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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 |
For the fiscal year ended December 31, 2005
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Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 |
For
the Transition Period
from to
Commission File Number 0-21923
Wintrust Financial Corporation
(Exact name of registrant as specified in its charter)
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| Illinois |
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36-3873352 |
| (State of incorporation or organization)
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(I.R.S. Employer Identification No.) |
727 North Bank Lane
Lake Forest, Illinois 60045
(Address of principal executive offices)
(847) 615-4096
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
9.00% Cumulative Trust Preferred Securities (and related Guarantee)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
þ Yes
o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o Yes
þ 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 for
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.
þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
þ Yes
o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
þ
Accelerated Filer o Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). o Yes þ No
The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30,
2005 (the last business day of the registrant’s most recently completed second quarter), determined
using the closing price of the common stock on that day of $52.35, as reported by the Nasdaq
National Market, was $1,178,817,981.
As of March 13, 2006, the registrant had 24,206,975 shares of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31, 2005, which is
included as Exhibit 13.1 to this Form 10-K, are incorporated by reference into Parts I and II
hereof and portions of the Proxy Statement for the Company’s Annual Meeting of Shareholders to be
held on May 25, 2006 are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
Wintrust Financial Corporation, an Illinois corporation (“Wintrust” or “the Company”), which was
incorporated in 1992, is a financial holding company based in Lake Forest, Illinois, with total
assets of approximately $8.2 billion at December 31, 2005. The Company engages in the business of
providing traditional community banking services, wealth management services, commercial insurance
premium financing, short-term accounts receivable financing, and certain administrative services,
such as data processing of payrolls, billing and cash management services.
The Company provides community-oriented, personal and commercial banking services to customers
located in the greater Chicago, Illinois and southern Wisconsin metropolitan areas through its
thirteen wholly-owned banking subsidiaries (collectively, the “Banks”). The Company controls eight
Illinois-chartered banks, Lake Forest Bank and Trust Company (“Lake Forest Bank”), Hinsdale Bank
and Trust Company (“Hinsdale Bank”), North Shore Community Bank and Trust Company (“North Shore
Bank”), Libertyville Bank and Trust Company (“Libertyville Bank”), Northbrook Bank & Trust Company
(“Northbrook Bank”), Village Bank & Trust (“Village Bank”), Wheaton Bank & Trust Company (“Wheaton
Bank”) and State Bank of The Lakes. In addition, the Company has one Wisconsin-chartered bank,
Town Bank, and four nationally chartered banks, Barrington Bank and Trust Company, N.A.
(“Barrington Bank”), Crystal Lake Bank & Trust Company, N.A. (“Crystal Lake Bank”), Advantage
National Bank (“Advantage Bank”) and Beverly Bank & Trust Company, N.A. (“Beverly Bank”).
The Company provides a full range of wealth management services through four separate subsidiaries,
including Wayne Hummer Trust Company, N.A. (“WHTC”), Wayne Hummer Investments, LLC (“WHI”), a
broker-dealer and subsidiary of North Shore Bank, Wayne Hummer Asset Management Company (“WHAMC”),
a registered investment adviser, and Focused Investments, LLC (“Focused”), a broker-dealer and
subsidiary of WHI. The Company acquired WHI, Focused and WHAMC in February 2002 and these
companies are referred to collectively as the Wayne Hummer Companies.
The Company provides financing for the payment of commercial insurance premiums (“premium finance
receivables”), on a national basis, through First Insurance Funding Corporation (“FIFC”), a
wholly-owned subsidiary of Crabtree Capital Corporation
(“Crabtree”) which is a wholly-owned subsidiary of Lake Forest Bank. In addition, the Company
provides short-term accounts receivable financing (“Tricom finance receivables”) and out-sourced
administrative services, such as data processing of payrolls, billing and cash management services,
to clients in the temporary staffing industry located throughout the United States, through Tricom,
Inc. of Milwaukee (“Tricom”), a wholly-owned subsidiary of Hinsdale Bank.
In May 2004, the Company acquired SGB Corporation d/b/a WestAmerica Mortgage Company
(“WestAmerica”) and its affiliate Guardian Real Estate Services, Inc. (“Guardian”). WestAmerica
engages primarily in the origination and purchase of residential mortgages for sale into the
secondary market, and Guardian provides the document preparation and other loan closing services to
WestAmerica and its network of mortgage brokers. WestAmerica and Guardian are wholly-owned
subsidiaries of Barrington Bank. In September 2004, the Company also acquired Northview Mortgage,
LLC in connection with its purchase of Northview Financial Corporation. Northview Mortgage, LLC
currently operates as a mortgage broker and is a direct subsidiary of Wintrust. Mortgage banking
operations are also performed within each of the Banks.
As a mid-size financial services company, management expects to benefit from greater access to
financial and managerial resources while maintaining its commitment to local decision-making and to
its community banking philosophy. Management also believes the Company is positioned to compete
more effectively with
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other larger and more diversified banks, bank holding companies and other financial services
companies as it continues to execute its growth strategy through additional branch openings and de
novo bank formations, expansion of its wealth management and premium finance business, development
of additional specialized earning asset niches and potential acquisitions of other
community-oriented banks or specialty finance companies.
Additional information regarding the Company’s business and strategies is included in the
“Management’s Discussion and Analysis” section of the 2005 Annual Report to Shareholders, which is
filed as Exhibit 13.1 to this Form 10-K and is incorporated herein by reference and constitutes a
part of this report.
Community Banking
The Company provides banking and financial services primarily to individuals, small to mid-sized
businesses, local governmental units and institutional clients residing primarily in the Banks’
local service areas. These services include traditional deposit products such as demand, NOW, money
market, savings and time deposit accounts, as well as a number of unique deposit products targeted
to specific market segments. The Banks also offer home equity, home mortgage, consumer, real
estate and commercial loans, safe deposit facilities, ATMs, internet banking and other innovative
and traditional services specially tailored to meet the needs of customers in their market areas.
Wintrust developed its banking franchise through the de novo organization of eight banks and the
purchase of six banks, one of which was merged into an existing Wintrust bank. The organizational
efforts began in 1991, when a group of experienced bankers and local business people identified an
unfilled niche in the Chicago metropolitan area retail banking market. As large banks acquired
smaller ones and personal service was subjected to consolidation strategies, the opportunity
increased in affluent suburbs for locally owned and operated, highly personal service-oriented
banks. As a result, Lake Forest Bank was founded in December 1991 to service the Lake Forest and
Lake Bluff communities. Following the same business plan, the Company started Hinsdale Bank in
1993 to service the communities of Hinsdale and Burr Ridge, North Shore Bank in 1994 to service the
communities of Wilmette and Kenilworth, Libertyville Bank in 1995 to service the communities of
Libertyville, Vernon Hills and Mundelein, Barrington Bank in 1996 to service the greater
Barrington/Inverness areas, Crystal Lake Bank in 1997 to service the communities of Crystal Lake
and Cary, Northbrook Bank in 2000 to service the communities of Northbrook, Glenview and Deerfield
and Beverly Bank in 2004 to service the communities of Beverly Hills and Morgan Park on the
southwest side of Chicago. Since the initial openings of these eight banks, each has opened
several additional branches in adjacent and nearby communities to expand their franchise, with the
exception of Beverly Bank.
Wintrust completed its first bank acquisitions in the fourth quarter of 2003, with the acquisitions
of Advantage Bank in October 2003 and Village Bank in December 2003. In September 2004, Wintrust
acquired Northview Financial Corporation and its wholly-owned subsidiary, Northview Bank & Trust
Company, with banking locations in Northfield, Mundelein and Wheaton, Illinois, and in December
2004, Wintrust relocated the bank’s charter to its Wheaton branch, renamed the bank Wheaton Bank &
Trust Company and transferred its Mundelein branch to Libertyville Bank and its Northfield branches
to Northbrook Bank. In October 2004, Wintrust acquired Town Bankshares, Ltd. and its wholly-owned
subsidiary, Town Bank, with locations in Delafield and Madison, Wisconsin. Town Bank represents the
Company’s first banking operation outside of Illinois. In January 2005, the Company completed its
acquisition of Antioch Holding Company and its wholly-owned subsidiary, State Bank of The Lakes,
and on March 31, 2005 the Company acquired First Northwest Bancorp, Inc. and its wholly-owned
subsidiary First Northwest Bank. First Northwest Bank was merged into Village Bank in May 2005 as
both banks were located in and served the same market area.
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All of the banks acquired by Wintrust share the same commitment to community banking and customer
service as the banks the Company organized. Each of the acquired banks, with the exception of
State Bank of The Lakes, began operations within the same time frame in which Wintrust organized
its banks. The charter of State Bank of The Lakes, however, dates back to 1894. On December 5,
2005 Wintrust signed a definitive agreement to acquire Hinsbrook Bankshares, Inc. and its
wholly-owned subsidiary, Hinsbrook Bank & Trust (“Hinsbrook Bank”) which has five Illinois banking
locations. Hinsbrook Bank began operations in 1987 and had total assets of approximately $500
million at December 31, 2005. All regulatory applications have been submitted and the transaction
is expected to close in the second quarter of 2006.
On December 8, 2005, the Company announced that it filed an application with the Office of the
Comptroller of Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”) to establish
another de novo bank, Old Plank Trail Community, N.A., with locations in Frankfort, Mokena and New
Lenox, all in the southern suburbs of Chicago. All regulatory approvals were received and the bank
opened in late March 2006.
The deposits of each of the Banks are insured by the FDIC up to the applicable limits. Currently
the standard maximum deposit insurance amount is $100,000 per non-retirement account capacity,
subject to future adjustment under FDIC regulations to be promulgated pursuant to the Federal
Deposit Insurance Reform Act of 2005 (“FDIRA”) that was enacted in February 2006, and up to
$250,000 for certain retirement accounts, by November 5, 2006. In addition, each Bank is subject
to regulation, supervision and regular examination by: (1) the Commissioner of the Illinois
Department of Financial and Professional Regulation and the Federal Reserve Bank for
Illinois-chartered banks; (2) the OCC for nationally-chartered banks or (3) the Wisconsin
Department of Financial Institutions and the Federal Reserve Bank for Town Bank.
Wealth Management Activities
The Company currently offers a full range of wealth management services through four separate
subsidiaries, including trust and investment services, asset management and securities brokerage
services marketed primarily under the Wayne Hummer name. Wintrust acquired the Wayne Hummer
Companies, headquartered in Chicago, in February 2002. To further expand the Company’s wealth
management business, in February 2003, the Company acquired Lake Forest Capital Management Company,
a registered investment advisor with approximately $300 million of assets under management upon
acquisition. Lake Forest Capital was merged into WHAMC. Through WHTC, the Company offers trust
and investment management services to clients via offices located in
downtown Chicago and at the following bank locations; Barrington
Bank, Beverly Bank, Hinsdale Bank, Lake Forest Bank, Northbrook Bank,
North Shore Bank and State Bank of The Lakes. Assets under
administration and/or management by WHTC as of December 31, 2005 were approximately $659 million.
WHTC is subject to regulation, supervision and regular examination by the OCC.
WHI, the Company’s registered broker/dealer subsidiary, has been in operations since 1931. Through
WHI, the Company provides a full range of private client and securities brokerage services to
clients located primarily in the Midwest. WHI client assets were approximately $5.3 billion at
December 31, 2005. WHI is headquartered in downtown Chicago, operates an office in Appleton,
Wisconsin, and as of December 31, 2005, established branch locations in offices at twelve of the
Company’s thirteen banks. Focused, a broker/dealer and wholly-owned subsidiary of WHI, provides a
full range of investment services to clients through a network of relationships with
community-based financial institutions primarily located in Illinois.
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WHAMC, a registered investment adviser, provides money management services and advisory services to
individuals and institutional municipal and tax-exempt organizations. In addition, WHAMC also
provides portfolio management and financial supervision for a wide range of pension and
profit-sharing plans. WHAMC had approximately $1.0 billion of assets under management at December
31, 2005.
Specialty Lending
The Company conducts its specialty lending business through indirect non-bank subsidiaries and
divisions of its Banks.
FIFC, headquartered in Northbrook, Illinois, is the Company’s most significant specialized lending
niche. FIFC makes loans to businesses to finance the insurance premiums they pay on their
commercial insurance policies. The loans are originated by FIFC working through independent medium
and large insurance agents and brokers located throughout the United States. The insurance
premiums financed are primarily for commercial customers’purchases of liability, property and
casualty and other commercial insurance. This lending involves relatively rapid turnover of the
loan portfolio and high volume of loan originations. Due to the indirect nature of this lending
and because the borrowers are located nationwide, this segment may be more susceptible to third
party fraud. During 2005, FIFC originated approximately $2.7 billion of premium finance
receivables. The majority of these loans were purchased by the Banks in order to more fully utilize
their lending capacity. These loans generally provide the Banks higher yields than alternative
investments. However, the Company has also been selling some of its loan originations to an
unrelated third party, with servicing retained, since 1999. The Company sold approximately $562
million, or 21%, of the premium finance receivables generated in 2005. FIFC is licensed or
otherwise qualified to do business as an insurance premium finance company in all 50 states and the
District of Columbia.
Tricom was acquired by Hinsdale Bank in October 1999 as part of the Company’s strategy to pursue
specialty lending niches and is an operating subsidiary of Hinsdale Bank. It is located in
Milwaukee, Wisconsin and has been in business since 1989. Through Tricom, the Company provides
high-yielding, short-term accounts receivable financing and value-added, outsourced administrative
services, such as data processing of payrolls, billing and cash management services to the
temporary staffing industry. Tricom’s clients, located throughout the United States, provide
staffing services to businesses in diversified industries. During 2005, Tricom processed payrolls
with associated client billings of approximately $462 million and contributed approximately $8.6
million of revenue, net of interest expense, to the Company.
The Company also engages in several other specialty lending areas through divisions of the Banks.
Hinsdale Bank operates an indirect auto lending program which originates new and used automobile
loans that are purchased by all of the Banks. The loans are generated through a network of
automobile dealers located in the Chicago area with which Hinsdale Bank has established
relationships. The indirect automobile loans are secured by new and used vehicles and are
diversified among many individual borrowers. Like other consumer loans, the indirect auto loans
are subject to the Banks’ established
credit standards. Management regards substantially all of these loans as prime quality loans and
continually monitors the dealer relationships to deter third party fraud. The Banks are not
dependent on any one dealer as a source of such loans. At December 31, 2005, indirect auto loans
totaled $187 million and comprised approximately 4% of the Company’s loan portfolio. Other
specialty lending conducted through the Banks include Barrington Bank’s Community Advantage program
which provides lending, deposit and cash management services to condominium, homeowner and
community associations, Hinsdale Bank’s mortgage warehouse lending program which provides loan and
deposit services to mortgage brokerage companies located predominantly in the Chicago metropolitan
area, and Crystal Lake Bank’s North American Aviation Financing division which provides small
aircraft lending. These specialty loans (including the indirect auto loans) generated through
divisions of the Banks comprised approximately 6.6% of the Company’s loan and lease portfolio at
December 31, 2005.
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WestAmerica and Guardian were acquired by Barrington Bank in May 2004 to enhance and diversify the
Company’s revenue sources and earning asset base. WestAmerica engages primarily in the origination
and purchase of residential mortgages for sale into the secondary market, and Guardian provides the
document preparation and other loan closing services to WestAmerica and its network of mortgage
brokers. WestAmerica sells its loans servicing released and does not currently engage in mortgage
loan servicing. WestAmerica maintains principal origination offices in eleven states, including
Illinois, and originates loans in other states through wholesale and correspondent offices.
WestAmerica provides the Banks with the ability to use an enhanced loan origination and
documentation system which allows WestAmerica and the Banks to better utilize existing operational
capacity and improve the product offering for the Banks’ customers. WestAmerica’s production of
adjustable rate mortgage loan products may be purchased by the Banks for their loan portfolios
resulting in additional earning assets to the combined organization.
Competition
The Company competes in the commercial banking industry through the Banks in the communities each
serves. The commercial banking industry is highly competitive, and the Banks face strong direct
competition for deposits, loans, and other financial-related services. The Banks compete with
other commercial banks, thrifts, credit unions, stockbrokers, and the finance divisions of
automobile companies. Some of these competitors are local, while others are statewide or
nationwide. The Banks have a community banking and marketing strategy. In keeping with this
strategy, the Banks provide highly personalized and responsive service, a characteristic of
locally-owned and managed institutions. As such, the Banks compete for deposits principally by
offering depositors a variety of deposit programs, convenient office locations, hours and other
services, and for loan originations primarily through the interest rates and loan fees they charge,
the efficiency and quality of services they provide to borrowers and the variety of their loan
products. Some of the financial institutions and financial services organizations with which the
Banks compete are not subject to the same degree of regulation as imposed on financial holding
companies, Illinois or Wisconsin state banks
and national banking associations. In addition, the larger banking organizations have
significantly greater resources than those available to the Banks. As a result, such competitors
have advantages over the Banks in providing certain non-deposit services.
FIFC encounters intense competition from numerous other firms, including a number of national
commercial premium finance companies, companies affiliated with insurance carriers, independent
insurance brokers who offer premium finance services, banks and other lending institutions. Some
of FIFC’s competitors are larger and have greater financial and other resources and are better
known than FIFC. FIFC competes with these entities by emphasizing a high level of knowledge of the
insurance industry, flexibility in structuring financing transactions, and the timely purchase of
qualifying contracts. FIFC believes that its commitment to service also distinguishes it from its
competitors. It is FIFC’s policy to notify the insurance agent when an insured is in default and
to assist in collection, if requested by the agent.
The Company’s wealth management companies (WHTC, WHI, WHAMC and Focused) compete with more
established wealth management subsidiaries of other larger bank holding companies as well as with
other trust companies, brokerage and other financial service companies, stockbrokers and financial
advisors. The Company believes it can successfully compete for trust, asset management and
brokerage business by offering personalized attention and customer service to small to mid-size
businesses and affluent individuals. The Company continues to recruit and hire experienced
professionals from the more established Chicago area wealth management companies, which is expected
to help in attracting new customer relationships.
WestAmerica and Guardian, as well as Northview Mortgage, LLC and the mortgage banking functions
within the Banks, compete with large mortgage brokers as well as other banking organizations. The
mortgage
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banking business is very competitive and significantly impacted by changes in mortgage interest
rates. The Company believes that mortgage banking revenue will be a continuous source of revenue,
but the level of revenue will be impacted by changes in mortgage interest rates.
Tricom competes with numerous other firms, including a small number of similar niche finance
companies and payroll processing firms, as well as various finance companies, banks and other
lending institutions. Tricom’s management believes that its commitment to service distinguishes
itself from competitors. To the extent that other finance companies, financial institutions and
payroll processing firms add greater programs and services to their existing businesses, Tricom’s
operations could be adversely affected.
Employees
At December 31, 2005, the Company and its subsidiaries employed a total of 1,678
full-time-equivalent employees. The Company provides its employees with comprehensive medical and
dental benefit plans, life insurance plans, 401(k) plans and an employee
stock purchase plan. The Company considers its relationship with its employees to be good.
Available Information
The Company’s internet address is www.wintrust.com. The Company makes available at this address,
free of charge, its annual report on Form 10-K, its annual reports to shareholders, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after such material is electronically filed with, or furnished to, the SEC.
Forward-looking Statements
This document contains forward-looking statements within the meaning of federal securities laws.
Forward-looking information in this document can be identified through the use of words such as
“may,” “will,” “intend,” “plan,” “project,” “expect,” “anticipate,” “should,” “would,” “believe,”
“estimate,” “contemplate,” “possible,”
and “point.” The
forward-looking information is premised on
many factors, some of which are outlined below. The Company intends such forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking
these safe harbor provisions. Such forward-looking statements may be deemed to include, among
other things, statements relating to the Company’s projected growth, anticipated improvements in
earnings, earnings per share and other financial performance measures, and management’s long-term
performance goals, as well as statements relating to the anticipated effects on financial results
of condition from expected developments 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 acquisitions of banks, wealth
management entities or specialty finance businesses. Actual results could differ materially from
those addressed in the forward-looking statements due to factors such as changes in economic
conditions, competition, or other factors that may influence the anticipated growth rate of loans
and deposits, the quality of the loan portfolio and loan and deposit pricing, unanticipated changes
in interest rates that negatively impact net interest income, lower than anticipated residential
mortgage loan originations, future events that may cause unforeseen loan or lease losses, slower
than anticipated development and growth of Tricom and the trust and investment business,
unanticipated changes in the temporary staffing industry, the ability to adapt successfully to
technological changes to compete effectively in the marketplace, competition and the related
pricing of brokerage and asset management products, unforeseen difficulties in integrating the
acquisitions of Advantage National
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Bancorp, Inc., Village Bancorp, Inc., WestAmerica Mortgage Company, Guardian Real Estate Services,
Inc., Northview Financial Corporation, Town Bankshares, Ltd., Antioch Holding Company and First
Northwest Bancorp, Inc. with Wintrust and the pending acquisition of Hinsbrook Bancshares, Inc.,
the ability to pursue additional acquisition and expansion strategies and the ability to attract
and retain experienced senior management. Therefore, there can be no assurances that future actual
results will correspond to these forward-looking statements. The reader is cautioned not to place
undue reliance on any forward looking statement made by or on behalf of Wintrust. Any such
statement speaks only as of the date the statement was made or as of such date that may be
referenced within the statement. Wintrust does not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.
Persons are advised, however, to consult any further disclosures management makes on related
subjects in its reports filed with the SEC and in its press releases.
Supervision and Regulation
Bank holding companies, banks and investment firms are extensively regulated under federal and
state law. References under this heading to applicable statutes or regulations are brief summaries
or portions thereof which do not purport to be complete and which are qualified in their entirety
by reference to those statutes and regulations. Any change in applicable laws or regulations may
have a material effect on the business of commercial banks and bank holding companies, including
the Company, the Banks, FIFC, WHTC, WHI, WHAMC, Focused, Tricom, WestAmerica and Guardian.
However, management is not aware of any current recommendations by any regulatory authority which,
if implemented, would have or would be reasonably likely to have a material effect on liquidity,
capital resources, or operations of the Company, the Banks, FIFC, WHTC, WHI, WHAMC, Focused,
Tricom, WestAmerica or Guardian. The supervision, regulation and examination of banks and bank
holding companies by bank regulatory agencies are intended primarily for the protection of
depositors rather than stockholders of banks and bank holding companies.
Bank Holding Company Regulation
The Company has elected to be treated by the Federal Reserve as a financial holding company for
purposes of the Bank Holding Company Act of 1956, as amended, including regulations promulgated by
the Federal Reserve (the “BHC Act”), as augmented by the provisions of the Gramm-Leach-Bliley Act
(the “GLB Act”), which established a comprehensive framework to permit affiliations among
commercial banks, insurance companies and securities firms. Bank holding companies that elect to
be treated as financial holding companies may engage in an expanded range of activities, including
the businesses conducted by the Wayne Hummer Companies. Financial holding companies, unlike
traditional bank holding companies, can engage in certain activities without prior Federal Reserve
approval, subject to certain
post-commencement notice procedures. Banking subsidiaries of
financial holding companies are required to be “well
capitalized” and
“well-managed” as defined in
the applicable regulatory standards. If these conditions are not maintained, and the financial
holding company fails to correct any deficiency within 180 days, the Federal Reserve may require
the Company to either divest control of
its banking subsidiaries or, at the election of the Company, cease to engage in any activities not
permissible for a bank holding company. Moreover, during the period of noncompliance, the Federal
Reserve can place any limitations on the financial holding company that it believes to be
appropriate. Furthermore, if the Federal Reserve determines that a financial holding company has
not maintained a satisfactory rating under the CRA test, the Company will not be able to commence
any new financial activities or acquire a company that engages in such activities, although the
Company will still be allowed to engage in activities closely related to banking and make
investments in the ordinary course of conducting merchant banking activities. The Company became
an financial holding company in 2002 and currently satisfies the requirements to maintain its
status as a financial holding company.
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The Company continues to be subject to supervision and regulation by the Federal Reserve under the
BHC Act. The Company is required to file with the Federal Reserve periodic reports and such
additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal
Reserve examines the Company and may examine the Banks and the Company’s other subsidiaries.
The BHC Act requires prior Federal Reserve approval for, among other things, the acquisition by a
bank holding company of direct or indirect ownership or control of more than 5% of the voting
shares or substantially all the assets of any bank, or for a merger or consolidation of a bank
holding company with another bank holding company. With certain exceptions for financial holding
companies, the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership
or control of voting shares of any company which is not a business that is financial in nature or
incidental thereto, and from engaging directly or indirectly in any activity that is not financial
in nature or incidental thereto. Also, as discussed below, the Federal Reserve expects bank
holding companies to maintain strong capital positions while experiencing growth. The Federal
Reserve, as a matter of policy, may require a bank holding company to be well-capitalized at the
time of filing an acquisition application and upon consummation of the acquisition.
Under the BHC Act and Federal Reserve regulations, the Company and the Banks are prohibited from
engaging in certain tie-in arrangements in connection with an extension of credit, lease, sale of
property, or furnishing of services. That means that, except with respect to traditional banking
products (loans, deposits or trust services), the Banks may not condition a customer’s purchase of
services on the purchase of other services from any of the Banks or other subsidiaries of the
Company.
It is the policy of the Federal Reserve that the Company is expected to act as a source of
financial strength to its subsidiaries, and to commit resources to support the subsidiaries. The
Federal Reserve takes the position that in implementing this policy, it may require the Company to
provide such support even when the Company otherwise would not consider itself able to do so.
The Federal Reserve has adopted risk-based capital requirements for assessing capital adequacy of
all bank holding companies, including financial holding companies. These standards define
regulatory capital and establish minimum capital ratios in relation to
assets, both on an aggregate basis and as adjusted for credit risks and off-balance sheet
exposures. Under the Federal Reserve’s risk-based guidelines, capital is classified into two
categories. For bank holding companies, Tier 1 capital, or “core” capital, consists of common
stockholders’equity, qualifying noncumulative perpetual preferred stock (including related
surplus), qualifying cumulative perpetual preferred stock (including related surplus) (subject to
certain limitations) and minority interests in the common equity accounts of consolidated
subsidiaries, and is reduced by goodwill and specified intangible assets (“Tier 1 Capital”). Tier
2 capital, or “supplementary” capital, consists of the following items, all of which are subject to
certain conditions and limitations: the allowance for credit losses; perpetual preferred stock and
related surplus; hybrid capital instruments; unrealized holding gains on marketable equity
securities; perpetual debt and mandatory convertible debt securities; term subordinated debt and
intermediate-term preferred stock.
Under the Federal Reserve’s capital guidelines, bank holding companies are required to maintain a
minimum ratio of qualifying total capital to risk-weighted assets of 8.0%, of which at least 4.0%
must be in the form of Tier 1 Capital. The Federal Reserve also requires a minimum leverage ratio
of Tier 1 Capital to total assets of 3.0% for strong bank holding companies (those rated a
composite “1” under the Federal Reserve’s rating system). For all other bank holding companies,
the minimum ratio of Tier 1 Capital to total assets is 4%. In addition, the Federal Reserve
continues to consider the Tier 1 leverage ratio (Tier 1 capital to average quarterly assets) in
evaluating proposals for expansion or new activities.
9
In its capital adequacy guidelines, the Federal Reserve emphasizes that the foregoing standards are
supervisory minimums and that banking organizations generally are expected to operate well above
the minimum ratios. These guidelines also provide that banking organizations experiencing growth,
whether internally or through acquisitions, are expected to maintain strong capital positions
substantially above the minimum levels.
As of December 31, 2005, the Company’s total capital to risk-weighted assets ratio was 11.9%, its
Tier 1 Capital to risk-weighted asset ratio was 10.3% and its leverage ratio was 8.3%.
Since several of the Company’s bank subsidiaries are Illinois-chartered Banks, the Company is also
subject to regular examination by the Commissioner of the Illinois Department of Financial and
Professional Regulation (the “Illinois Commissioner”).
Under the Illinois Banking Act, any person who acquires more than 10% of the Company’s stock may be
required to obtain the prior approval of the Illinois Commissioner. Similarly, under the Change in
Bank Control Act, a person may be required to obtain the prior regulatory consent of the Federal
Reserve before acquiring control of 10% or more of any class of the Company’s outstanding stock.
Generally, an acquisition of more than 10% of the Company’s stock by a corporate entity, including
a corporation, partnership or trust, would require prior Federal Reserve approval under the BHC
Act.
Dividend Limitations. Because the Company’s consolidated net income consists largely of net income
of the Banks and its non-bank subsidiaries, the Company’s ability to pay dividends depends upon its
receipt of dividends from these entities. Federal and state statutes and regulations impose
restrictions on the payment of dividends by the Company, the Banks and its non-bank subsidiaries.
(See Part II, Item 5 for further discussion of dividend limitations.)
Federal Reserve policy provides that a bank holding company should not pay dividends unless (i) the
bank holding company’s net income over the prior year is sufficient to fully fund the dividends and
(ii) the prospective rate of earnings retention appears consistent with the capital needs, asset
quality and overall financial condition of the bank holding company and its subsidiaries.
Additionally, the Federal Reserve possesses enforcement powers over bank holding companies and
their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices
or violations of applicable statutes and regulations. Among these powers is the ability to prohibit
or limit the payment of dividends by bank holding companies.
Illinois law also places certain limitations on the ability of the Company to pay dividends. For
example, the Company may not pay dividends to its shareholders if, after giving effect to the
dividend, the Company would not be able to pay its debts as they become due. Since a major
potential source of the parent company’s revenue is dividends it expects to receive from the Banks,
the Company’s ability to pay dividends is likely to be dependent on the amount of dividends paid by
the Banks. No assurance can be given that the Banks will, in any circumstances, pay dividends to
the Company.
Bank Regulation
Lake Forest Bank, Hinsdale Bank, North Shore Bank, Libertyville Bank, Northbrook Bank, Village
Bank, Wheaton Bank and State Bank of The Lakes are Illinois-chartered banks and as such they and
their subsidiaries are subject to supervision and examination by the Illinois Commissioner. Each
of these Illinois-chartered Banks, is a member of the Federal Reserve Bank and, as such, is subject
to additional examination by the Federal Reserve Bank as their primary federal regulator.
Barrington Bank, Crystal Lake Bank, Advantage Bank, Beverly Bank and WHTC are federally-chartered
and are subject to supervision and examination by the Office of the Comptroller of the Currency
(“OCC”) pursuant to the National Bank Act and regulations promulgated thereunder. Town Bank is a
Wisconsin-chartered bank and a member of the Federal Reserve Bank, and as such is subject to
supervision by the Wisconsin Department of Financial Institutions and the Federal Reserve Bank.
10
The deposits of the Banks are insured by the Bank Insurance Fund under the provisions of the
Federal Deposit Insurance Act (the “FDIA”), and the Banks are, therefore, also subject to
supervision and examination by the FDIC. The FDIA requires that the appropriate federal regulatory
authority (the Federal Reserve Bank in the case of Lake Forest Bank, North Shore Bank, Hinsdale
Bank, Libertyville Bank, Northbrook Bank, Village Bank, Wheaton Bank, State Bank of The Lakes and
Town Bank and the OCC in the case of Barrington Bank, Crystal Lake Bank, Beverly Bank and Advantage
Bank)
approve any merger and/or consolidation by or with an insured bank, as well as the establishment or
relocation of any bank or branch office. The FDIA also gives the Federal Reserve, the OCC and the
other federal bank regulatory agencies power to issue cease and desist orders against banks,
holding companies or persons regarded as “institution affiliated parties.” A cease and desist
order can either prohibit such entities from engaging in certain unsafe and unsound bank activity
or can require them to take certain affirmative action. The FDIC also supervises compliance with
the provisions of federal law and regulations which, in addition to other requirements, place
restrictions on loans by FDIC-insured banks to their directors, executive officers and other
controlling persons.
Financial Institution Regulation Generally
Transactions with Affiliates. Transactions between a bank and its holding company or other
affiliates are subject to various restrictions imposed by state and federal regulatory agencies.
Such transactions include loans and other extensions of credit, purchases of securities and other
assets, and payments of fees or other distributions. In general, these restrictions limit the
amount of transactions between an institution and an affiliate of such institution, as well as the
aggregate amount of transactions between an institution and all of its affiliates, and require
transactions with affiliates to be on terms comparable to those for transactions with unaffiliated
entities. Transactions between banking affiliates may be subject to certain exemptions under
applicable federal law.
Capital Requirements. Capital requirements for the Banks generally parallel the capital
requirements previously noted for bank holding companies. Each of the Banks is subject to
applicable capital requirements on a separate company basis. The federal banking regulators must
take prompt corrective action with respect to FDIC-insured depository institutions that do not meet
minimum capital requirements. There are five capital tiers: “well-capitalized”,
“adequately-capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically
undercapitalized”. As of December 31, 2005, each of the Company’s Banks was categorized as
“well-capitalized.” Because the Company is designated as a financial holding company, each of the
Banks is required to maintain capital ratios at or above the “well-capitalized” levels.
Prompt Corrective Action. The Federal Deposit Insurance Act and applicable FDIC regulations
promulgated thereunder (collectively the “FDIA”) as amended by the Federal Deposit Insurance
Corporation Improvement Act of 1991 (“FDICIA”) requires the federal banking regulators to take
prompt corrective action with respect to depository institutions that fall below minimum capital
standards and prohibits any depository institution from making any capital distribution that would
cause it to be undercapitalized. Institutions that are not adequately capitalized may be subject to
a variety of supervisory actions including, but not limited to, restrictions on growth, investments
activities, capital distributions and affiliate transactions and will be required to submit a
capital restoration plan which, to be accepted by the regulators, must be guaranteed in part by any
company having control of the institution (such as the Company). In other respects, FDICIA
provides for enhanced supervisory authority, including greater authority for the appointment of a
conservator or receiver for
undercapitalized institutions. The capital-based prompt corrective
action provisions of FDICIA and
their implementing regulations generally apply to all FDIC-insured depository institutions.
However, federal banking agencies have indicated that, in regulating bank holding com-
11
panies, the agencies may take appropriate action at the holding company level based on their
assessment of the effectiveness of supervisory actions imposed upon subsidiary insured depository
institutions pursuant to the prompt corrective action provisions of FDICIA.
Dividends. As Illinois state-chartered banks, Lake Forest Bank, North Shore Bank, Hinsdale Bank,
Libertyville Bank, Northbrook Bank, Village Bank, Wheaton Bank and State Bank of The Lakes, may not
pay dividends in an amount greater than their current net profits after deducting losses and bad
debts out of undivided profits provided that its surplus equals or exceeds its capital. For the
purpose of determining the amount of dividends that an Illinois bank may pay, bad debts are defined
as debts upon which interest is past due and unpaid for a period of six months or more unless such
debts are well-secured and in the process of collection. Furthermore, federal regulations also
prohibit any Federal Reserve member bank, including each of the Company’s Illinois-chartered banks
and Town Bank, from declaring dividends in any calendar year in excess of its net income for the
year plus the retained net income for the preceding two years, less any required transfers to the
surplus account. Similarly, as national associations supervised by the OCC, Barrington Bank,
Crystal Lake Bank, Beverly Bank, Advantage Bank and WHTC may not declare dividends in any year in
excess of its net income for the year plus the retained net income for the preceding two years,
less any required transfers to the surplus account. Furthermore, the OCC may, after notice and
opportunity for hearing, prohibit the payment of a dividend by a national bank if it determines
that such payment would constitute an unsafe or unsound practice.
In addition to the foregoing, the ability of the Company, the Banks and WHTC to pay dividends may
be affected by the various minimum capital requirements and the capital and non-capital standards
established under the FDICIA, as described below. The right of the Company, its shareholders and
its creditors to participate in any distribution of the assets or earnings of its subsidiaries is
further subject to the prior claims of creditors of the respective subsidiaries.
Standards for Safety and Soundness. The FDIA, as amended by FDICIA and the Riegle Community
Development and Regulatory Improvement Act of 1994, requires the federal bank regulatory agencies
to prescribe standards of safety and soundness, by regulations or guidelines, relating generally to
operations and management, asset growth, asset quality, earnings, stock valuation and compensation.
The federal bank regulatory agencies have adopted a set of guidelines prescribing safety and
soundness standards pursuant to FDIA, as amended. The guidelines establish general standards
relating to internal controls and information systems, informational security, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and
compensation, fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or disproportionate to
the services performed by an executive officer, employee, director or principal shareholder. In
addition, each of the Federal Reserve and the OCC adopted regulations that authorize, but do not
require, the Federal Reserve or the OCC, as the case may be, to order an institution that has been
given notice by the Federal Reserve or the OCC, as the case may be, that it is not satisfying any
of such safety and soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any material respect to
implement an accepted compliance plan, the Federal Reserve or the OCC, as the case may be, must
issue an order directing action to correct the deficiency and may issue an order directing other
actions of the types to which an undercapitalized association is subject under the “prompt
corrective action” provisions of FDICIA. If an institution fails to comply with such an order, the
Federal Reserve or the OCC, as the case may be, may seek to enforce such order in judicial
proceedings and to impose civil money penalties. The Federal Reserve, the OCC and the other
federal bank regulatory agencies also adopted guidelines for asset quality and earnings standards.
12
A range of other provisions in the FDIA include requirements applicable to: closure of branches;
additional disclosures to depositors with respect to terms and interest rates applicable to deposit
accounts; uniform regulations for extensions of credit secured by real estate; restrictions on
activities of and investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of off-balance sheet
items and supplemental disclosure of estimated fair market value of assets and liabilities in
financial statements filed with the banking regulators; increased penalties in making or failing to
file assessment reports with the FDIC; greater restrictions on extensions of credit to directors,
officers and principal shareholders; and increased reporting requirements on agricultural loans and
loans to small businesses.
In addition, the federal banking agencies adopted a final rule, which modified the risk-based
capital standards, to provide for consideration of interest rate risk when assessing the capital
adequacy of a bank. Under this rule, federal regulators and the FDIC must explicitly include a
bank’s exposure to declines in the economic value of its capital due to changes in interest rates
as a factor in evaluating a bank’s capital adequacy. The federal banking agencies also have
adopted a joint agency policy statement providing guidance to banks for managing interest rate
risk. The policy statement emphasizes the importance of adequate oversight by management and a
sound risk management process. The assessment of interest rate risk
management made by the
banks’ examiners will be incorporated into the banks’ overall risk management rating and used to
determine the effectiveness of management.
Insurance of Deposit Accounts. Under the FDIA, as an FDIC-insured institution, each of the Banks is
required to pay deposit insurance premiums based on the risk it poses to the appropriate deposit
insurance fund, currently the Bank Insurance Fund (“BIF”), but after
March 31, 2006, the Deposit Insurance Fund (“DIF”). The FDIC has authority to raise or lower
assessment rates on insured deposits in order to achieve statutorily required reserve ratios in the
insurance funds and to impose special additional assessments. Each depository institution is
currently assigned to one of three capital groups: “well capitalized,” “adequately capitalized” or
“undercapitalized.” An institution is considered well capitalized if it has a total risk-based
capital ratio of 10% or greater, has a Tier 1 risk-based capital ratio of 6% or greater, has a
leverage ratio of 5% or greater and is not subject to any order or written directive to meet and
maintain a specific capital level. An “adequately capitalized” institution is defined as one that
has a total risk-based capital ratio of 8% or greater, has a Tier 1 risk-based capital ratio of 4%
or greater, has a leverage ratio of 4% or greater and does not meet the definition of a well
capitalized bank. An institution is considered “undercapitalized” if it does not meet the
definition of “well capitalized” or “adequately capitalized.” Within each capital group,
institutions are assigned to one of three supervisory subgroups: “A” (institutions with few minor
weaknesses), “B” (institutions which demonstrate weaknesses which, if not corrected, could result
in significant deterioration of the institution and increased risk of loss to the BIF), and “C”
(institutions that pose a substantial probability of loss to BIF unless effective corrective action
is taken). Accordingly, there are nine combinations of capital groups and supervisory subgroups to
which varying assessment rates are applicable. An institution’s assessment rate depends on the
capital category and supervisory category and supervisory category to which it is assigned.
During 2005, the Banks incurred deposit insurance premiums in the aggregate amount of $926,000.
Deposit insurance may be terminated by the FDIC upon a finding that an institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Such
terminations can only occur, if contested, following judicial review through the federal courts.
The management of each of the Banks does not know of any practice, condition or violation that
might lead to termination of deposit insurance.
13
Under the “cross-guarantee” provision of the FDIA, as augmented by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), insured depository institutions such as
the Banks may be liable to the FDIC with respect to any loss or reasonably anticipated loss
incurred by the FDIC resulting from the default of, or FDIC assistance to, any commonly controlled
insured depository institution. The Banks are commonly controlled within the meaning of the
FIRREA cross-guarantee provision.
Federal Reserve System. The Banks are subject to Federal Reserve regulations requiring depository
institutions to maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). For 2006, the first $7.8 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve of each Bank) are exempt from
the reserve requirements. A 3% reserve ratio applies to balances over $7.8 million up to and
including $48.3 million and a 10% reserve ratio
applies to balances in excess of $48.3 million. The Banks were in compliance with the applicable
requirements in 2005.
Anti
Money Laundering. On October 26, 2001, the USA PATRIOT
Act of 2001 (the “PATRIOT Act”) was
enacted into law, amending in part the Bank Secrecy Act
(“BSA”). The PATRIOT Act contains
anti-money laundering (“AML”) and financial transparency laws as well as enhanced information
collection tools and enforcement mechanics for the U.S. government, including: standards for
verifying customer identification at account opening; rules to promote cooperation among financial
institutions, regulators, and law enforcement entities in identifying parties that may be involved
in terrorism or money laundering; reports by non-financial entities and businesses filed with the
U.S. Department of the Treasury’s Financial Crimes Enforcement Network for transactions exceeding
$10,000; and due diligence requirements for financial institutions that administer, maintain, or
manage private bank accounts or correspondence accounts for non-U.S. persons. Each Bank is subject
to the PATRIOT Act and, therefore, is required to provide its employees with AML training, designate
an AML compliance officer and undergo an annual, independent audit to assess the effectiveness of
its AML Program. The Company has established policies, procedures and internal controls that are
designed to comply with these AML requirements.
Protection of Client Information. Many aspects of the Company’s business are subject to
increasingly comprehensive legal requirements concerning the use and protection of certain client
information including those adopted pursuant to the GLB Act as well as the Fair and Accurate Credit
Transactions Act of 2003 (the “FACT Act”). Provisions of the GLB Act require a financial
institution to disclose its privacy policy to customers and consumers, and requires that such
customers or consumers be given a choice (through an opt-out notice) to forbid the sharing of
nonpublic personal information about them with nonaffiliated third persons. The Company and each of
the Banks have a written privacy notice that is delivered to each of its customers when customer
relationships begin, and annually thereafter, in compliance with the GLB Act. In accordance with
that privacy notice, the Company and each Bank protect the security of information about their
customers, educate their employees about the importance of protecting customer privacy, and allow
their customers to remove their names from the solicitation lists they use and share with others.
The Company and each Bank require business partners with whom they share such information to have
adequate security safeguards and to abide by the redisclosure and reuse provisions of the GLB Act.
The Company and each Bank have developed and implemented programs to fulfill the expressed requests
of customers and consumers to opt out of information sharing subject to the GLB Act. If the
federal or state regulators of the financial subsidiaries establish further guidelines for
addressing customer privacy issues, the Company and/or each Bank may need to amend their privacy
policies and adapt their internal procedures. In addition to adopting federal requirements
regarding privacy, the GLB Act also permits individual states to enact stricter laws relating to
the use of customer information. To date, none of the states in which the Banks operate has
adopted additional requirements or restrictions on the Company and/or any of the Banks.
14
Moreover, like other lending institutions, each of the Banks utilize credit bureau data in their
underwriting activities. Use of such data is regulated under the Fair Credit Report Act (the
“FCRA”) on a uniform, nationwide basis, including credit reporting, prescreening, sharing of
information between affiliates, and the use of credit data. The FACT Act, which was adopted by
Congress and signed into law in 2004, amended the FCRA, but authorized states to enact identity
theft laws that are not inconsistent with the conduct required by the
provisions of the FACT Act.
To date, none of the states in which the Banks operate has adopted additional requirements or
restrictions on the Company and/or any of the Banks.
Community Reinvestment. Under the Community Reinvestment Act (“CRA”), a financial institution has a
continuing and affirmative obligation, consistent with the safe and sound operation of such
institution, to help meet the credit needs of its entire community, including low and
moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs
for financial institutions nor does it limit an institution’s discretion to develop the types of
products and services that it believes are best suited to its particular community, consistent with
the CRA. However, institutions are rated on their performance in meeting the needs of their
communities. Performance is judged in three areas: (a) a lending test, to evaluate the
institution’s record of making loans in its assessment areas; (b) an investment test, to evaluate
the institution’s record of investing in community development projects, affordable housing and
programs benefiting low or moderate income individuals and business; and (c) a service test, to
evaluate the institution’s delivery of services through its branches, ATMs and other offices. The
CRA requires each federal banking agency, in connection with its examination of a financial
institution, to assess and assign one of four ratings to the institution’s record of meeting the
credit needs of its community and to take such record into account in its evaluation of certain
applications by the institution, including applications for charters, branches and other deposit
facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of
liabilities, and savings and loan holding company acquisitions. The
CRA also requires that all
institutions make public disclosure of their CRA ratings. Each of the Banks received a
“satisfactory” rating from the Federal Reserve, the OCC or the FDIC on their most recent
CRA performance evaluations. Because the Company is a financial holding company, failure of any of
the Banks to maintain “satisfactory” CRA ratings could restrict further expansion of the Company’s
or the Banks’ activities.
Brokered Deposits. Well-capitalized institutions are not subject to limitations on brokered
deposits, while an adequately capitalized institution is able to accept, renew or rollover brokered
deposits only with a waiver from the FDIC and subject to certain restrictions on the rate paid on
such deposits. Undercapitalized institutions are not permitted to accept brokered deposits. Each
of the Banks is eligible to accept brokered deposits (as a result of its capital levels) and may
use this funding source from time to time when management deems it appropriate from an
asset/liability management perspective.
Enforcement Actions. Federal and state statutes and regulations provide financial institution
regulatory agencies with great flexibility to undertake enforcement action against an institution
that fails to comply with regulatory requirements, particularly
capital requirements. Possible enforcement actions range from the imposition of a capital plan and
capital directive to civil money penalties, cease and desist orders, receivership, conservatorship
or the termination of deposit insurance.
15
Compliance with Consumer Protection Laws. The Banks are also subject to many federal consumer
protection statutes and regulations including the CRA, the Truth in Lending Act, the Truth in
Savings Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement
Procedures Act, the Soldiers’ and Sailors’ Civil Relief Act and the Home Mortgage Disclosure Act.
WestAmerica must also comply with many of these consumer protection statutes and regulations. Among
other things, these acts:
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• |
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require banks to meet the credit needs of their communities; |
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• |
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require banks to disclose credit terms in meaningful and consistent ways; |
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• |
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prohibit discrimination against an applicant in any consumer or business
credit transaction; |
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• |
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prohibit discrimination in housing-related lending
activities; |
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• |
|
require banks to collect and report applicant and borrower data
regarding loans for home purchases or improvement projects; |
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• |
|
require lenders to
provide borrowers with information regarding the nature and cost of real estate
settlements; |
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• |
|
prohibit certain lending practices and limit escrow amounts with
respect to real estate transactions; and |
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• |
|
prescribe possible penalties for
violations of the requirements of consumer protection statutes and regulations. |
Interstate Banking and Branching Legislation. Under the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the “Interstate Banking Act”) which amended the BHC Act and the
FDIA, bank holding companies are allowed to acquire banks across state lines subject to certain
limitations. In addition, under the Interstate Banking Act, banks are permitted, under certain
circumstances, to merge with one another across state lines and thereby create a main bank with
branches in separate states. After establishing branches in a state through an interstate merger
transaction, a bank may establish and acquire additional branches at any location in the state
where any bank involved in the interstate merger could have established or acquired branches under
applicable federal and state law.
Broker-Dealer and Investment Adviser Regulation
The broker-dealers and investment advisers are subject to extensive regulation under federal and
state securities laws. These firms are required to be registered with the Securities and Exchange
Commission, although much of their regulation and examination has been delegated to self-regulatory
organizations (“SROs”) that the SEC oversees, including the National Association of Securities
Dealers and the national securities exchanges. In addition to SEC rules and regulations, the SROs
adopt rules, subject to approval of the SEC, that govern all aspects of business in the securities
industry and conduct periodic examinations of member firms. These businesses are also subject to
regulation by state securities commissions in states where they conduct business.
As a result of federal and state registrations and SRO memberships, the Wayne Hummer Companies are
subject to over-lapping schemes of regulation which cover all aspects of their securities
businesses. Such regulations cover, among other things, matters including minimum net capital
requirements; uses and safekeeping of clients’ funds; recordkeeping and reporting requirements;
supervisory and organizational procedures intended to assure compliance with securities laws and to
prevent improper trading on material nonpublic information; employee-related matters, including
qualification and licensing of supervisory and sales personnel; limitations on extensions of credit
in securities transactions; clearance and settlement procedures;
16
“suitability” determinations as to certain customer transactions, limitations on the amounts and
types of fees and commissions that may be charged to customers, and the timing of proprietary
trading in relation to customers’ trades; affiliate transactions; and mutual fund management. The
principal purpose of regulation and discipline of investment firms is the protection of customers
and the securities markets rather than the protection of creditors and stockholders of investment
firms.
Monetary Policy and Economic Conditions
The earnings of banks and bank holding companies are affected by general economic conditions and
also by the credit policies of the Federal Reserve. Through open market transactions, variations
in the discount rate and the establishment of reserve requirements, the Federal Reserve exerts
considerable influence over the cost and availability of funds obtainable for lending or investing.
The Federal Reserve’s monetary policies have affected the operating results of all commercial banks
in the past and are expected to do so in the future. The Company and the Banks cannot fully
predict the nature or the extent of any effects which fiscal or monetary policies may have on their
business and earnings.
Supplemental Statistical Data
The following statistical information and the statistical information on pages 3, 76 and 77 of the
2005 Annual Report to Shareholders are provided in accordance with the requirements of The Exchange
Act Industry Guide 3, Statistical Disclosures by Bank Holding Companies, which is part of
Regulation S-K as promulgated by the SEC. This data should be read in conjunction with the
Company’s Consolidated Financial Statements and notes thereto, and Management’s Discussion and
Analysis which are contained in its 2005 Annual Report to Shareholders filed herewith as Exhibit
13.1 and incorporated herein by reference.
Investment Securities Portfolio
The following table presents the carrying value of the Company’s available-for-sale securities
portfolio, by investment category, as of December 31, 2005, 2004 and 2003 (in thousands):
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|
|
|
|
|
| |
| |
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
| |
|
|
U.S. Treasury |
|
$ |
34,586 |
|
|
|
140,707 |
|
|
|
54,930 |
|
|
|
|
|
U.S. Government agencies |
|
|
714,715 |
|
|
|
545,887 |
|
|
|
309,728 |
|
|
|
|
|
Municipal |
|
|
48,397 |
|
|
|
25,412 |
|
|
|
11,364 |
|
|
|
|
|
Corporate notes and other debt |
|
|
8,358 |
|
|
|
8,329 |
|
|
|
35,408 |
|
|
|
|
|
Mortgage-backed |
|
|
874,067 |
|
|
|
533,726 |
|
|
|
393,239 |
|
|
|
|
|
Federal Reserve/FHLB stock
and other equity securities |
|
|
119,261 |
|
|
|
89,416 |
|
|
|
102,212 |
|
|
|
|
|
| |
|
|
Total available-for-sale securities |
|
$ |
1,799,384 |
|
|
|
1,343,477 |
|
|
|
906,881 |
|
|
|
|
|
| |
Tables presenting the carrying amounts and gross unrealized gains and losses for securities
available-for-sale at December 31, 2005 and 2004, are included by reference to Note 3 to the
Consolidated Financial Statements included in the 2005 Annual Report to Shareholders, which is
incorporated herein by reference. All of the Company’s securities, for all periods shown, are
classified as available-for-sale.
17
Maturities of available-for-sale securities as of December 31, 2005, by maturity distribution, are
as follows (in thousands):
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Federal |
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Reserve / |
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From 5 |
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Mortgage- |
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FHLB stock |
|
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|
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|
Within |
|
From 1 |
|
to 10 |
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After |
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backed |
|
and other |
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|
| |
|
1 year |
|
to 5 years |
|
years |
|
10 years |
|
securities |
|
equities |
|
Total |
|
|
|
|
| |
|
|
U.S. Treasury |
|
$ |
1,982 |
|
|
|
4,078 |
|
|
|
28,526 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34,586 |
|
|
|
|
|
U.S. Government agencies |
|
|
430,508 |
|
|
|
80,239 |
|
|
|
203,968 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
714,715 |
|
|
|
|
|
Municipal |
|
|
7,693 |
|
|
|
20,558 |
|
|
|
14,021 |
|
|
|
6,125 |
|
|
|
— |
|
|
|
— |
|
|
|
48,397 |
|
|
|
|
|
Corporate notes and other debt |
|
|
— |
|
|
|
549 |
|
|
|
— |
|
|
|
7,809 |
|
|
|
— |
|
|
|
— |
|
|
|
8,358 |
|
|
|
|
|
Mortgage-backed (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
874,067 |
|
|
|
— |
|
|
|
874,067 |
|
|
|
|
|
Federal
Reserve/FHLB stock
and other equity securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
119,261 |
|
|
|
119,261 |
|
|
|
|
|
| |
|
|
Total available-for-sale securities |
|
$ |
440,183 |
|
|
|
105,424 |
|
|
|
246,515 |
|
|
|
13,934 |
|
|
|
874,067 |
|
|
|
119,261 |
|
|
|
1,799,384 |
|
|
|
|
|
| |
|
|
|
| (1) |
|
The maturities of mortgage-backed securities may differ from contractual maturities since the underlying mortgages may be
called or prepaid without penalties. Therefore, these securities are not included within the maturity categories above. |
The weighted average yield for each range of maturities of securities, on a tax-equivalent
basis, is shown below as of December 31, 2005.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve / |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
From 5 |
|
|
|
|
|
Mortgage- |
|
FHLB stock |
|
|
|
|
|
|
| |
|
Within |
|
From 1 |
|
to 10 |
|
After |
|
backed |
|
and other |
|
|
|
|
|
|
| |
|
1 year |
|
to 5 years |
|
years |
|
10 years |
|
securities |
|
equities |
|
Total |
|
|
|
|
| |
|
|
U.S. Treasury |
|
|
1.72 |
% |
|
|
0.80 |
% |
|
|
3.43 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.03 |
% |
|
|
|
|
U.S. Government agencies |
|
|
3.47 |
% |
|
|
3.62 |
% |
|
|
4.41 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.76 |
% |
|
|
|
|
Municipal |
|
|
3.73 |
% |
|
|
5.06 |
% |
|
|
5.99 |
% |
|
|
8.87 |
% |
|
|
— |
|
|
|
— |
|
|
|
5.59 |
% |
|
|
|
|
Corporate notes and other debt |
|
|
— |
|
|
|
8.00 |
% |
|
|
— |
|
|
|
5.63 |
% |
|
|
— |
|
|
|
— |
|
|
|
5.78 |
% |
|
|
|
|
Mortgage-backed (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.88 |
% |
|
|
— |
|
|
|
4.88 |
% |
|
|
|
|
Federal Reserve/FHLB stock
and
other equity securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4.05 |
% |
|
|
4.05 |
% |
|
|
|
|
| |
|
|
Total available-for-sale securities |
|
|
3.46 |
% |
|
|
3.81 |
% |
|
|
4.38 |
% |
|
|
7.03 |
% |
|
|
4.88 |
% |
|
|
4.05 |
% |
|
|
4.37 |
% |
|
|
|
|
| |
|
|
|
| (1) |
|
The maturities of mortgage-backed securities may differ from contractual maturities since the underlying mortgages may be
called or prepaid without penalties. Therefore, these securities are not included within the maturity categories above. |
18
Loan Portfolio
The following table shows the Company’s loan portfolio by category as of December 31 for each of
the five previous fiscal years (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
|
|
|
| |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
|
|
| |
|
Amount |
|
Total |
|
Amount |
|
Total |
|
Amount |
|
Total |
|
Amount |
|
Total |
|
Amount |
|
Total |
|
|
|
|
| |
|
|
Commercial and
commercial real estate |
|
$ |
3,161,734 |
|
|
|
61 |
% |
|
|
2,465,852 |
|
|
|
57 |
|
|
|
1,648,022 |
|
|
|
50 |
|
|
|
1,320,598 |
|
|
|
52 |
|
|
|
1,007,580 |
|
|
|
50 |
|
|
|
|
|
Home equity |
|
|
624,337 |
|
|
|
12 |
|
|
|
574,668 |
|
|
|
13 |
|
|
|
466,812 |
|
|
|
14 |
|
|
|
365,521 |
|
|
|
14 |
|
|
|
261,049 |
|
|
|
13 |
|
|
|
|
|
Residential real estate |
|
|
275,729 |
|
|
|
5 |
|
|
|
248,118 |
|
|
|
5 |
|
|
|
173,625 |
|
|
|
5 |
|
|
|
156,213 |
|
|
|
6 |
|
|
|
140,041 |
|
|
|
7 |
|
|
|
|
|
Premium finance receivables |
|
|
814,681 |
|
|
|
16 |
|
|
|
770,792 |
|
|
|
18 |
|
|
|
746,895 |
|
|
|
23 |
|
|
|
461,614 |
|
|
|
18 |
|
|
|
348,163 |
|
|
|
17 |
|
|
|
|
|
Indirect consumer loans |
|
|
203,002 |
|
|
|
4 |
|
|
|
171,926 |
|
|
|
4 |
|
|
|
174,071 |
|
|
|
5 |
|
|
|
178,234 |
|
|
|
7 |
|
|
|
184,209 |
|
|
|
9 |
|
|
|
|
|
Tricom finance receivables |
|
|
49,453 |
|
|
|
1 |
|
|
|
29,730 |
|
|
|
1 |
|
|
|
25,024 |
|
|
|
1 |
|
|
|
21,048 |
|
|
|
1 |
|
|
|
18,280 |
|
|
|
1 |
|
|
|
|
|
Consumer and other loans |
|
|
84,935 |
|
|
|
1 |
|
|
|
87,260 |
|
|
|
2 |
|
|
|
63,345 |
|
|
|
2 |
|
|
|
52,858 |
|
|
|
2 |
|
|
|
59,157 |
|
|
|
3 |
|
|
|
|
|
| |
|
|
Total loans, net of
unearned income |
|
$ |
5,213,871 |
|
|
|
100 |
% |
|
|
4,348,346 |
|
|
|
100 |
|
|
|
3,297,794 |
|
|
|
100 |
|
|
|
2,556,086 |
|
|
|
100 |
|
|
|
2,018,479 |
|
|
|
100 |
|
|
|
|
|
| |
Commercial and commercial real estate loans. The commercial loan component is comprised
primarily of commercial real estate loans, lines of credit for working capital purposes, and term
loans for the acquisition of equipment. Commercial real estate is predominantly owner occupied and
secured by a first mortgage lien and assignment of rents on the property. Working capital lines
are generally renewable annually and supported by business assets, personal guarantees and,
oftentimes, additional collateral. Equipment loans are generally secured by titles and/or U.C.C.
filings. Also included in this category are loans to condominium and homeowner associations
originated through Barrington Bank’s Community Advantage program and small aircraft financing, an
earning asset niche developed at Crystal Lake Bank. Commercial business lending is generally
considered to involve a higher degree of risk than traditional consumer bank lending. The vast
majority of commercial loans are made within the Banks’ immediate market areas. The increase in
this loan category can be attributed to bank acquisitions, additional banking facilities, an
emphasis on business development calling programs, recruitment of additional experienced lending
officers and superior servicing of existing commercial loan customers which has increased
referrals.
In addition to the home mortgages originated by the Banks, the Company participates in mortgage
warehouse lending by providing interim funding to unaffiliated mortgage brokers to finance
residential mortgages originated by such brokers for sale into the secondary market. The Company’s
loans to the mortgage brokers are secured by the business assets of the mortgage companies as well
as the underlying mortgages, the majority of which are funded by the Company on a loan-by-loan
basis after they have been pre-approved for purchase by third party end lenders who forward payment
directly to the Company upon their acceptance of final loan documentation. In addition, the
Company may also provide interim financing for packages of mortgage loans on a bulk basis in
circumstances where the mortgage brokers desire to competitively bid a number of mortgages for sale
as a package in the secondary market. Typically, the Company will serve as sole funding source for
its mortgage warehouse lending customers under short-term revolving credit agreements. Amounts
advanced with respect to any particular mortgage loan are usually required to be repaid within 21
days. The Company has developed strong relationships with a number of mortgage brokers and is
seeking to expand its customer base in this specialty business.
Home equity loans. The Company’s home equity loan products are generally structured as lines of
credit secured by first or second position mortgage liens on the underlying property with
loan-to-value ratios not exceeding 85%, including prior liens, if
any. The Banks’ home equity loans
feature competitive rate structures and fee arrangements. In addition, the Banks periodically
offer promotional home equity loan products as part of their marketing strategy often featuring
lower introductory rates.
19
Residential real estate mortgages. The residential real estate category predominantly includes
one-to-four family adjustable rate mortgages that have repricing terms generally from one to three
years, construction loans to individuals and bridge financing loans for qualifying customers. The
adjustable rate mortgages are often non-agency conforming, may have terms based on differing
indexes, and relate to properties located principally in the Chicago and southern Wisconsin
metropolitan areas or vacation homes owned by local residents. Adjustable-rate mortgage loans
decrease, but do not eliminate, the risks associated with changes in interest rates. Because
periodic and lifetime caps limit the interest rate adjustments, the value of adjustable-rate
mortgage loans fluctuates inversely with changes in interest rates. In addition, as interest rates
increase, the required payments by the borrower increases, thus increasing the potential for
default. The Company does not generally originate loans for its own portfolio with long-term fixed
rates due to interest rate risk considerations. Through the Banks and the Company’s WestAmerica
subsidiary, the Company can accommodate customer requests for fixed rate loans by originating and
selling these loans into the secondary market, in connection with which the Company receives fee
income, or by selectively including certain of these loans within the Banks’own portfolios.
A portion of the loans sold by the Company into the secondary market were sold to the Federal
National Mortgage Association (“FNMA”) with the servicing of those loans retained. The amount of
loans serviced for FNMA as of December 31, 2005 and 2004 was $522 million and $297 million,
respectively. All other mortgage loans sold into the secondary market were sold without the
retention of servicing rights.
Premium finance receivables. The Company originates premium finance receivables through FIFC.
Most of the receivables originated by FIFC are sold to the Banks and retained within their loan
portfolios. FIFC began selling loans to an unrelated third party in 1999. During 2005, FIFC
originated approximately $2.7 billion of loans and sold approximately $562 million of those loans
to an unrelated financial institution. FIFC recognized gains of $6.5 million related to this
activity. As of December 31, 2005 and 2004, the balance of these receivables that FIFC services
for others totaled approximately $261 million and $251 million, respectively. All premium finance
receivables are subject to the Company’s stringent credit standards, and substantially all such
loans are made to commercial customers. The Company rarely finances consumer insurance premiums.
FIFC generally offers financing of approximately 80% of an insurance premium primarily to
commercial purchasers of property and casualty and liability insurance who desire to pay insurance
premiums on an installment basis. FIFC markets its financial services primarily by establishing
and maintaining relationships with medium and large insurance agents and brokers and by offering a
high degree of service and innovative products. Senior management is significantly involved in
FIFC’s marketing efforts, currently focused almost exclusively on commercial accounts. Loans are
originated by FIFC’s own sales force working with insurance agents and brokers throughout the
United States. As of December 31, 2005, FIFC had the necessary licensing or other regulatory
approvals to do business in all 50 states and the District of Columbia.
In financing insurance premiums, the Company does not assume the risk of loss normally borne by
insurance carriers. Typically, the insured buys an insurance policy from an independent insurance
agent or broker who offers financing through FIFC. The insured typically makes a down payment of
approximately 15% to 25% of the total premium and signs a premium finance agreement for the balance
due, which amount FIFC disburses directly to the insurance carrier or its agents to satisfy the
unpaid premium amount. The initial average balance of premium finance loans originated during 2005
was approximately $29,000 and the average term of the agreements was approximately 10 months. As
the insurer earns the premium ratably over the life of the policy, the unearned portion of the
premium secures payment of the balance due to FIFC by the insured. Under the terms of the
Company’s standard form of financing contract, the Company has the power to cancel the insurance
policy if there is a default in the payment on the finance contract and to collect the unearned
portion of the premium from the insurance carrier. In the event of cancellation of a policy, the
cash returned in payment of the unearned premium by the insurer should be sufficient to cover the
20
loan balance and generally the interest and other charges due as well. The major risks inherent in
this type of lending are (1) the risk of fraud on the part of an insurance agent whereby the agent
fraudulently fails to forward funds to the insurance carrier or to FIFC, as the case may be; (2)
the risk that the insurance carrier becomes insolvent and is unable to return unearned premiums
related to loans in default; (3) for policies that are subject to an audit by the insurance carrier
(i.e. workers compensation policies where the insurance carrier can audit the insured actual
payroll records), the risk that the initial underwriting of the policy was such that the premium
paid by the insured is not sufficient to cover the
entire return premium in the event of default; and (4) that the borrower is unable to ultimately
satisfy the debt in the event the returned unearned premium is insufficient to retire the loan.
FIFC has established underwriting procedures to reduce the potential of loss associated with the
aforementioned risks and has systems in place to continually monitor conditions that would indicate
an increase in risk factors and to act on situations where the Company’s collateral position is in
jeopardy.
Indirect consumer loans. As part of its strategy to pursue specialized earning asset niches to
augment loan generation within the Banks’target markets, the Company finances fixed rate automobile
loans funded indirectly through unaffiliated automobile dealers and to a lesser extent boat loans
funded through unaffiliated boat dealers, as a result of the State Bank of The Lakes acquisition in
2005. In 2005, the Company increased its volume of originations of auto loans as market conditions
indicated it was prudent to do so, and expects the portfolio to grow in future periods depending on
market conditions. Indirect automobile loans are secured by new and used automobiles and are
generated by a large network of automobile dealers located in the Chicago area with which the
Company has established relationships. These credits generally have an average initial balance of
approximately $20,000 and have an original maturity of 36 to 72 months with the average actual
maturity, as a result of prepayments, estimated to be approximately 35-40 months. 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. The risk associated with the Company’s portfolios is diversified among many
individual borrowers. Management continually monitors the dealer relationships and the Banks are
not dependent on any one dealer as a source of such loans. Like other consumer loans, the indirect
consumer loans are subject to the Banks’stringent credit standards.
Tricom finance receivables. Tricom finance receivables represent high-yielding short-term accounts
receivable financing to clients in the temporary staffing industry located throughout the United
States. The clients’ working capital needs arise primarily from the timing differences between
weekly payroll funding and monthly collections from customers. The primary security for Tricom’s
finance receivables are the accounts receivable of its clients and personal guarantees. Tricom
generally advances 80-95% based on various factors including the client’s financial condition, the
length of client relationship and the nature of the client’s customer business lines. Typically,
Tricom will also provide value-added out-sourced administrative services to many of these clients,
such as data processing of payrolls, billing and cash management services, which generates
additional fee income.
Consumer and Other. Included in the consumer and other loan category is a wide variety of personal
and consumer loans to individuals. The Banks originate consumer loans in order to provide a wider
range of financial services to their customers. Consumer loans generally have shorter terms and
higher interest rates than mortgage loans but generally involve more credit risk than mortgage
loans due to the type and nature of the collateral.
The Company had no loans to businesses or governments of foreign countries at any time during 2005.
21
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table classifies the commercial loan portfolios at December 31, 2005 by date at which
the loans mature (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
One year |
|
From one |
|
After |
|
|
|
|
|
|
| |
|
or less |
|
to five years |
|
five years |
|
Total |
|
|
|
|
| |
|
|
Commercial and commercial real estate loans |
|
$ |
1,416,364 |
|
|
|
1,548,083 |
|
|
|
197,287 |
|
|
|
3,161,734 |
|
|
|
|
|
Premium finance receivables, net of
unearned income |
|
|
814,681 |
|
|
|
— |
|
|
|
— |
|
|
|
814,681 |
|
|
|
|
|
Tricom finance receivables |
|
|
49,453 |
|
|
|
— |
|
|
|
— |
|
|
|
49,453 |
|
|
|
|
|
| |
Of those loans maturing after one year, approximately $317.5 million have fixed rates.
Risk Elements in the Loan Portfolio
The following table sets forth the allocation of the allowance for loan losses and the allowance
for losses on lending-related commitments by major loan type and the percentage of loans in each
category to total loans (dollars in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
2005 |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
| |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
| |
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
commercial real estate |
|
$ |
28,288 |
|
|
|
70 |
% |
|
|
20,016 |
|
|
|
57 |
|
|
|
7,421 |
|
|
|
50 |
|
|
|
6,837 |
|
|
|
52 |
|
|
|
6,251 |
|
|
|
50 |
|
Home equity |
|
|
1,835 |
|
|
|
5 |
|
|
|
1,404 |
|
|
|
13 |
|
|
|
467 |
|
|
|
14 |
|
|
|
563 |
|
|
|
14 |
|
|
|
1,353 |
|
|
|
13 |
|
Residential real estate |
|
|
1,372 |
|
|
|
3 |
|
|
|
993 |
|
|
|
5 |
|
|
|
417 |
|
|
|
5 |
|
|
|
200 |
|
|
|
6 |
|
|
|
137 |
|
|
|
7 |
|
Consumer and other |
|
|
1,516 |
|
|
|
4 |
|
|
|
1,585 |
|
|
|
2 |
|
|
|
418 |
|
|
|
2 |
|
|
|
358 |
|
|
|
2 |
|
|
|
835 |
|
|
|
3 |
|
Premium finance receivables |
|
|
4,586 |
|
|
|
11 |
|
|
|
7,708 |
|
|
|
18 |
|
|
|
5,495 |
|
|
|
23 |
|
|
|
3,613 |
|
|
|
18 |
|
|
|
1,391 |
|
|
|
17 |
|
Indirect consumer loans |
|
|
2,538 |
|
|
|
7 |
|
|
|
2,149 |
|
|
|
4 |
|
|
|
915 |
|
|
|
5 |
|
|
|
941 |
|
|
|
7 |
|
|
|
1,442 |
|
|
|
9 |
|
Tricom finance receivables |
|
|
148 |
|
|
|
— |
|
|
|
372 |
|
|
|
1 |
|
|
|
143 |
|
|
|
1 |
|
|
|
120 |
|
|
|
1 |
|
|
|
112 |
|
|
|
1 |
|
Unallocated |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,265 |
|
|
|
— |
|
|
|
5,758 |
|
|
|
— |
|
|
|
2,165 |
|
|
|
— |
|
| |
Totals |
|
$ |
40,283 |
|
|
|
100 |
% |
|
|
34,227 |
|
|
|
100 |
|
|
|
25,541 |
|
|
|
100 |
|
|
|
18,390 |
|
|
|
100 |
|
|
|
13,686 |
|
|
|
100 |
|
| |
Allowance for losses on lending-related commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
commercial real estate |
|
$ |
491 |
|
|
|
100 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Management has determined that the allowance for loan losses and the allowance for losses on
lending-related commitments were adequate at December 31, 2005. The Company’s loan rating process
is an integral component of the methodology utilized in determining the adequacy of the allowance
for loan losses. The Company utilizes a loan
rating system to assign risk to loans and utilizes that risk rating system to assist in developing
an internal problem loan identification system (“Problem Loan Report”) as a means of reporting
non-performing and potential problem loans. At each scheduled meeting of the Boards of Directors of
the Banks and the Wintrust Risk Management Committee, a Problem Loan Report is presented, showing
loans that are non-performing and loans that may warrant additional monitoring. Accordingly, 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 Report,
which exhibit a higher than normal credit risk. These Problem Loan Report credits are reviewed
individually by management to determine whether any specific reserve amount should be allocated for
each respective credit. However, these loans are still performing and, accordingly, are not
included in non-performing loans. Management’s philosophy is to be proactive and conservative in
assigning risk ratings to loans and identifying loans to be included on the Problem Loan Report.
22
In 2004, the Company refined its methodology for determining certain elements of the allowance for
loan losses. This refinement resulted in allocation of the entire allowance to specific loan
portfolio groupings. The Company maintains its allowance for loan losses at a level believed
adequate by management to absorb probable losses inherent in the loan portfolio and is based on the
size and current risk characteristics of the loan portfolio, an assessment of Problem Loan Report
loans and actual loss experience, industry concentration, geographical concentrations, levels of
delinquencies, historical loss experience including an analysis of the lack of seasoning in the
loan portfolio, changes in trends in risk ratings assigned to loans, changes in underwriting
standards and other pertinent factors, including regulatory guidance and general economic
conditions. The allowance for loan losses also includes an element for estimated probable but
undetected losses and for imprecision in the credit risk models used to calculate the allowance.
The methodology used in 2004 refined the process so that this element was calculated for each loan
portfolio grouping. In prior years, this element of the allowance was associated with the loan
portfolio as a whole rather than with a specific loan portfolio grouping. In 2005, the increase in
the amount of allowance for loan losses can be primarily attributed to the 2005 acquisitions and
growth in the core loan portfolio, specifically commercial and commercial real estate. However,
the portion of the allowance for loan losses allocated to premium finance receivables decreased in
2005 as a result of lower historical loss trends. Determination of the allowance is inherently
subjective as it requires significant estimates, including the amounts and timing of expected
future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on
historical loss experience, and consideration of current environmental factors and economic trends,
all of which may be susceptible to significant change. The allowance for unfunded loan commitments
and letters of credit is computed using a methodology similar to that used to determine to
allowance for loan losses. Loan losses are charged off against the allowance, while recoveries are
credited to the allowance. A provision for credit losses is charged to operations based on
management’s periodic evaluation of the factors previously mentioned, as well as other pertinent
factors. Evaluations are conducted at least quarterly and more frequently if deemed necessary.
An analysis of commercial and commercial real estate loans actual loss experience is conducted to
assess reserves established for credits with similar risk characteristics. An allowance is
established for loans on the Problem Loan Report and for pools of loans based on the loan types and
the risk ratings assigned. The Company separately measures the fair value of impaired commercial
and commercial real estate loans using either the present value of expected future cash flows
discounted at the loan’s effective interest rate, the observable market price of the loan, or the
fair value of the collateral if the loan is collateral dependent. All loans subject to impairment
evaluation are included in nonperforming assets. Commercial and commercial real estate loans
continue to represent a larger percentage of the Company’s total loans outstanding. The credit
risk of commercial and commercial real estate loans is largely influenced by the impact on
borrowers of general economic conditions, which can been challenging and uncertain. Historically
low net charge-offs of commercial and commercial real-estate loans may not be indicative of future
charge-off levels. The home equity, residential real estate, consumer and other loan allocations
are based on analysis of historical delinquency and charge-off statistics and trends and the
current economic environment. Allocations for niche loans such as premium finance receivables,
indirect consumer and Tricom finance receivables are based on an analysis of historical delinquency
and charge-off statistics, historical growth trends and historical economic trends.
For analysis and review of the credit loss provision and allowance for loan losses, non-accrual,
past due and restructured loans, other real estate owned, potential problem loans and loan
concentrations, reference is made to the “Credit Risk and Asset Quality” section of the
Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2005
Annual Report to Shareholders filed herewith as Exhibit 13.1, and incorporated herein by reference.
23
Deposits
The following table sets forth the scheduled maturities of time deposits in denominations of
$100,000 or more at December 31, 2005 (in thousands):
| |
|
|
|
|
| |
Maturing within 3 months |
|
$ |
490,638 |
|
After 3 but within 6 months |
|
|
338,417 |
|
After 6 but within 12 months |
|
|
698,003 |
|
After 12 months |
|
|
619,527 |
|
|
|
|
|
Total |
|
$ |
2,146,585 |
|
| |
Return on Equity and Assets
The following table presents certain ratios relating to the Company’s equity and assets as of and
for the years ended December 31:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
| |
|
|
Return on average total assets |
|
|
0.88 |
% |
|
|
0.94 |
% |
|
|
0.93 |
% |
|
|
|
|
Return on average shareholders’equity |
|
|
11.00 |
% |
|
|
13.12 |
% |
|
|
14.36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payout ratio |
|
|
8.7 |
% |
|
|
8.5 |
% |
|
|
8.1 |
% |
|
|
|
|
Average equity to average total assets |
|
|
8.0 |
% |
|
|
7.2 |
% |
|
|
6.4 |
% |
|
|
|
|
Ending total risk based capital ratio |
|
|
11.9 |
% |
|
|
12.2 |
% |
|
|
12.1 |
% |
|
|
|
|
Leverage ratio |
|
|
8.3 |
% |
|
|
8.4 |
% |
|
|
8.9 |
% |
|
|
|
|
| |
24
Short-Term Borrowings
The following table presents details regarding Federal funds purchased and securities sold under
repurchase agreements (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
|
| |
|
|
Balance at year end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
$ |
235 |
|
|
$ |
78,576 |
|
|
$ |
38,800 |
|
|
|
|
|
Securities sold under repurchase agreements |
|
$ |
93,311 |
|
|
$ |
118,669 |
|
|
$ |
26,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted interest rate for amounts outstanding at year end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
|
4.25 |
% |
|
|
2.47 |
% |
|
|
1.27 |
% |
|
|
|
|
Securities sold under repurchase agreements |
|
|
2.61 |
% |
|
|
2.05 |
% |
|
|
0.75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum outstanding at any month end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
$ |
129,150 |
|
|
$ |
78,576 |
|
|
$ |
60,100 |
|
|
|
|
|
Securities sold under repurchase agreements |
|
$ |
232,685 |
|
|
$ |
206,620 |
|
|
$ |
28,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average amount outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
$ |
20,341 |
|
|
$ |
31,567 |
|
|
$ |
16,123 |
|
|
|
|
|
Securities sold under repurchase agreements |
|
$ |
132,233 |
|
|
$ |
83,264 |
|
|
$ |
25,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted daily average interest rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
|
3.42 |
% |
|
|
1.82 |
% |
|
|
1.31 |
% |
|
|
|
|
Securities sold under repurchase agreements |
|
|
2.10 |
% |
|
|
1.25 |
% |
|
|
0.89 |
% |
|
|
|
|
| |
Federal funds purchased and securities sold under repurchase agreements have maturities of six
months or less. Securities sold under repurchase agreements represent short-term borrowings from
brokers as well as sweep accounts in connection with master repurchase agreements at the Banks.
Further information regarding short-term borrowings is contained in Note 14 to the Consolidated
Financial Statements and in the “Analysis of Financial Condition — Deposits and Other Funding
Sources” section of the Management’s Discussion and Analysis of
Financial Condition and Results of Operations in the 2005 Annual Report to Shareholders filed
herewith as Exhibit 13.1, and incorporated herein by reference.
ITEM 1A. Risk Factors
An investment in Wintrust’s common stock is subject to risks inherent to Wintrust’s business. The
material risks and uncertainties that management believes affect Wintrust are described below.
Before making an investment decision, you should carefully consider the risks and uncertainties
described below together with all of the other information included or incorporated by reference in
this report. The risks and uncertainties described below are not the only ones facing Wintrust.
Additional risks and uncertainties that management is not aware of or focused on or that management
currently deems immaterial may also impair Wintrust’s business operations. This report is
qualified in its entirety by these risk factors. If any of the following risks actually occur,
Wintrust’s financial condition and results of operations could be materially and adversely
affected. If this were to happen, the value of Wintrust’s common stock could decline
significantly, and you could lose all or part of your investment.
25
The financial services industry is very competitive.
We face competition in attracting and retaining deposits, making loans, and providing other
financial services (including wealth management services) throughout our market area. Our
competitors include other community banks, larger banking institutions, and a wide range of other
financial institutions such as credit unions, government-sponsored enterprises, mutual fund
companies, insurance companies and other non-bank businesses. Many of these competitors have
substantially greater resources than us. If we are unable to compete effectively, we will lose
market share and income from deposits, loans, and other products may be reduced. The financial
services industry could become even more competitive as a result of legislative, regulatory and
technological changes and continued consolidation. Banks, securities firms and insurance companies
can merge under the umbrella of a financial holding company, which can offer virtually any type of
financial service, including banking, securities underwriting, insurance (both agency and
underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it
possible for non-banks to offer products and services traditionally provided by banks, such as
automatic transfer and automatic payment systems. Wintrust’s ability to compete successfully
depends on a number of factors, including, among other things:
| • |
|
the ability to develop, maintain and build upon long-term customer relationships based on top
quality service and high ethical standards; |
| |
| • |
|
the scope, relevance and pricing of products and
services offered to meet customer needs and demands; |
| |
| • |
|
the rate at which the Company introduces new
products and services relative to its competitors; |
| |
| • |
|
customer satisfaction with the Company’s level
of service; and |
| |
| • |
|
industry and general economic trends. |
Failure to perform in any of these areas could significantly weaken the Company’s competitive
position, which could adversely affect the Company’s growth and profitability, which, in turn,
could have a material adverse effect on the Company’s financial condition and results of
operations.
Wintrust may be adversely affected by interest rate changes.
Wintrust’s interest income and interest expense are affected by general economic conditions and by
the policies of regulatory authorities, including the monetary policies of the Federal Reserve.
Changes in interest rates may influence the growth rate of loans and deposits, the quality of the
loan portfolio, loan and deposit pricing, the volume of loan originations in Wintrust’s mortgage
banking business and the value that Wintrust can recognize on the sale of mortgage loans in the
secondary market. Wintrust expects the results of its mortgage banking business in selling loans
into the secondary market will be impacted during periods of rising interest rates.
With the relatively low interest rates that prevailed over the last three years, Wintrust has been
able to augment the total return of its investment securities portfolio by selling put options and
call options on fixed-income securities it owns. Wintrust recorded fee income of approximately
$11.4 million during 2005, compared to approximately $11.1 million in 2004, from premiums earned on
these option transactions. In a rising interest rate environment, particularly if interest rates
continue to increase, the amount of premium income Wintrust earns on these transactions will likely
decline. Wintrust’s opportunities to sell covered call options may be limited in the future if
rates continue to rise. The loss of such premium income or changes in the growth rate, quality and
pricing of Wintrust’s loan and deposit portfolio caused by changes in interest rates could have a
material adverse effect on Wintrust’s financial condition and
results of operations.
Wintrust is subject to lending risk.
There are inherent risks associated with the Company’s lending activities. Increases in interest
rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay
outstanding loans
26
or the
value of the collateral securing these loans. A significant portion of the Company’s loan
portfolio consisted of commercial and commercial real estate loans. These types of loans are
generally viewed as having more risk of default than residential real estate loans or consumer
loans. These types of loans are also typically larger than residential real estate loans and
consumer loans. Because the Company’s loan portfolio contains a significant number of commercial
and commercial real estate loans, the deterioration of these loans could cause a significant
increase in non-performing loans. An increase in non-performing loans could result in a net loss
of earnings from these loans, an increase in the provision for credit losses and an increase in
loan charge-offs, all of which could have a material adverse effect on the Company’s financial
condition and results of operations.
Wintrust’s allowance for loan losses may prove to be insufficient to absorb losses that may occur
in its loan portfolio.
Wintrust’s allowance for loan losses is established in consultation with management of its
operating subsidiaries and is maintained at a level considered adequate by management to absorb
loan losses that are inherent in the portfolios. At December 31, 2005, Wintrust’s allowance for
loan losses was 153.8% of total nonperforming loans and 0.77% of total loans. The amount of future
losses is susceptible to changes in economic, operating and other conditions, including changes in
interest rates, that may be beyond its control, and such losses may exceed current estimates.
Estimating loan loss allowances for Wintrust’s newer banks is more difficult because rapidly
growing and de novo bank loan portfolios are, by their nature, unseasoned. Therefore, the Banks may
be more susceptible to changes in estimates, and to losses exceeding estimates, than banks with
more seasoned loan portfolios. There can be no assurance that the allowance for loan losses will
prove sufficient to cover actual loan or lease losses in the future, which could result in a
material adverse effect on Wintrust’s financial condition and results of operations.
De novo operations and branch openings impact Wintrust’s profitability.
Wintrust’s financial results have been and will continue to be impacted by its strategy of de novo
bank formations and branch openings. Wintrust expects to undertake additional de novo bank
formations or branch openings. In fact, on December 8, 2005, Wintrust announced plans to open a de
novo bank in the south suburbs of Chicago, and opened the bank in late March 2006. Based on
Wintrust’s experience, its management believes that it generally takes from 13 to 24 months for de
novo banks to first achieve operational profitability, depending on the number of banking
facilities opened, 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. However, it may take longer than expected
or than the amount of time Wintrust has historically experienced for new banks and/or banking
facilities to reach profitability, and there can be no guarantee that these new banks or branches
will ever be profitable. To the extent Wintrust undertakes additional de novo bank, branch and
business formations, its level of reported net income, return on average equity and return on
average assets will be impacted by start-up costs associated with such operations, and it is likely
to continue to experience the effects of higher expenses relative to operating income from the new
operations. These expenses may be higher than Wintrust expected or than its experience has shown,
which could have a material adverse effect on Wintrust’s financial condition and results of
operations.
Wintrust’s premium finance business involves unique operational risks and could expose it to
significant losses.
Of Wintrust’s total loans at December 31, 2005, 15%, or approximately $815 million, were comprised
of commercial insurance premium finance receivables that it generates through FIFC. These loans
involve a different, and possibly higher, level of risk of delinquency or collection than generally
associated with loan portfolios of more traditional community banks because Wintrust conducts
lending in this segment primarily through relationships with a large number of unaffiliated
insurance agents and because the borrowers are located nationwide. FIFC also faces unique
operational and internal control challenges due to the relative-
27
ly rapid turnover of the premium finance loan portfolio and high volume of new loan originations.
As a result, risk management and general supervisory oversight may be more difficult than in the
Banks. FIFC may also be more susceptible to third party fraud. Acts of fraud are difficult to
detect and deter, and Wintrust cannot assure investors that its risk management procedures and
controls will prevent losses from fraudulent activity. For example, in the third quarter of 2000,
FIFC recorded a non-recurring after-tax charge of $2.6 million in connection with a series of
fraudulent loan transactions perpetrated against FIFC by one independent insurance agency located
in Florida. Although Wintrust has since enhanced its internal controls system at FIFC, it may
continue to be exposed to the risk of significant loss in its premium finance business, which could
result in a material adverse effect on Wintrust’s financial condition and results of operations.
Additionally, to the extent that affiliates of insurance carriers, banks, and other lending
institutions add greater service and flexibility to their financing practices in the future, the
Company’s operations could be adversely affected. There can be no assurance that FIFC will be able
to continue to compete successfully in its markets.
Wintrust may not be able to obtain liquidity and income from the sale of premium finance
receivables in the future.
Wintrust has been selling some of the loans FIFC originates to an unrelated third party. Wintrust
has recognized gains on the sales of the receivables, and the proceeds of sales have provided it
with additional liquidity. Consistent with its strategy to be asset driven, Wintrust expects to
pursue similar sales of premium finance receivables in the future; however, it cannot assure you
that there will continue to be a market for the sale of these loans and the extent of Wintrust’s
future sales of these loans will depend on the level of new volume growth in relation to its
capacity to retain the loans within the Banks’ loan portfolios. Because Wintrust has a recourse
obligation to the purchaser of premium finance loans that it sells, it could incur losses in
connection with the loans sold if collections on the underlying loans prove to be insufficient to
repay to the purchaser the principal amount of the loans sold plus interest at the negotiated
buy-rate and if the collection shortfall on the loans sold exceeds Wintrust’s estimate of losses at
the time of sale. An inability to sell premium finance receivables in the future or the failure of
collections on the underlying loans to be sufficient to repay the principal amount of such loans
could result in a material adverse effect on Wintrust’s financial condition and results of
operations.
Wintrust historically has engaged in a large number of acquisitions. Wintrust may not be able to
continue to implement such an acquisition strategy in the future and there are risks associated
with such acquisitions.
In the past several years, Wintrust has completed numerous acquisitions of banks and other
financial service related companies and may continue to make such acquisitions in the future.
Wintrust seeks merger or acquisition partners that are culturally similar and have experienced
management and possess either significant market presence or have potential for improved
profitability through financial management, economies of scale or expanded services. Failure to
successfully identify and complete acquisitions likely will result in Wintrust achieving slower
growth. Acquiring other banks, businesses, or branches involves various risks commonly associated
with acquisitions, including, among other things:
| • |
|
potential exposure to unknown or contingent liabilities or asset quality issues of the target
company (including the pending acquisition of Hinsbrook Bancshares, Inc.); |
| |
| • |
|
difficulty and expense
of integrating the operations and personnel of the target company (including the pending
acquisition of Hinsbrook Bancshares, Inc.); |
| |
| • |
|
potential disruption to Wintrust’s business,
including diversion of Wintrust’s management’s time and attention; |
| |
| • |
|
the possible loss of key
employees and customers of the target company; |
| |
| • |
|
difficulty in estimating the value of the target
company; and |
| |
| • |
|
potential changes in banking or tax laws or regulations that may affect the target
company. |
28
Acquisitions typically involve the payment of a premium over book and market values, and,
therefore, some dilution of Wintrust’s tangible book value and net income per common share may
occur in connection with any future transaction. Furthermore, failure to realize the expected
revenue increases, cost savings, increases in geographic or product presence, and/or other
projected benefits from an acquisition could have a material adverse effect on Wintrust’s financial
condition and results of operations.
Wintrust is subject to extensive government regulation and supervision.
The Company and its subsidiaries are subject to extensive federal and state regulation and
supervision. Regulatory authorities have extensive discretion in their supervisory and enforcement
activities, including the imposition of restrictions on our operations, the classification of our
assets and determination of the level of our allowance for loan losses. These regulations affect
the Company’s lending practices, capital structure, investment practices, dividend policy and
growth, among other things. Changes to statutes, regulations or regulatory policies, including
changes in interpretation or implementation of statutes, regulations or policies, could affect
Wintrust in substantial and unpredictable ways. Failure to comply with laws, regulations or
policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation
damage, which could have a material adverse effect on the Company’s business, financial condition
and results of operations. See the section captioned “Supervision and Regulation” in Item 1.
Business for additional information.
Wintrust’s profitability depends significantly on economic conditions in the state of Illinois.
Wintrust’s success depends primarily on the general economic conditions of the State of Illinois
and the specific local markets in which the Company operates. Unlike larger national or other
regional banks that are more geographically diversified, Wintrust provides banking and financial
services to customers primarily in the greater Chicago and southeast Wisconsin metropolitan areas.
The local economic conditions in these areas have a significant impact on the demand for Wintrust’s
products and services as well as the ability of Wintrust’s customers to repay loans, the value of
the collateral securing loans and the stability of Wintrust’s deposit funding sources.
A significant decline in economic conditions, caused by inflation, recession, acts of terrorism,
outbreak of hostilities or other international or domestic occurrences, unemployment, changes in
securities markets or other factors with impact on these local markets could, in turn, have a
material adverse effect on our financial condition and results of operations.
Wintrust relies on dividends from its subsidiaries for most of its revenue.
Wintrust is a separate and distinct legal entity from its subsidiaries. It receives substantially
all of its revenue from dividends from its subsidiaries. These dividends are the principal source
of funds to pay dividends on the Company’s common stock and interest and principal on its debt.
Various federal and state laws and regulations limit the amount of dividends that the Banks and
certain non-bank subsidiaries may pay to Wintrust. In the event that the Banks are unable to pay
dividends to Wintrust, it may not be able to service debt, pay obligations or pay dividends on the
Company’s common stock. The inability to receive dividends from the Banks could have a material
adverse effect on the Company’s business, financial condition and results of operations. See the
section captioned “Supervision and Regulation” in Item 1. Business for more information.
Consumers may decide not to use banks to complete their financial transactions.
Technology and other changes are allowing parties to complete financial transactions that
historically have involved banks through alternative methods. For example, consumers can now
maintain funds that would have historically been held as bank deposits in brokerage accounts or
mutual funds. Consumers can also complete transactions such as paying bills and transferring funds
directly without the assistance of banks. The process of eliminating banks as intermediaries could
result in the loss of fee income, as well as the loss of customer deposits and the related income
generated from those deposits. The loss of these revenue streams and the lower cost deposits as a
source of funds could have a material adverse effect on the Company’s financial condition and
results of operations.
29
Provisions in Wintrust’s articles of incorporation and by-laws may delay or prevent an acquisition
of Wintrust by a third party.
Wintrust’s articles of incorporation and by-laws contain provisions that make it more difficult for
a third party to gain control or acquire Wintrust without the consent of its board of directors.
These provisions also could discourage proxy contests and may make it more difficult for dissident
shareholders to elect representatives as directors and take other corporate actions. These
provisions of Wintrust’s governing documents may have the effect of delaying, deferring or
preventing a transaction or a change in control that might be in the best interest of Wintrust’s
shareholders.
Wintrust’s future success depends, in part, on its ability to attract and retain experienced and
qualified personnel.
Wintrust believes that its future success depends, in part, on its ability to attract and retain
experienced personnel, including its senior management and other key personnel. The loss of any of
its senior managers or other key personnel, or its inability to identify, recruit and retain such
personnel, could materially and adversely affect Wintrust’s business, operating results and
financial condition.
ITEM
1B. Unresolved Staff Comments
None.
30
ITEM 2. PROPERTIES
The Company’s executive offices are located in the banking facilities of Lake Forest Bank. Certain
corporate functions are also located at the various Bank subsidiaries.
The Company’s Banks operate through 62 banking facilities, the majority of which are owned. The
Company owns 95 Automatic Teller Machines, the majority of which are housed at banking locations.
The banking facilities are located in communities throughout the Chicago metropolitan area and
Southern Wisconsin. The Banks also own two locations that are used as operations centers. Excess
space in certain properties is leased to third parties.
Wayne Hummer Investments, LLC has two locations, one in downtown Chicago and one in Appleton,
Wisconsin, both of which are leased. WestAmerica Mortgage has 23 locations in eleven states, all
of which are leased. First Insurance Funding Corp, Tricom, Inc. and Wintrust Information Technology
Services, each has one location, all of which are owned. In addition, the Company owns other real
estate acquired for further expansion that, when considered in the aggregate, is not material to
the Company’s financial position.
See Note 9 to the Consolidated Financial Statements contained in the 2005 Annual Report to
Shareholders filed herewith as Exhibit 13.1 and incorporated herein by reference.
ITEM
3. LEGAL PROCEEDINGS
The Company and its subsidiaries, from time to time, are subject to pending and threatened legal
action and proceedings arising in the ordinary course of business. Any such litigation currently
pending against the Company or its subsidiaries is incidental to the Company’s business and, based
on information currently available to management, management believes the outcome of such actions
or proceedings will not have a material adverse effect on the operations or financial position of
the Company.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2005.
31
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
The Company’s common stock is traded on The Nasdaq Stock Market under the symbol WTFC. The
following table sets forth the high and low sales prices reported on Nasdaq for the common stock
during 2005 and 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
2005 |
|
2004 |
| |
|
High |
|
Low |
|
High |
|
Low |
| |
|
|
Fourth quarter |
|
$ |
59.63 |
|
|
$ |
48.00 |
|
|
$ |
63.39 |
|
|
$ |
54.33 |
|
Third quarter |
|
$ |
55.50 |
|
|
$ |
49.01 |
|
|
$ |
58.42 |
|
|
$ |
49.82 |
|
Second quarter |
|
$ |
52.93 |
|
|
$ |
45.00 |
|
|
$ |
50.80 |
|
|
$ |
45.18 |
|
First quarter |
|
$ |
57.23 |
|
|
$ |
46.78 |
|
|
$ |
50.44 |
|
|
$ |
41.85 |
|
| |
Approximate Number of Equity Security Holders
As of March 13, 2006 there were approximately 1,649 shareholders of record of the Company’s common
stock.
Dividends on Common Stock
In January 2000, the Company’s Board of Directors approved the first semi-annual cash dividend on
its common stock and has continued to approve a semi-annual dividend since that time.
Following is a summary of the cash dividends paid in 2004 and 2005.
| |
|
|
|
|
| |
| Record Date |
|
Payable Date |
|
Dividend per Share |
February 5, 2004
|
|
February 19, 2004
|
|
$0.10 |
| August 10, 2004
|
|
August 24, 2004
|
|
$0.10 |
| February 8, 2005
|
|
February 22, 2005
|
|
$0.12 |
| August 9, 2005
|
|
August 23, 2005
|
|
$0.12 |
| |
|
|
|
|
In January 2006, the Company’s Board of Directors approved a 17% increase in its semi-annual
dividend to $0.14 per share. The dividend was paid on February 23, 2006 to shareholders of record
as of February 9, 2006.
The final determination of timing, amount and payment of dividends is at the discretion of the
Company’s Board of Directors and will depend upon the Company’s earnings, financial condition,
capital requirements and other relevant factors. Additionally, the payment of dividends is also
subject to statutory restrictions and restrictions arising under the terms of the Company’s Trust
Preferred Securities offerings and under certain financial covenants in the Company’s revolving
line of credit.
Because the Company’s consolidated net income consists largely of net income of the Banks,
WestAmerica, FIFC, Tricom, WHTC and the Wayne Hummer Companies, the Company’s ability to pay
dividends depends upon its receipt of dividends from these entities. The Banks’ability to pay
dividends is regulated by banking statutes. See
“Financial Institution Regulation Generally — Dividends” on page 12 of this Form 10-K. During 2005,
2004 and 2003, the Banks paid $45.1 million and $25.5 million and $5.5 million, respective-
32
ly, in dividends to the Company. De novo banks are prohibited from paying dividends during their
first three years of operations. As of January 1, 2006, Beverly Bank, which began operations in
April 2004, was subject to this additional dividend restriction. Its de novo period will end in
April 2007.
Reference is made to Note 19 to the Consolidated Financial Statements and “Liquidity and Capital
Resources” contained in the 2005 Annual Report to Shareholders, attached hereto as Exhibit 13.1,
which are incorporated herein by reference, for a description of the restrictions on the ability of
certain subsidiaries to transfer funds to the Company in the form of dividends.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
The Company’s Board of Directors approved the repurchase of up to an aggregate of 450,000 shares of
its common stock pursuant to the repurchase agreement that was publicly announced on January 27,
2000 (the “Program”). Unless terminated earlier by the Company’s Board of Directors, the Program
will expire when the Company has repurchased all shares authorized for repurchase thereunder. No
shares were repurchased in the fourth quarter of 2005. As of December 31, 2005, 85,950 shares may
yet be repurchased under the Program.
ITEM 6. SELECTED FINANCIAL DATA
Certain information required in response to this item is contained in the 2005 Annual Report to
Shareholders under the caption “Selected Financial Highlights” and is incorporated herein by
reference.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required in response to this item is contained in the 2005 Annual Report to
Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and
Results of Operations”, which is incorporated herein by reference. This discussion and analysis of
financial condition and results of operations should be read in conjunction with the Consolidated
Financial Statements and notes thereto contained in the 2005 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Certain information required in response to this item is contained in the 2005 Annual Report to
Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Asset-Liability Management,” which is incorporated herein by reference.
That information should be read in conjunction with the complete Consolidated Financial Statements
and notes thereto also included in the 2005 Annual Report to Shareholders.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this item is contained in the 2005 Annual Report to
Shareholders under the caption “Consolidated Financial Statements,” and is incorporated herein by
reference. Also, refer to Item 15 of this Report for the Index to Financial Statements.
33
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company made no changes in or had any disagreements with its independent accountants during the
two most recent fiscal years or any subsequent interim period.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management of the Company, under the
supervision and with the participation of the Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934. Based upon, and as of the date of that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures
were effective, in ensuring material information relating to the Company (and its consolidated
subsidiaries) required to be included in this Annual Report on Form 10-K was recorded, processed,
summarized and reported on a timely manner.
Internal Control Over Financial Reporting
Management’s responsibilities relating to establishing and maintaining effective disclosure
controls and procedures include establishing and maintaining effective internal control over
financial reporting that is designed to produce reliable financial statements in accordance with
accounting principles generally accepted in the United States. As disclosed in the Report on
Management’s Assessment of Internal Control Over Financial Reporting, on page 28 of the Company’s
Annual Report, which is included as Exhibit 13.1, management assessed the Company’s system of
internal control over financial reporting as of December 31, 2005, in relation to criteria for the
effective internal control
over financial reporting as described in “Internal Control — Integrated Framework,” issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes that, as of December 31, 2005, the Company’s system of internal control over
financial reporting met those criteria and is effective.
Management’s assessment of the effectiveness of internal control over financial reporting as of
December 31, 2005, has been audited by Ernst & Young, LLP, an independent registered public
accounting firm, as stated in their report which appears on page 29 of the Company’s Annual Report
which is included herein as Exhibit 13.1.
There were no changes in the Company’s internal control over financial reporting that occurred
during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item will be contained in the Company’s Proxy
Statement for its Annual Meeting of Shareholders to be held May 25, 2006 under the captions
“Election of Directors,” “Executive Officers of the Company,” “Board of Directors’ Committees,
Governance and Compensation” and “Section 16(a) Beneficial Ownership Reporting Compliance” and is
incorporated herein by reference.
The Company has adopted a Corporate Code of Ethics which complies with the rules of the SEC and the
listing standards of the Nasdaq National Market. The code applies to all of the Company’s
directors, officers and employees and is attached hereto as Exhibit 14.1 and posted on the
Company’s website (www.win-trust.com). The Company will post on its website any amendments to, or
waivers from, its Corporate Code of Ethics as the code applies to its directors or executive
officers.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item will be contained in the Company’s Proxy
Statement under the caption “Executive Compensation” and is incorporated herein by reference.
35
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners and management is
incorporated by reference to the section “Security Ownership of Certain Beneficial Owners and
Management” that will be included in the Company’s Proxy Statement.
The following table summarizes information as of December 31, 2005, relating to equity compensation
plans of the Company pursuant to which common stock is authorized for issuance:
Equity Compensation Plan Information
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
Number of |
|
|
|
|
|
Number of securities |
|
|
|
|
| |
|
securities to be |
|
|
|
|
|
remaining available |
|
|
|
|
| |
|
issued upon |
|
Weighted-average |
|
for future issuance |
|
|
|
|
| |
|
exercise of |
|
exercise price of |
|
under equity compensation |
|
|
|
|
| |
|
outstanding options, |
|
outstanding options, |
|
plans (excluding securities |
|
|
|
|
|
|
warrants and rights |
|
warrants and rights |
|
reflected in column (a)) |
|
|
|
|
| Plan category |
|
(a) |
|
(b) |
|
(c) |
|
|
|
|
| |
|
|
|
|
Equity compensation plans
approved by security holders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
• WTFC 1997 Stock Incentive Plan, as amended |
|
|
3,063,654 |
|
|
$ |
27.83 |
|
|
|
379,286 |
|
|
|
|
|
• WTFC Employee Stock Purchase Plan |
|
|
N/A |
|
|
|
N/A |
|
|
|
203,105 |
|
|
|
|
|
• WTFC Directors Deferred Fee and Stock Plan |
|
|
N/A |
|
|
|
N/A |
|
|
|
203,544 |
|
|
|
|
|
| |
|
|
|
|
|
3,063,654 |
|
|
$ |
27.83 |
|
|
|
785,935 |
|
|
|
|
|
| |
|
|
Equity compensation plans
not approved by security holders
(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
• N/A |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
| |
|
|
Total (1) |
|
|
3,063,654 |
|
|
$ |
27.83 |
|
|
|
785,935 |
|
|
|
|
|
| |
|
|
|
|
|
| (1) |
|
Excludes 161,985 shares of the Company’s common stock issuable pursuant to the exercise of options previously granted under the plans of
Advantage National Bancorp, Inc., Village Bancorp, Inc., Northview Financial Corporation, Town Bankshares, Ltd and First Northwest
Bancorp, Inc. The weighted average exercise price of those options is $25.84. No additional awards will be made under these plans. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item will be contained in the Company’s Proxy
Statement under the sub-caption “Transactions with Management and Others” and is incorporated
herein by reference.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required in response to this item will be contained in the Company’s Proxy
Statement under the caption “Independent Auditor and Fees Paid” and is incorporated herein by
reference.
36
PART IV
ITEM
15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES
| (a) |
|
Documents filed as part of this Report: |
1.,
2. Financial Statements and Schedules
The following financial statements of Wintrust Financial Corporation, incorporated herein
by reference to the 2005 Annual Report to Shareholders filed as Exhibit 13.1, are filed as
part of this document pursuant to Item 8, Financial Statements and Supplementary Data:
Consolidated
Statements of Condition as of December 31, 2005 and 2004
Consolidated
Statements of Income for the Years Ended December 31, 2005, 2004 and 2003
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31,
2005, 2004 and 2003
Consolidated Statements of Cash Flows for the Years Ended December 31,
2005, 2004 and 2003
Notes to Consolidated Financial Statements
Report of Independent
Registered Public Accounting Firm
Financial statement schedules have been omitted as they are not applicable or the required
information is shown in the Consolidated Financial Statements or notes thereto.
3. Exhibits (Exhibits marked with a “*” denote management contracts or compensatory plans or
arrangements)
| |
|
|
3.1
|
|
Amended and Restated Articles of Incorporation of Wintrust Financial Corporation (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q for the quarter ended June 30,
2005). |
|
|
|
3.2
|
|
Articles of Amendment of Amended and Restated Articles of Incorporation of Wintrust
Financial Corporation (incorporated by reference to Exhibit 3.2 of the Company’s Form
10-Q for the quarter ended June 30, 2005). |
|
|
|
3.3
|
|
Statement of Resolution
Establishing Series of Junior Serial Preferred Stock A of
Wintrust Financial Corporation (incorporated by reference to Exhibit 3.2 of the Company’s
Form 10-K for the year ended December 31, 1998). |
|
|
|
3.4
|
|
Amended and Restated By-laws of Wintrust Financial Corporation (incorporated by reference
to Exhibit 3.3 of the Company’s
Form 8-K filed with the Securities and Exchange
Commission on January 5, 2006) |
|
|
|
4.1
|
|
Certain instruments defining the rights of the holders of long-term debt of the Corporation
and certain of its subsidiaries, none of which authorize a total amount of indebtedness in
excess of 10% of the total assets of the Corporation and its subsidiaries on a consolidated
basis, have not been filed as Exhibits. The Corporation hereby agrees to furnish a copy of
any of these agreements to the Commission upon request. |
37
| |
|
|
10.1
|
|
Junior Subordinated Indenture dated as of August 2, 2005, between Wintrust Financial
Corporation and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit
10.1 of the Company’s Form 8-K filed with the Securities and Exchange Commission on
August 4, 2005). |
|
|
|
10.2
|
|
Amended and Restated Trust Agreement, dated as of August 2, 2005, among Wintrust
Financial Corporation, as depositor, Wilmington Trust Company, as property trustee and
Delaware trustee, and the Administrative Trustees listed therein (incorporated by reference to
Exhibit 10.2 of the Company’s Form 8-K filed with the Securities and Exchange Commission
on August 4, 2005). |
|
|
|
10.3
|
|
Guarantee Agreement, dated as of August 2, 2005, between Wintrust Financial Corporation,
as Guarantor, and Wilmington Trust Company, as trustee (incorporated by reference to
Exhibit 10.3 of the Company’s Form 8-K filed with the Securities and Exchange Commission
on August 4, 2005) |
|
|
|
10.4
|
|
Amended and Restated Loan Agreement ($75 million) between Wintrust Financial
Corporation and LaSalle Bank National Association, dated October 29, 2002 (incorporated by
reference to Exhibit 10.9 of the Company’s Form 10-K for the year ending December 31,
2002). |
|
|
|
10.5
|
|
Credit Agreement, dated as of November 1, 2005, among Wintrust Financial Corporation, the
various financial institutions party thereto and LaSalle Bank National Association, as
Administrative Agent (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K
filed with the Securities and Exchange Commission on December 15, 2005). |
|
|
|
10.6
|
|
$25 million Subordinated Note between Wintrust Financial Corporation and LaSalle Bank
National Association, dated October 29, 2002 (incorporated by reference to Exhibit 10.9 of
the Company’s Form 10-K for the year ending December 31, 2002). |
|
|
|
10.7
|
|
Amendment and Allonge made as of June 7, 2005 to that certain $25 million Subordinated
Note dated October 29, 2002 executed by Wintrust Financial Corporation in favor of LaSalle
Bank National Association (incorporated by reference to Exhibit 10.1 of the Company’s Form
8-K filed with the Securities and Exchange Commission on August 5, 2005). |
|
|
|
10.8
|
|
$25 million Subordinated Note between Wintrust Financial Corporation and LaSalle Bank
National Association, dated April 30, 2003 (incorporated by reference to Exhibit 10.1 of the
Company’s Form 10-Q for the quarter ending June 30, 2003). |
|
|
|
10.9
|
|
Amendment and Allonge made as of June 7, 2005 to that certain $25 million Subordinated
Note dated April 30, 2003 executed by Wintrust Financial Corporation in favor of LaSalle
Bank National Association (incorporated by reference to Exhibit 10.2 of the Company’s Form
8-K filed with the Securities and Exchange Commission on August 5, 2005). |
|
|
|
10.10
|
|
$25.0 million Subordinated Note between Wintrust Financial Corporation and LaSalle Bank,
National Association, dated October 25, 2005 (incorporated by reference to Exhibit 10.1 of
the Company’s Form 8-K filed with the Securities and Exchange Commission on October 28,
2005). |
38
| |
|
|
10.11
|
|
Amended and Restated $1.0 million Note between Wintrust Financial Corporation and
LaSalle Bank, National Association, dated as of May 29, 2005, executed August 26, 2005
(incorporated by reference to Exhibit 10.8 of the Company’s Form 10-Q for the quarter ending September 30, 2005). |
|
|
|
10.12
|
|
$50.0 million Revolving Note between Wintrust Financial Corporation and LaSalle Bank,
National Association, dated as of July 20, 2005, executed August 26, 2005 (incorporated by
reference to Exhibit 10.9 of the Company’s Form 10-Q for the quarter ending September 30,
2005). |
|
|
|
10.13
|
|
Amended and Restated Pledge and Security Agreement dated as of May 29, 2005, executed
August 26, 2005, between Wintrust Financial Corporation and LaSalle Bank, National
Association (incorporated by reference to Exhibit 10.10 of the
Company’s Form 10-Q for the
quarter ending September 30, 2005). |
|
|
|
10.14
|
|
Amended and Restated Collateral Safekeeping Agreement dated as of May 29, 2005, executed August 26, 2005, among Wintrust Financial Corporation, LaSalle Bank, National
Association and Standard Federal Bank, N.A. (incorporated by reference to Exhibit 10.11 of
the Company’s Form 10-Q for the quarter ending September 30, 2005). |
|
|
|
10.15
|
|
Amended and Restated Confirmation, dated as of December 14, 2005, between Wintrust
Financial Corporation and RBC Capital Markets Corporation as agent for Royal Bank of
Canada (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 16, 2005). |
|
|
|
10.21
|
|
Form of Wintrust Financial Corporation Warrant Agreement (incorporated by reference to
Exhibit 10.29 to Amendment No. 1 to Registrant’s Form S 4 Registration Statement (No. 333-
4645), filed with the Securities and Exchange Commission on July 22, 1996). * |
|
|
|
10.22
|
|
Form of Employment Agreement entered into between the Company and Edward J.
Wehmer, President and Chief Executive Officer. The Company entered into
Employment Agreements with David A. Dykstra, Senior Executive Vice President and Chief
Operating Officer and Richard B. Murphy, Executive Vice President and Chief Credit Officer
during 2005 in substantially identical form to this exhibit (incorporated by reference to
Exhibit of the Company’s Form 10-K for the year ending December 31, 2004). * |
|
|
|
10.23
|
|
Form of Employment Agreement entered into between the Company and David L. Stoehr,
Executive Vice President and Chief Financial Officer. The Company entered into an
Employment Agreement with Robert F. Key, Executive Vice President/Marketing, during
2005 in substantially identical form to this exhibit (incorporated by reference to Exhibit 10.23
of the Company’s Form 10-K for the year ending December 31, 2004). * |
|
|
|
10.26
|
|
Wintrust Financial Corporation 1997 Stock Incentive Plan (incorporated by reference to
Appendix A of the Proxy Statement relating to the May 22, 1997 Annual Meeting of
Shareholders of the Company). * |
39
| |
|
|
10.27
|
|
First Amendment to Wintrust Financial Corporation 1997 Stock Incentive Plan (incorporated
by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ended June 30,
2000). * |
|
|
|
10.28
|
|
Second Amendment to Wintrust Financial Corporation 1997 Stock Incentive Plan adopted by
the Board of Directors on January 24, 2002 (incorporated by reference to Exhibit 99.3 of
Form S-8 filed July 1, 2004.)* |
|
|
|
10.29
|
|
Third Amendment to Wintrust Financial Corporation 1997 Stock Incentive Plan adopted by
the Board of Directors on May 27, 2004 (incorporated by
reference to Exhibit 99.4 of Form S-8 filed July 1, 2004.)* |
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10.30
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Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.30
of the Company’s Form 10-K for the year ending December 31, 2004).* |
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10.31
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Form of Restricted Stock Award (incorporated by reference to Exhibit 10.31 of the
Company’s Form 10-K for the year ending December 31, 2004). * |
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10.32
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Wintrust Financial Corporation Employee Stock Purchase Plan (incorporated by reference to
Appendix B of the Proxy Statement relating to the May 22, 1997 Annual Meeting of
Shareholders of the Company). * |
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10.33
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Wintrust Financial Corporation Directors Deferred Fee and Stock Plan (incorporated by reference to Appendix B of the Proxy Statement relating to the May 24, 2001 Annual Meeting
of Shareholders of the Company). * |
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12.1
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Computation of Ratio of Earnings to Fixed Charges. |
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13.1
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2005 Annual Report to Shareholders. |
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14.1
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Code of Ethics |
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21.1
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Subsidiaries of the Registrant. |
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23.1
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Consent of Independent Auditors. |
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
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31.2
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Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
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32.1
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Certification Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
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Edward J. Wehmer
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/s/ EDWARD J. WEHMER
President and Chief Executive Officer
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March 31, 2006 |
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David L. Stoehr
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/s/ DAVID L. STOEHR
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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March 31, 2006 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
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John S. Lillard
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/s/ JOHN S. LILLARD
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March 31, 2006 |
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Chairman of the Board of Directors |
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Edward J. Wehmer
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/s/ EDWARD J. WEHMER
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March 31, 2006 |
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President and CEO and Director |
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Allan E. Bulley, Jr.
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/s/ ALLAN E. BULLEY, JR.
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March 31, 2006 |
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Director |
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Peter D. Crist
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/s/ PETER D. CRIST
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March 31, 2006 |
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Director |
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41
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Bruce K. Crowther
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/s/ BRUCE K. CROWTHER
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March 31, 2006 |
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Director |
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Joseph F. Damico
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/s/ JOSEPH F. DAMICO
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March 31, 2006 |
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Director |
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Bert A. Getz, Jr.
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/s/ BERT A. GETZ, JR.
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March 31, 2006 |
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Director |
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James B. McCarthy
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/s/ JAMES B. MCCARTHY
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March 31, 2006 |
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Director |
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Albin F. Moschner
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/s/ ALBIN F. MOSCHNER
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March 31, 2006 |
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Director |
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Thomas J. Neis
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/s/ THOMAS J. NEIS
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March 31, 2006 |
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Director |
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Hollis W. Rademacher
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/s/ HOLLIS W. RADEMACHER
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March 31, 2006 |
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Director |
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J. Christopher Reyes
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/s/ J. CHRISTOPHER REYES
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March 31, 2006 |
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Director |
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John J. Schornack
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/s/ JOHN J. SCHORNACK
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March 31, 2006 |
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Director |
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Ingrid S. Stafford
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/s/ INGRID S. STAFFORD
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March 31, 2006 |
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Director |
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42