases in goodwill and other intangibles amortization expense is a result of the acquisition of Tricom in October 1999.
Despite the Company's growth and the related increases in many of the non-interest expense categories, the net overhead ratio for the first six months of 2000 declined to 1.87% as compared to the first six months of 1999 ratio of 2.10%. The overhead ratio is within management's stated performance goal range of 1.50% - 2.00%.
INCOME TAXES
The Company recorded income tax expense of $1.9 million for the three months ended June 30, 2000 versus $1.0 million for the same period of 1999. For the first six months of 2000, approximately $3.7 million of income tax expense was recorded versus approximately $2.0 million in the prior year period. The increase was due primarily to the increase in operating income and the fact that 1999 also included the realization of approximately $225,000 and $300,000 of income tax benefits relating to recognition of prior net operating losses for the three and six month periods of 1999, respectively.
OPERATING SEGMENT RESULTS
As shown in Note 5 to the Unaudited 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.
For the second quarter of 2000, the banking segment's net interest income totaled $13.8 million, an increase of $2.8 million, or 26%, as compared to the $11.0 million recorded in the same quarter of 1999. On a year-to-date basis, the banking segment net interest income totaled $26.4 million and increased $5.4 million, or 26%, as compared to the 1999 period. These increases were the direct result of earning asset growth of approximately 23% for the periods, particularly in the loan portfolio, as earlier discussed in the Net Interest Income section. The banking segment's non-interest income totaled $2.0 million for the second quarter of 2000 and increased $265,000, or 15%, when compared to the prior year quarter. The slight increase was due primarily to increased income from operating equipment leases and service charges on a higher level of deposit accounts. Somewhat offsetting those increases was a drop in fees on mortgage loans sold that was caused by the recent rise in mortgage interest rates and the related lower levels of refinancing activity. On a year-to-date basis, non-interest income totaled $3.7 million and declined $161,000, or 4%, as compared to the first six months of 1999. Although the majority of the banking segment's non-interest income categories increased due to higher volumes of accounts, the decline on a year-to-date basis was a direct result of the lower fees on mortgage loans in 2000 versus 1999 in the amount of $1.0 million. The banking segment's after-tax profit for the quarter ended June 30, 2000, totaled $3.4 million, an increase of $880,000, or 35%, as compared to the prior year quarterly total of $2.5 million. For the first six months of 2000, after-tax operating profit for the banking segment totaled $6.3 million and increased $1.4 million, or 28%, over the same period of 1999. This improved profitability resulted mainly from higher levels of net interest income created from the continued growth and maturation of the Company's de novo banks and branches.
Net interest income from the premium finance segment totaled $3.3 million for the quarter ended June 30, 2000 compared to $2.9 million for the same quarter of 1999. On a year-to-date basis, the premium finance segment net interest income totaled $6.4 million compared to $6.0 million recorded for the first six months of 1999. The increases in net interest income are a result of higher levels of outstanding receivables offset slightly by a higher funding costs associated with this portfolio in 2000. Non-interest income for the three months ended June 30, 2000 totaled $1.0 million compared to $263,000 for the same period of 1999. For the first six months of 2000, non-interest income for the premium finance segment totaled $2.2 million compared to the $263,000 recorded in the same period of 1999. The increases are a result of gains from the sale of additional premium finance receivables in 2000, as mentioned earlier in this report. After-tax profit for the premium finance segment totaled $1.1 million for the three-month period ended June 30, 2000, and increased $130,000, or 14%, over the same
period of 1999. For the six months ended June 30, 2000 and 1999, the after-tax profit for this segment was $6.3 million and $4.9 million, respectively. These increases were due mostly to higher levels of premium finance receivables created from new product offerings and targeted marketing programs and the additional gains from the sale of receivables.
The indirect auto segment recorded $1.8 million of net interest income for the second quarter of 2000, a decline of $255,000, or 13%, as compared to the 1999 quarterly total. On a year-to-date basis, net interest income declined $244,000, or 6%, to $3.7 million from the comparable period of 1999. The decline is due to management's efforts to reduce the level of outstanding loans in this portfolio and higher funding costs in 2000 compared to 1999. After-tax segment profit totaled $487,000 for the three-month period ended June 30, 2000, a decline of $251,000 when compared to the same period of 1999. For the first six months of 2000, after-tax operating profits were $1.0 million in 2000 compared to $1.4 million in the first six months of 1999. The decline in this segment's profitability was caused mainly by a higher level of credit losses, lower outstanding loan balances and compressed margins in 2000 versus 1999. See further discussion of credit quality information in the "ASSET QUALITY" section of this report.
The Tricom segment data reflects the net interest income, non-interest income and segment profit associated with short-term accounts receivable financing and value-added out-sourced administrative services, such as data processing of payrolls, billing and cash management services, that Tricom provides to its clients in the temporary staffing industry. For the quarter and six months ended June 30, 2000, the Tricom segment added $836,000 and $1.6 million, respectively, to the Company's net interest income, $1.2 million and $2.2 million, respectively, to the Company's non-interest income, and $387,000 and $670,000, respectively, to the Company's net income. No results are included for the first quarter of 1999 because Tricom was acquired in October 1999 using the purchase method of accounting.
The trust segment recorded non-interest income of $494,000 for the second quarter of 2000 as compared to $250,000 for the same quarter of 1999, an increase of $244,000, or 98%. On a year-to-date basis, non-interest income for the trust segment increased to $966,000 from $475,000 in the prior year period, an increase of 103%. The increase was the result of continued new business development efforts by a larger staff of experienced trust professionals that were hired in connection with the October 1998 start-up of WAMC. The trust segment's after-tax loss totaled $94,000 for the three-month period ended June 30, 2000, as compared to after-tax loss of $180,000 for the same period of 1999. For the first six months of 2000 and 1999, after-tax losses for this segment were $215,000 and $412,000, respectively. The decline in after-tax segment losses was a direct result of the increased asset base managed by WAMC and the associated fees. As more fully discussed in the Overview and Strategy section of this analysis, management expects the start-up phase for the trust segment to continue for up to two years before its operations become profitable.
FINANCIAL CONDITION
Total assets were $1.86 billion at June 30, 2000, an increase of $348 million, or 23%, over the $1.52 billion a year earlier, and $184 million, or 11%, over the $1.68 billion at December 31, 1999. Growth at the newer banks and branches coupled with continued market share growth at the more mature banks were the primary factors for these increases. Total funding liabilities, which include deposits, short-term borrowings, notes payable and long-term debt, were $1.73 billion at June 30, 2000, and increased $311 million, or 22%, over the prior year, and $169 million, or 11%, since December 31, 1999. These increases were primarily utilized to fund growth in the loan portfolio and certain discretionary investment leveraging transactions.
INTEREST-EARNING ASSETS
The following table sets forth, by category, the composition of earning asset balances and the relative percentage of total earning assets as of the date specified (dollars in thousands):
June 30, 2000 December 31, 1999 June 30, 1999 ------------------------------- ------------------------------ ----------------------------- Loans: Balance Percent Balance Percent Balance Percent ------------------ ------------ ------------------ ----------- ----------------- ---------- Commercial and commercial real estate $ 552,694 33% $ 485,776 32% $ 420,528 30% Premium finance, net 250,796 15 219,341 15 216,209 16 Indirect auto, net 234,774 14 255,410 17 243,804 18 Home equity 157,042 9 139,194 9 118,436 8 Residential real estate 135,746 8 111,026 7 99,987 7 Tricom finance receivables 20,978 1 17,577 1 - - Installment and other 48,794 3 49,925 3 38,205 3 ------------------ ------------ ------------------ ----------- ----------------- ---------- Total loans, net of unearned income 1,400,824 83 1,278,249 84 1,137,169 82 ------------------ ------------ ------------------ ----------- ----------------- ---------- Securities and money market investments 287,208 17 236,573 16 244,920 18 ------------------ ------------ ------------------ ----------- ----------------- ---------- Total earning assets $ 1,688,032 100% $ 1,514,822 100% $ 1,382,089 100% ================== ============ ================== =========== ================= ========== |
Earning assets as of June 30, 2000, increased $306 million, or 22%, over the balance a year earlier, and $173 million, or 11%, over the balance at the end of 1999. The ratio of earning assets as a percent of total assets remained consistent at approximately 90% - 91% as of each reporting period date shown in the above table.
Total net loans were $1.40 billion at June 30, 2000, an increase of $123 million, or 10%, since December 31, 1999, and an increase of $264 million, or 23%, since June 30, 1999. Solid loan growth in the core commercial loan, home equity and residential real estate portfolios were the main factor for these increases. Also, showing increases were the specialty premium finance and Tricom finance receivable segments, the latter category which was added as a result of the October 1999 acquisition of Tricom. Offsetting the increases in all of the other loan categories was a decline in the balance of indirect auto loans. Because of the impact of the current economic and competitive environment on interest rates surrounding this portfolio, management has begun to reduce the level of new indirect auto loans originated and is dedicating additional resources to optimize the profitability of this loan segment at slightly reduced levels of outstanding receivables. Total net loans comprised 83% of total earning assets at June 30, 2000 as compared to 82% a year earlier and 84% at the end of 1999.
Commercial and commercial real estate loans, the largest loan category, comprised 33% of total earning assets and 39% of total loans as of June 30, 2000 and has increased $132.2 million, or 31%, since June 30, 1999 and $66.9 million, or 14%, since the end of 1999. The strong growth experienced over the past year has resulted mainly from a healthy economy and the hiring of additional experienced lending officers.
Net premium finance receivables totaled $250.8 million at June 30, 2000 and comprised 18% of the total loan portfolio. This total balance increased $34.6 million, or 16%, since June 30, 1999 and $31.5 million, or 14%, since the end of 1999. This growth was primarily the result of increased market penetration from new product offerings and marketing programs. Over the past few years, the majority of premium finance receivables
originated by FIFC were being sold to the Banks and consequently remained an asset of the Company. However, since the second quarter of 1999, as a result of the continued solid growth in loan originations, FIFC has been selling a portion of new receivables to an unrelated third party. During the second quarter of 2000 the Company sold approximately $62 million of premium finance receivables to an unrelated third party at a gain of $1.0 million. For the first six months of 2000, approximately $133 million of premium finance receivables at a gain of $2.2 million. In addition to recognizing gains on the sale of these receivables, the proceeds provided the Company with additional liquidity. It is possible that similar future sales may occur depending on the level of new volume growth in relation to the desired capacity within the Banks' loan portfolios.
Net indirect auto loans comprised 14% of total earning assets and 17% of total loans as of June 30, 2000. This portfolio decreased $9.0 million, or 4%, from a year ago, and decreased $20.6 million, or 8%, since the end of 1999. The decrease in the balance is the result of a higher interest rate environment experienced during the first six months of 2000 coupled with a decision by management to reduce its reliance upon indirect automobile lending as a percent of the overall earning asset portfolio due to competitive pricing and margin concerns. As such, management intends to maintain the outstanding level of the portfolio near or slightly below the existing level. The Company utilizes credit underwriting routines that management believes result in a high quality new and used auto loan 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 interest 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 October 1999 acquisition of Tricom added a new category of specialty finance receivables to the Company's earning asset portfolio. These receivables consist of high-yielding short-term accounts receivable financing to clients in the temporary staffing industry located throughout the United States. At June 30, 2000, outstanding finance receivables totaled $21.0 million, an increase of $3.4 million, or 19%, from the December 31, 1999 balance.
Home equity loans totaled $157.0 million at June 30, 2000 and increased $38.6 million, or 33%, since a year earlier and $17.8 million, or 13%, as compared to the end of 1999. This category of loans continues to represent approximately 8%-9% of total earning assets and has grown in proportion to the entire growth of the Company. The growth is due mainly to targeted marketing programs over the past year and higher usage of existing lines than in the past. The marketing programs generally use a short-term low initial interest rate as an incentive to the borrower. Unused commitments on home equity lines of credit have increased $27.1 million, or 15%, over the balance at June 30, 1999 and totaled $204.7 million at June 30, 2000.
Residential real estate loans totaled $135.7 million as of June 30, 2000 and increased $35.8 million, or 36%, over a year ago and $24.7 million, or 22%, since December 31, 1999. Mortgage loans held for sale are included in this category and totaled $12.1 million as of June 30, 2000, $8.1 million as of December 31, 1999 and $11.5 million as of June 30, 1999. The Company collects a fee on the sale of these loans into the secondary market, as discussed earlier in the Non-interest Income section of this analysis. As these loans are predominantly long-term fixed rate loans, the Company eliminates the interest rate risk associated with these loans by selling them into the secondary market. The remaining residential real estate loans in this category are maintained within the Banks' portfolios and include mostly adjustable rate mortgage loans and shorter-term fixed rate mortgage loans. The growth in this loan category has been due mainly to the relatively low mortgage interest rate environment experienced until recently and a continued strong local housing market.
Securities and money market investments (i.e. federal funds sold and interest-bearing deposits with banks) totaled $287.2 million at June 30, 2000, an increase of $50.6 million, or 21%, since December 31, 1999 and $42.3 million, or 17%, since a year earlier. This category as a percent of total earning assets was 17% at June 30, 2000 versus 16% and 18% at December 31, 1999 and June 30, 1999; respectively.
The Company maintained no trading account securities at June 30, 2000 or as of any of the other previous reporting dates. The balances of securities and money market investments fluctuate frequently based upon deposit inflows, loan demand and proceeds from loan sales. As a result of anticipated growth in the development of the de novo banks, it has been Wintrust's policy to generally maintain its securities and money market portfolio in short-term, liquid, and diversified high credit quality securities 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.
DEPOSITS
Total deposits at June 30, 2000 were $1.63 billion, an increase of $294 million, or 22%, over the June 30, 1999 total and an increase of $166 million, or 11%, since December 31, 1999. The following table sets forth, by category, the composition of deposit balances and the relative percentage of total deposits as of the date specified (dollars in thousands):
June 30, 2000 December 31, 1999 June 30, 1999 --------------------------------- --------------------------------- -------------------------------- Percent Percent Percent Balance of Total Balance of Total Balance of Total ----------------- -------------- ------------------ -------------- ------------------ ------------- Demand $ 173,967 11% $ 154,034 11% $ 124,642 9% NOW 154,056 9 130,625 9 139,700 11 Money market 284,918 17 252,483 17 232,198 17 Savings 74,434 5 72,718 5 73,445 6 Certificates of deposit 941,817 58 853,762 58 764,740 57 ----------------- -------------- ------------------ -------------- ------------------ ------------- Total $ 1,629,192 100% $ 1,463,622 100% $ 1,334,725 100% ================= ============== ================== ============== ================== ============= |
The percentage mix of deposits as of June 30, 2000 was relatively consistent with the deposit mix as of the prior year dates. Growth in both the number of accounts and balances has been primarily the result of newer bank and branch growth, and continued marketing efforts at the more established banks to create additional deposit market share.
SHORT-TERM BORROWINGS AND NOTES PAYABLE
As of June 30, 2000, the Company's short-term borrowings totaled $46.8 million and consisted primarily of short-term repurchase agreements utilized to leverage certain investment transactions within several banks' security portfolios and certain customer repurchase agreements. At June 30, 2000, the Company also had $4.9 million outstanding on its $40 million revolving credit line with an unaffiliated bank. The outstanding balance on this credit line as of June 30, 1999 was $5.1 million and $8.4 million at December 31, 1999. The Company continues to maintain the revolving credit line for corporate purposes such as to provide capital to fund continued growth at the Banks, expansion of WAMC, purchases of treasury stock, possible future acquisitions and for other general corporate matters.
LONG-TERM DEBT - TRUST PREFERRED SECURITIES
For each of the reporting periods, the long-term debt category included $31.05 million of 9.00% Cumulative Trust Preferred Securities, which were publicly sold in an offering that was completed in October 1998. In June of 2000, the Company issued another $20.0 million of Trust Preferred Securities bringing the total long-term debt category to $51.05 million. The June 2000 offering consisted of 800,000 shares of $25.00 par value securities with a 10.50% interest rate. The sale of the Trust Preferred Securities increased Wintrust's regulatory capital and provided for and will provide for the continued growth of the banking franchise, and for possible future acquisitions of other banks or finance-related companies.
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 4 to the Unaudited Consolidated Financial Statements for further information on the first Trust Preferred Securities offering.
SHAREHOLDERS' EQUITY
Total shareholders' equity was $98.4 million at June 30, 2000 and increased $19.2 million since June 30, 1999 and $5.4 million since the end of 1999. These increases were the result of the Company's corporate earnings offset by net unrealized losses of the available-for-sale security portfolio, dividend payments and stock repurchases. The annualized return on average equity for the quarter ended June 30, 2000 increased to 13.86% as compared to 11.55% for the prior year period.
The following table reflects various consolidated measures of capital at June 30, 2000, December 31, 1999 and June 30, 1999:
June 30, December 31, June 30, 2000 1999 1999 ---------------------- ------------------- -------------------- Leverage ratio 6.9% 7.1% 7.2% Ending tier 1 capital to risk-based asset ratio 7.3% 7.8% 7.9% Ending total capital to risk-based asset ratio 8.9% 8.4% 8.9% Dividend payout ratio 6.9% 0.0% 0.0% |
On January 27, 2000, Wintrust declared its first semi-annual cash dividend of $0.05 per common share. The dividend was paid on February 24, 2000. Subsequent to the end of the June 30, 2000 quarter, the Company declared its second semi-annual cash dividend of $0.05 per common share to shareholders of record as of August 10, 2000 and payable on August 24, 2000. Additionally, the Company initiated a stock buyback program authorizing the repurchase of up to 300,000 shares of its common stock. Through June 30, 2000, the Company repurchased a total of 85,700 shares at an average price of $15.33 per share.
To be "adequately capitalized", an entity must maintain a leverage ratio of at least 4.0%, a Tier 1 risk-based capital ratio of at least 4.0%, and a total risk-based capital ratio of at least 8.0%. To be considered "well capitalized," an entity must maintain a leverage ratio of at least 5.0%, a Tier 1 risk-based capital ratio of at least 6.0%, and a total risk-based capital ratio of at least 10.0%. At June 30, 2000, the Company was considered "well capitalized" under both the leverage ratio and the Tier 1 risk-based capital ratio, and was considered
"adequately capitalized" under the total risk-based capital ratio. The Company's total risk-based capital ratio increased since the prior year end due to the issuance of the Trust Preferred Securities as discussed above in the "Long-term Debt - Trust Preferred Securities" section of this report.
The Company attempts to maintain an efficient capital structure in order to provide higher returns on equity. Additional capital is required from time to time, however, to support the growth of the organization. The issuance of additional common stock or additional trust preferred securities are the primary forms of capital that the Company considers as it evaluates its capital position.
ASSET QUALITY
Allowance for Possible Loan Losses
A reconciliation of the activity in the allowance for possible loan losses for
the three and six months ended June 30, 2000 and 1999 is shown as follows
(dollars in thousands):
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------------- ---------------- ----------------- -------------- Balance at beginning of period $ 9,359 $ 7,518 $8,783 $7,034 Provision for possible loan losses 1,223 933 2,364 1,717 Charge-offs Core banking loans 316 302 446 403 Indirect automobile loans 320 479 631 639 Tricom receivables 73 -- 73 -- Premium finance receivables 158 95 359 190 ------------------- ---------------- ----------------- -------------- Total charge-offs 867 876 1,509 1,232 Recoveries Core banking loans 3 4 11 10 Indirect automobile loans 30 14 73 28 Tricom receivables -- -- -- -- Premium finance receivables 44 84 70 120 ------------------- ---------------- ----------------- -------------- Total recoveries 77 102 154 158 ------------------- ---------------- ----------------- -------------- Net charge-offs (790) (774) (1,355) (1,074) ------------------- ---------------- ----------------- -------------- Balance at June 30 $ 9,792 $ 7,677 $9,792 $7,677 =================== ================ ================= ============== Loans at June 30 $1,400,824 $1,137,169 ================= ============== Allowance as a percentage of loans 0.70% 0.68% ================= ============== Annualized net charge-offs as a percentage of average: Core banking loans 0.10% 0.12% Indirect automobile loans 0.45% 0.54% Premium finance receivables 0.23% 0.07% ----------------- -------------- Total loans 0.20% 0.20% ================= ============== Annualized provision for possible loan losses 57.32% 62.55% ================= ============== |
Management believes that the loan portfolio is well diversified and well secured, without undue concentration in any specific risk area. Control of loan quality is continually monitored by management and is reviewed by the Banks' Board of Directors and their Credit Committees on a monthly basis. Independent external review of the loan portfolio is provided by the examinations conducted by regulatory authorities and an independent loan review performed by an entity engaged by the Board of Directors. The amount of additions to the allowance for possible loan losses, which are charged to earnings through the provision for possible loan losses, are determined based on a variety of factors, including actual charge-offs during the year, historical loss experience, delinquent and other potential problem loans, and an evaluation of economic conditions in the market area.
The provision for possible loan losses totaled $1.2 million for the second quarter of 2000, an increase of $290,000 from a year earlier. For the first six months of 2000, the provision totaled $2.4 million and increased $647,000, or 38%, over the same period of 1999. The higher provision levels were necessary to cover a 23% increase in loan balances compared to June 30, 1999. For the six months ended June 30, 2000, net charge-offs totaled $1.4 million and increased from the $1.1 million of net charge-offs recorded in the same period of 1999. On a ratio basis, net charge-offs as a percentage of average loans remained consistent at 0.20% for the first six months of 2000 and 1999.
Management believes the allowance for possible loan losses is adequate to cover inherent losses in the portfolio. There can be no assurance, 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 view of regulatory agencies toward adequate reserve levels, the level of past-due and non-performing loans, and other factors.
PAST DUE LOANS AND NON-PERFORMING ASSETS
The following table sets forth the Company's non-performing assets at the dates indicated. The information in the table should be read in conjunction with the detailed discussion following the table (dollars in thousands).
June 30, December 31, June 30, 2000 1999 1999 ---- ---- ---- Past Due greater than 90 days and still accruing: Core banking loans $ 438 $ 713 $ 413 Indirect automobile loans 362 391 168 Premium finance receivables 1,817 1,523 1,243 --------------------- ---------------------- --------------------- Total 2,617 2,627 1,824 --------------------- ---------------------- --------------------- Non-accrual loans: Core banking loans 626 1,895 1,478 Indirect automobile loans 391 298 307 Premium finance receivables 2,548 2,145 1,354 --------------------- ---------------------- --------------------- Total non-accrual loans 3,565 4,338 3,139 --------------------- ---------------------- --------------------- Total non-performing loans: Core banking loans 1,064 2,608 1,891 Indirect automobile loans 753 689 475 Premium finance receivables 4,365 3,668 2,597 --------------------- ---------------------- --------------------- Total non-performing loans 6,182 6,965 4,963 --------------------- ---------------------- --------------------- Other real estate owned - - - --------------------- ---------------------- --------------------- Total non-performing assets $ 6,182 $ 6,965 $ 4,963 ===================== ====================== ===================== Total non-performing loans by category as a percent of its own respective category: Core banking loans 0.12% 0.32% 0.28% Indirect automobile loans 0.32% 0.27% 0.19% Premium finance receivables 1.74% 1.67% 1.20% --------------------- ---------------------- --------------------- Total non-performing loans 0.44% 0.54% 0.44% --------------------- ---------------------- --------------------- Total non-performing assets as a percentage of total assets 0.33% 0.41% 0.33% Allowance for possible loan losses as a percentage of non-performing loans 158.40% 126.10% 154.68% |
NON-PERFORMING CORE BANKING LOANS
Total non-performing loans for the Company's core banking business were $1.1 million, or 0.12%, of the Company's core banking loans as of June 30, 2000, and were down from the ratios of 0.32% as of December 31, 1999 and 0.28% as of June 30, 1999. When comparing the June 30, 2000 total to the balance of $2.6 million as of December 31, 1999, total non-performing core loans declined $1.5 million. Non-performing core banking loans consist primarily of a small number of commercial and real estate loans, of which management believes are well secured and in the process of collection. The small number of such non-performing loans allows management the opportunity to monitor closely the status of these credits and work with the borrowers to resolve these problems effectively.
Non-performing Premium Finance Receivables
The table below presents the level of non-performing premium finance receivables as of June 30, 2000 and 1999, and the amount of net charge-offs for the six months then ended.
As of and for the As a As of and for the As a six-months ended % of Premium six-months ended % of Premium 6/30/00 Finance Rec. 6/30/99 Finance Rec. ------- ------------ ------- ------------ Non-performing premium finance receivables $4,365,000 1.74% $2,597,000 1.20% Net charge-offs of premium finance receivables 289,000 0.23% 70,000 0.07% |
It is important to note that the ratio of net charge-offs is substantially less than the ratio of non-performing assets. Management has a goal of maintaining credit losses for this portfolio at a level below 35 basis points of average premium finance loans outstanding. The recent growth in the portfolio has contributed to the increase in delinquent accounts and management has implemented additional collection procedures and invested in additional collection staff and is diligently working to reduce the level of delinquent accounts. It should be noted that an increase in delinquent accounts also results in additional late charge income from the borrowers that helps to offset the impact of the higher level of net charge-offs.
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.
Non-performing Indirect Automobile Loans
Total non-performing indirect automobile loans were $753,000 at June 30, 2000, compared to $689,000 at December 31, 1999 and $475,000 at June 30, 1999. The ratio of these non-performing loans has increased slightly to 0.32% of total indirect automobile loans at June 30, 2000 from 0.27% at December 31, 1999 and 0.19% at June 30, 1999. As noted in the Allowance for Possible Loan Losses table, net charge-offs as a percent of total indirect automobile loans decreased from 0.54% in the first half of 1999 to 0.45% in the first half of 2000. 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. However, based on the impact of the current economic and competitive environment surrounding this portfolio, management has begun to reduce the level of new loans originated and is dedicating additional resources to reduce the level of delinquencies.
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 June 30, 2000 and December 31, 1999 was approximately $17.1 million and $14.4 million, respectively.
LIQUIDITY
Wintrust manages the liquidity position of its banking operations to ensure that sufficient funds are available to meet customers' needs for loans and deposit withdrawals. The liquidity to meet the demand is provided by maturing assets, sales of premium finance receivables, liquid assets that can be converted to cash, and the ability to attract funds from external sources. Liquid assets refer to federal funds sold and to marketable, unpledged securities, which can be quickly sold without material loss of principal.
INFLATION
A banking organization's assets and liabilities are primarily monetary. Changes in the rate of inflation do not have as great an impact on the financial condition of a bank as do changes in interest rates. Moreover, interest rates do not necessarily change at the same percentage, as does inflation. 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.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. 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 anticipated improvements in financial performance and management's long-term performance goals, as well as statements relating to the anticipated effects on results of operations and financial 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, specialty finance or fee related 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 new trust subsidiary, WAMC, is expected to
continue in a start-up phase during the next two 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.
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 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 The Company may not identify attractive opportunities to expand in the
future through acquisitions of other community banks, specialty finance
companies or fee-based businesses or may have difficulty negotiating
potential acquisitions on terms considered acceptable to the Company.
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.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
As a continuing part of its financial strategy, the Company attempts to manage the impact of fluctuations in market interest rates on net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. Asset-liability management policies are established and monitored by management in conjunction with the boards of directors of the Banks, subject to general oversight by the Company's Board of Directors. The policy establishes guidelines for acceptable limits on the sensitivity of the market value of assets and liabilities to changes in interest rates.
Derivative Financial Instruments
One method utilized by financial institutions to limit market risk is to enter
into derivative financial instruments. A derivative financial instrument
includes interest rate swaps, interest rate caps and floors, futures, forwards,
option contracts and other financial instruments with similar characteristics.
As of June 30, 2000, the Company had $315 million notional principal amount of
interest rate cap contracts that mature in September 2000 ($60 million), October
2000 ($60 million), January 2001 ($60 million), February 2001 ($55 million),
April 2001 ($60 million) and July 2001 ($20 million). These contracts, which
have various strike rates measured against the 91-day treasury bill rate, were
purchased to mitigate the effect of rising rates on certain of its floating rate
deposit products and fixed rate loan products. During 2000, 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 more effectively manage its
market risk.
Commitments To Extend Credit And Standby Letters Of Credit In addition, the Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of condition. Commitments to extend credit are agreements to lend to a customer as long as there is no violation on any condition established in the contract. Commitments may require collateral from the borrower if deemed necessary by the Company and generally have a fixed expiration date. Standby letters of credit are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party up to a specified amount and with specific terms and conditions. Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by the Company until the instrument is exercised.
Interest Rate Sensitivity Analysis
Interest rate sensitivity is the fluctuation in earnings resulting from changes
in market interest rates. Wintrust continuously monitors not only the
organization's current net interest margin, but also the historical trends of
these margins. In addition, Wintrust also attempts to identify potential adverse
swings in net interest income in future years, as a result of interest rate
movements, by performing computerized simulation analysis of potential interest
rate environments. If a potential adverse swing in net interest margin and/or
net income were identified, management then would take appropriate actions
within its asset/liability structure to counter these potential adverse
situations. Please refer to the "Net Interest Income" section for further
discussion of the net interest margin.
The Company's exposure to market risk is reviewed on a regular basis by management and the boards of directors of the 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 interest 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 gap position as of June 30, 2000.
TIME TO MATURITY OR REPRICING ----------------------------- 0-90 91-365 1-5 5+ YEARS DAYS DAYS YEARS & OTHER TOTAL ---- ---- ----- ------- ----- (DOLLARS IN THOUSANDS) ASSETS: Loans, net of unearned income........ $610,263 $338,820 $422,128 $29,613 $ 1,400,824 Securities........................... 63,702 19,501 97,173 38,985 219,361 Interest-bearing bank deposits....... 189 - - - 189 Federal funds sold................... 67,658 - - - 67,658 Other................................ - - - 175,437 175,437 --------------- ---------------- ---------------- -------------- ----------------- Total rate sensitive assets (RSA) 741,812 358,321 519,301 244,035 1,863,469 =============== ================ ================ ============== ================= LIABILITIES AND SHAREHOLDERS' EQUITY: NOW.................................. 154,056 - - - 154,056 Savings and money market............. 344,580 - - 14,772 359,352 Time deposits........................ 399,671 374,748 166,682 716 941,817 Short term borrowings................ 36,585 10,198 - - 46,783 Notes payable........................ 4,850 - - - 4,850 Demand deposits & other liabilities....................... - - - 207,203 207,203 Trust preferred securities........... - - - 51,050 51,050 Shareholders' equity................. - - - 98,358 98,358 --------------- ---------------- ---------------- -------------- ----------------- Total rate sensitive liabilities and equity (RSL)............... 939,742 384,946 166,682 372,099 1,863,469 =============== ================ ================ ============== ================= Cumulative gap, excluding interest rate caps (GAP = RSA - RSL) (1) $(197,930) $ (224,555) $128,064 $ - =============== ================ ================ ============== Cumulative RSA/RSL (1).................. 0.79 0.93 3.12 RSA/Total assets........................ 0.40 0.19 0.28 RSL/Total assets (1).................... 0.50 0.21 0.09 GAP/Total assets (1).................... (11)% (12)% 7% GAP/Cumulative RSA (1).................. (27)% (20)% 8% ------------------------------------------------------ (1) The gap amount and related ratios do not reflect $315 million notional amount of interest rate caps, as discussed on the following page. |
While the gap position illustrated on the previous page 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 June 30, 2000, the Company had $315 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 and fixed rate loan 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 which 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 both 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 June 30, 2000 and 1999, is as follows:
AS OF JUNE 30, 2000 ------------------- +200 BASIS -200 BASIS POINTS POINTS ------ ------ Percentage change in net interest income due to an immediate 200 basis point change in interest rates over a two-year time horizon.... 1.8% (0.5%) =============== =============== |
AS OF JUNE 30, 1999 ------------------- +200 BASIS -200 BASIS POINTS POINTS ------ ------ Percentage change in net interest income due to an immediate 200 basis point change in interest rates over a two-year time horizon.... 1.3% 0.6% =============== =============== |
PART II
ITEM 1: LEGAL PROCEEDINGS.
This item has been omitted from this Form 10-Q since it is inapplicable or would contain a negative response.
ITEM 2: CHANGES IN SECURITIES.
This item has been omitted from this Form 10-Q since it is inapplicable or would contain a negative response.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
This item has been omitted from this Form 10-Q since it is inapplicable or would contain a negative response.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders was held on May 25, 2000.
(c) At the Annual Meeting of Shareholders, the following matter was submitted to a vote of the shareholders:
(1) The election of eight Class I directors to the Board of Directors to hold office for a three-year term.
Director Votes For Withheld Authority -------- --------- ------------------ James E. Mahoney 6,820,922 265,575 James B. McCarthy 6,783,110 303,387 John W. Leopold 6,822,917 263,580 Dorothy M. Mueller 6,799,020 287,477 Thomas J. Neis 6,797,920 288,577 J. Christopher Reyes 6,823,972 262,525 Peter P. Rusin 6,772,935 313,562 Edward J. Wehmer 6,817,358 269,139 |
(2) To consider a proposal to amend the Wintrust Financial Corporation 1997 Stock Incentive Plan to increase the number of shares of Common Stock authorized to be issued under the Plan by 450,000 shares.
Votes For Votes Against Abstentions --------- ------------- ----------- 4,237,619 735,312 69,113 |
ITEM 5: OTHER INFORMATION.
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
4.2 Indenture by and between Wintrust Financial Corporation and Wilmington Trust Company dated June 14, 2000, relating to the 10.50% Subordinated Debentures issued to Wintrust Capital Trust II (incorporated by reference to Exhibit 4.1 of Form S-3 Registration Statement (No. 333-37520) filed with the Securities and Exchange Commission).
4.3 Amended and Restated Trust Agreement by and among Wintrust Financial Corporation, Wilmington Trust Company and the Administrative Trustees named therein dated June 14, 2000, relating to the 10.50% Cumulative Trust Preferred Securities of Wintrust Capital Trust II (incorporated by reference to Exhibit 4.5 of Form S-3 Registration Statement (No. 333-37520) filed with the Securities and Exchange Commission).
4.4 Form of Preferred Security Certificate of Wintrust Capital Trust II (incorporated by reference to Exhibit 4.6 of Form S-3 Registration
Statement (No. 333-37520) filed with the Securities and Exchange Commission). 4.5 Form of Subordinated Debenture (incorporated by reference to Exhibit 4.2 of Form S-3 Registration Statement (No. 333-37520) filed with the Securities and Exchange Commission). 10.1 First Amendment To Wintrust Financial Corporation 1997 Stock Incentive Plan 27 Financial Data Schedule. |
No reports on Form 8-K were filed during the second quarter of 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WINTRUST FINANCIAL CORPORATION
(Registrant)
Date: August 14, 2000 /s/ Edward J. Wehmer -------------------- President & Chief Executive Officer Date: August 14, 2000 /s/ David A. Dykstra -------------------- Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) |
EXHIBIT INDEX
Exhibit 4.1 Preferred Securities Guarantee Agreement by and between Wintrust Financial Corporation and Wilmington Trust Company dated June 14, 2000, relating to the 10.50% Cumulative Trust Preferred Securities of Wintrust Capital Trust II (incorporated by reference to Exhibit 4.7 of Form S-3 Registration Statement (No. 333-37520) filed with the Securities and Exchange Commission). Exhibit 4.2 Indenture by and between Wintrust Financial Corporation and Wilmington Trust Company dated June 14, 2000, relating to the 10.50% Subordinated Debentures issued to Wintrust Capital Trust II (incorporated by reference to Exhibit 4.1 of Form S-3 Registration Statement (No. 333-37520) filed with the Securities and Exchange Commission). Exhibit 4.3 Amended and Restated Trust Agreement by and among Wintrust Financial Corporation, Wilmington Trust Company and the Administrative Trustees named therein dated June 14, 2000, relating to the 10.50% Cumulative Trust Preferred Securities of Wintrust Capital Trust II (incorporated by reference to Exhibit 4.5 of Form S-3 Registration Statement (No. 333-37520) filed with the Securities and Exchange Commission). Exhibit 4.4 Form of Preferred Security Certificate of Wintrust Capital Trust II (incorporated by reference to Exhibit 4.6 of Form S-3 Registration Statement (No. 333-37520) filed with the Securities and Exchange Commission). Exhibit 4.5 Form of Subordinated Debenture (incorporated by reference to Exhibit 4.2 of Form S-3 Registration Statement (No. 333-37520) filed with the Securities and Exchange Commission). Exhibit 10.1 First Amendment To Wintrust Financial Corporation 1997 Stock Incentive Plan Exhibit 27 Financial Data Schedule |
PROPOSED FORM OF
FIRST AMENDMENT TO
WINTRUST FINANCIAL CORPORATION
1997 STOCK INCENTIVE PLAN
WHEREAS, Wintrust Financial Corporation (the "Company") maintains the Wintrust Financial Corporation 1997 Stock Incentive Plan (the "Plan");
WHEREAS, the Board of Directors and the Shareholders of the Company have approved a proposal to amend the Plan to increase the number of shares authorized for issuance thereunder by an additional 450,000 shares of Common Stock;
NOW, THEREFORE, the Board of Directors of the Company declares that the Plan, in accordance with paragraph 9 of the Plan, be and hereby is amended, effective as of May 27, 2000, as follows:
By substituting the following for paragraph 5 of the Plan:
(a) a payout of an Award in the form of cash;
(b) a cancellation, termination, expiration, forfeiture, or lapse for any reason (with the exception of the termination of a tandem Award upon exercise of the related Award, or the termination of a related Award upon exercise of the corresponding tandem Award) of any Award; or
(c) payment of an option price, and/or payment of any taxes arising upon exercise of an option or payout of any Award, with previously acquired shares or by withholding shares which otherwise would be acquired on exercise or issued upon such payout,
then the number of shares of Common Stock underlying any such Award which were not issued as a result of any of the foregoing actions shall
again be available for the purposes of Awards under the Plan."
ARTICLE 9 |
This schedule contains summary financial information extracted from the annual unaudited financial statements of Wintrust Financial Corporation for the six months ended June 30, 2000 and 1999, and is qualified in its entirety by reference to such unaudited consolidated financial statements. |
CIK: 0001015328 |
NAME: WINTRUST FINANCIAL CORPORATION |
MULTIPLIER: 1,000 |
PERIOD TYPE | 6 MOS | 6 MOS |
FISCAL YEAR END | DEC 31 2000 | DEC 31 1999 |
PERIOD START | JAN 01 2000 | JAN 01 1999 |
PERIOD END | JUN 30 2000 | JUN 30 1999 |
CASH | 56,552 | 40,170 |
INT BEARING DEPOSITS | 189 | 3,047 |
FED FUNDS SOLD | 67,658 | 56,640 |
TRADING ASSETS | 0 | 0 |
INVESTMENTS HELD FOR SALE | 219,361 | 185,233 |
INVESTMENTS CARRYING | 0 | 0 |
INVESTMENTS MARKET | 0 | 0 |
LOANS | 1,400,824 | 1,137,169 |
ALLOWANCE | 9,792 | 7,677 |
TOTAL ASSETS | 1,863,469 | 1,515,139 |
DEPOSITS | 1,629,192 | 1,334,725 |
SHORT TERM | 51,633 | 55,205 |
LIABILITIES OTHER | 33,236 | 14,977 |
LONG TERM | 51,050 | 31,050 |
PREFERRED MANDATORY | 0 | 0 |
PREFERRED | 0 | 0 |
COMMON | 8,850 | 8,172 |
OTHER SE | 89,508 | 71,010 |
TOTAL LIABILITIES AND EQUITY | 1,863,469 | 1,515,139 |
INTEREST LOAN | 59,802 | 45,003 |
INTEREST INVEST | 7,581 | 5,389 |
INTEREST OTHER | 0 | 0 |
INTEREST TOTAL | 67,383 | 50,392 |
INTEREST DEPOSIT | 34,898 | 25,766 |
INTEREST EXPENSE | 38,667 | 27,978 |
INTEREST INCOME NET | 28,716 | 22,414 |
LOAN LOSSES | 2,364 | 1,717 |
SECURITIES GAINS | (25) | 0 |
EXPENSE OTHER | 24,998 | 19,064 |
INCOME PRETAX | 10,137 | 6,059 |
INCOME PRE EXTRAORDINARY | 6,441 | 4,094 |
EXTRAORDINARY | 0 | 0 |
CHANGES | 0 | 0 |
NET INCOME | 6,441 | 4,094 |
EPS BASIC | 0.73 | 0.50 |
EPS DILUTED | 0.72 | 0.48 |
YIELD ACTUAL | 3.69 | 3.56 |
LOANS NON | 3,565 | 3,139 |
LOANS PAST | 2,617 | 1,824 |
LOANS TROUBLED | 0 | 0 |
LOANS PROBLEM | 17,143 | 6,142 |
ALLOWANCE OPEN | 8,783 | 7,034 |
CHARGE OFFS | (1,510) | (1,232) |
RECOVERIES | 155 | 158 |
ALLOWANCE CLOSE | 9,792 | 7,677 |
ALLOWANCE DOMESTIC | 6,743 | 7,054 |
ALLOWANCE FOREIGN | 0 | 0 |
ALLOWANCE UNALLOCATED | 3,049 | 623 |