e10vk
2007Weathering the Perfect Banking Storm
What Can Wintrust Do?
Treasury Management
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Retail & Wholesale Lockbox |
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On-Line Lockbox (iBusinessPay) |
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On-Line Banking & Reporting (iBusinessBanking) |
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Remote Deposit Capture (iBusinessCapture) |
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Merchant Card Program |
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Payroll Services (CheckMate) |
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ACH & Wire Transfer Services |
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International Banking Services |
Commercial Lending
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Lending limit of greater than $180 million |
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Commercial & Industrial (Asset Based) Lending |
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Commercial Real Estate, Mortgages & Construction |
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Lines of Credit |
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Letters of Credit |
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Property & Casualty Insurance Premium Financing |
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Life Insurance Financing |
Retail Banking
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Footprint of 15 chartered banks and 77 facilities |
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Deposit Products |
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Home Equity and Installment Loans |
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Residential Mortgages |
Wealth Management
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Asset Management (Individual & Institutional) |
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Financial Planning |
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Brokerage |
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Retirement Plans (Business) |
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Trust & Estate Services (Corporate & Personal) |
Specialized Financial Services for:
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Aircraft Owners |
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Building Management Companies |
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Condominium & Homeowner Associations |
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Insurance Agents & Brokers |
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Municipalities & School Districts |
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Physicians, Dentists and other medical personnel |
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Temporary Staffing & Security Companies |
Contents
We have always had a policy of presenting our goals, objectives and financial results in an up
front manner to our shareholders. In this annual report, we are confirming our policy of reporting
thoroughly the financial results, accounting policies and objectives of Wintrust Financial
Corporation and our operating subsidiaries.
Selected Financial Trends
Note: M=Million
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2
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Wintrust Financial Corporation |
Selected Financial Highlights
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Years Ended December 31, |
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2007 |
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2006 |
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2005 |
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2004 |
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2003 |
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(dollars in thousands, except per share data) |
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Selected Financial Condition Data
(at end of year): |
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Total assets |
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$ |
9,368,859 |
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$ |
9,571,852 |
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$ |
8,177,042 |
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$ |
6,419,048 |
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$ |
4,747,398 |
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Total loans |
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6,801,602 |
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6,496,480 |
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5,213,871 |
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4,348,346 |
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3,297,794 |
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Total deposits |
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7,471,441 |
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7,869,240 |
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6,729,434 |
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5,104,734 |
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3,876,621 |
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Notes payable |
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60,700 |
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12,750 |
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1,000 |
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1,000 |
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26,000 |
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Federal Home Loan Bank advances |
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415,183 |
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325,531 |
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349,317 |
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303,501 |
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144,026 |
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Subordinated notes |
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75,000 |
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75,000 |
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50,000 |
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50,000 |
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50,000 |
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Junior subordinated debentures |
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249,662 |
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249,828 |
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230,458 |
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204,489 |
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96,811 |
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Total shareholders equity |
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739,555 |
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773,346 |
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627,911 |
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473,912 |
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349,837 |
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Selected Statements of Operations Data: |
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Net interest income |
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$ |
261,550 |
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$ |
248,886 |
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$ |
216,759 |
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$ |
157,824 |
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$ |
120,492 |
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Net revenue
(1) |
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341,638 |
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340,118 |
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310,316 |
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243,276 |
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193,084 |
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Net income |
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55,653 |
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66,493 |
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67,016 |
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51,334 |
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38,118 |
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Net income per common share Basic |
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2.31 |
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2.66 |
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2.89 |
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2.49 |
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2.11 |
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Net income per common share Diluted |
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2.24 |
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2.56 |
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2.75 |
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2.34 |
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1.98 |
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Cash dividends declared per common share |
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0.32 |
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0.28 |
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0.24 |
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0.20 |
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0.16 |
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Selected Financial Ratios and Other Data: |
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Performance Ratios: |
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Net interest margin |
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3.11 |
% |
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3.10 |
% |
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3.16 |
% |
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3.17 |
% |
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3.20 |
% |
Core net interest margin(2) |
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3.38 |
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3.32 |
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3.37 |
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3.31 |
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3.32 |
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Non-interest income to average assets |
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0.85 |
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1.02 |
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1.23 |
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1.57 |
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1.76 |
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Non-interest expense to average assets |
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2.57 |
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2.56 |
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2.62 |
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2.86 |
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2.98 |
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Net overhead ratio (3) |
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1.72 |
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1.54 |
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1.39 |
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1.30 |
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1.22 |
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Efficiency ratio (4) |
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71.06 |
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66.96 |
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63.97 |
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64.45 |
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63.52 |
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Return on average assets |
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0.59 |
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0.74 |
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0.88 |
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0.94 |
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0.93 |
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Return on average equity |
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7.64 |
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9.47 |
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11.00 |
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13.12 |
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14.36 |
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Average total assets |
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$ |
9,442,277 |
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$ |
8,925,557 |
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$ |
7,587,602 |
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$ |
5,451,527 |
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$ |
4,116,618 |
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Average total shareholders equity |
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727,972 |
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701,794 |
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609,167 |
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391,335 |
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265,495 |
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Ending loan-to-deposit ratio |
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91.0 |
% |
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82.6 |
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77.5 |
% |
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85.2 |
% |
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85.1 |
% |
Average loans to average deposits ratio |
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90.1 |
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82.2 |
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83.4 |
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87.7 |
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86.4 |
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Average interest earning assets to
average interest bearing liabilities |
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106.93 |
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107.78 |
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108.83 |
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109.89 |
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109.68 |
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Asset Quality Ratios: |
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Non-performing loans to total loans |
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1.06 |
% |
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0.57 |
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0.50 |
% |
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0.43 |
% |
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0.72 |
% |
Non-performing assets to total assets |
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0.81 |
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0.39 |
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0.34 |
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0.29 |
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0.51 |
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Allowance for credit losses(5) to: |
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Total loans |
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0.75 |
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0.72 |
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0.78 |
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0.79 |
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0.77 |
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Non-performing loans |
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70.81 |
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126.14 |
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155.69 |
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184.13 |
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107.59 |
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Common Share Data at end of year: |
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Market price per common share |
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$ |
33.13 |
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$ |
48.02 |
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$ |
54.90 |
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$ |
56.96 |
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$ |
45.10 |
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Book value per common share |
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$ |
31.56 |
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$ |
30.38 |
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$ |
26.23 |
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$ |
21.81 |
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$ |
17.43 |
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Common shares outstanding |
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23,430,490 |
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25,457,935 |
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23,940,744 |
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21,728,548 |
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20,066,265 |
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Other Data at end of year: |
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Number of: |
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Bank subsidiaries |
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15 |
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15 |
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13 |
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12 |
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9 |
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Non-bank subsidiaries |
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8 |
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8 |
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10 |
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10 |
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7 |
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Banking offices |
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77 |
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73 |
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62 |
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50 |
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36 |
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(1) |
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Net revenue is net interest income plus non-interest income. |
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(2) |
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The core net interest margin excludes the effect of the net interest expense associated with the Companys junior
subordinated debentures and the interest expense incurred to fund common stock repurchases. |
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The net overhead ratio is calculated by netting total non-interest expense and total non-interest income and
dividing by that periods total average assets. A lower ratio indicates a higher degree of efficiency. |
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The efficiency ratio is calculated by dividing total non-interest expense by tax-equivalent net
revenues (less securities gains or losses). A lower ratio indicates more efficient revenue generation. |
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(5) |
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The allowance for credit losses includes both the allowance for loan losses and the allowance for lending-related commitments. |
To Our Fellow Shareholders
Welcome to Wintrust Financial Corporations 2007
annual report. We thank you for being a shareholder.
Market Headwinds
For the first 14 years of Wintrusts
existence, our community bank philosophy and related
customer service levels produced a company that enjoyed
growth rates substantially above industry standards.
We committed the capital and a lot of hard work to take
advantage of a banking industry that seemed to be
turning its back on providing good old fashioned
customer service. However, in 2007, management decided
to temporarily suspend historical growth patterns due
to a number of environmental factors that limited profitable growth.
As we noted in our 2006 Annual Report, the banking
environment was characterized by a disadvantageous
inverted yield curve, a loosened lending environment
devoid of credit spreads and substantial market
liquidity. This resulted in intense price competition.
In essence, profitable growth at acceptable risk
levels was taken away a tough occurrence for all banks
but especially a growth - oriented bank such as ours. It
also seemed apparent that a negative credit cycle
was soon to be upon us as we continued to see loan
deals get done by many different competitors with what
we considered unacceptable underwriting terms.
This seems to be the perfect storm that formed
throughout the past two years in the banking and
financial services industry. The environment has
produced strong headwinds for almost everyone in the
banking sector.
Our Response and Strategies in Place
Our response to the unfavorable
environment was to stay committed to our
core loan underwriting standards and not
sacrifice our asset quality or pricing
standards simply to grow outstanding
loan balances and short-term profits.
Our sincere belief is that if a bank
forsakes credit quality in the short
run, it will ultimately give back all of
the short-term profits many times over
in the form of credit losses down the
road. Accordingly, since the
marketplace was not allowing for
profitable growth within acceptable risk
parameters, we made a conscious
decision to not commit the Companys
capital to growth that did not produce
acceptable returns. Rather, we decided
to allocate our capital to growing our
younger banks and actually shrinking the
larger banks by allowing high cost
non-core customer relationships to exit.
By slowing the growth, we were able to
use excess capital to repurchase common
stock an investment that we think was
sound given the alternatives.
Just as it may take sailors slightly longer to get to
their destination when facing headwinds, we have not
sacrificed our long-term growth for short-term profit
strategies. We believe that we are sitting in an
advantageous spot due to our strategic measures taken
during 2007. We maintained our strict adherence to our
high core loan underwriting standards, focused more
heavily on deposit pricing discipline, worked to
shift our deposit mix to be less dependent on higher
cost fixed-rate certificates of deposit (CDs), and focused more on expense control.
We say we believe we are in an advantageous spot
because we think that those banks that stayed true to
their credit underwriting standards over the past few
years will not be burdened by troubled loan portfolios
going forward. We think we are one of those banks who have
kept our powder dry to fight the ongoing battle and take advantage of future opportunities.
Wintrust is now positioned to resume its
previously successful growth strategies. We believe that 2008
will be a year of opportunities on the lending side of
the business as many banks are fighting credit issues.
Market liquidity has dried up to a certain extent and
there has been much disruption in Chicago banking due
to several local bank acquisitions.
In fact, at year-end 2007, our loan-to-deposit ratio
was north of 90% making us asset driven again. Being
asset driven allows us to get more aggressive on
growing the franchise while also allowing for the sale
of excess asset generation to take place thereby
augmenting income.
Make no mistake, our overall core
strategies have remained the same over
the years except for this temporary
change in tactics. It is our hope that
when this credit cycle is over, our
investments in the Companys core
strategies
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Wintrust Financial Corporation |
will payoff over the long term with a greater base to
generate earnings and increased franchise value to shareholders. We have a resolute interest
in growing earnings and our balance sheet for all of our franchises but only if we can do
so in a safe and sound manner.
Credit Back to Normal
We believe our consistent underwriting standards
are geared towards incurring credit losses in the range
of 20-30 basis points of average loans which was
generally our history from 1991 to 2003. The last few
years have been extraordinarily good from a credit loss
perspective and our loss ratios have been below the
expected range. However, as we have indicated before,
we believe the current credit cycle may result in loss
ratios closer to pre-2004 levels. In providing you
with our best estimates, we are keenly aware that these
are uncertain times and no one is larger than the
market. The banking business is one where we take
measured risks every day through investments in loans
and other earning assets. The key is to control the
risk and get paid an appropriate amount for taking such
risk. We truly believe that we have always maintained
consistent underwriting standards that should control
risk and limit losses to acceptable levels.
Mortgage Market Turmoil How
We Weathered the Storm
Surely you have all heard or read about the huge
problems experienced by the mortgage industry as a
whole in 2007. During 2007, our Company originated in
excess of
$1.9 billion of mortgage loans. We sell the majority
of those long-term fixed rate loans to the secondary
market in order to reduce interest rate risk. As a
condition to selling those loans, we generally retain
certain recourse obligations in the event of early
payment defaults, misrepresentation of warranties and
other matters. As a result of the rapid change in the
dynamics of the marketplace, we recorded losses
related to those recourse obligations and valuations of
mortgages held for sale of approximately $4 million,
after-tax. To put this into perspective, this is only
about one quarter of one percent of the amount of loans
originated. Although we are obviously not pleased with
any loss, we do believe it was relatively
insignificant compared to the total amount originated
during the year. However, we have revised our
underwriting standards to limit the exposure to this
type of loss in the future. Separately, we are
optimistic about the mortgage market in 2008. The
lower rate environment that we are currently
experiencing should drive more origination volume from
customers refinancing their existing mortgages. We
continue to add mortgage personnel throughout our
banking locations which should help increase mortgage
loan production during 2008.
Net Interest Margin Challenges
The Companys net interest margin remained stable in
2007, with an actual uptick of one basis point to
3.11%. Our core net interest margin, which excludes
interest expense associated with Wintrusts junior subordinated debentures and the interest
expense incurred to fund common stock repurchases,
increased six basis points to 3.38%.
The interest margin challenges faced by all banks
in 2007 are well known: loan pricing pressures, rate
cuts by the Federal Reserve and a yield curve not
quite recovered from its recent inversion. However,
the Company took necessary steps to lower its cost of
funds with better deposit pricing discipline and
rebalancing its deposit mix from higher cost fixed-rate savings
vehicles such as CDs to lower rate savings vehicles
like money market, savings and NOW accounts. At the
same time, industry underwriting and lending terms
appear to be returning to the norm. The return of
credit spreads and sound underwriting standards in the
industry should allow us to better compete on a variety
of lending opportunities, while still allowing us to be
compensated for our time and risk. However, despite
some of these encouraging signs, progress made could
very well be offset by the margin compression caused by
continued rate cuts by the Federal Reserve Bank.
Repurchasing Shares
of Common Stock
Beginning in the
later half of 2006,
the Company began to
repurchase its common
shares under plans
approved by the Board
of Directors. Given
declining stock price
multiples in the
banking sector and
our decision to slow
growth due to
unacceptable market
conditions, we
thought the
repurchase of our
shares was a sound
investment. In total,
since the July 2006
Board authorization,
we have repurchased
approximately 2.8
million shares at an
average price under
$43 per share.
Accordingly,
approximately 11% of
the common shares of
the Company have been
repurchased.
In January 2008, the Company authorized the repurchase
of up to another one million shares of our common stock.
Our decision to continue our share repurchase program
demonstrates the Companys confidence in its long-term
growth and commitment towards building shareholder
value. Going forward, we will be selective in
repurchasing shares while monitoring growth during the
year and making sure we maintain sufficient capital to
support growth opportunities.
Our Newest Addition to the Family
On November 1, 2007, the Company announced the
completion of its acquisition of 100% of the ownership
interests of Broadway Premium Funding Corporation
(Broadway). Broadway was founded in 1999 and had
approximately $60 million of premium finance
receivables outstanding at the date of acquisition.
Broadway provides financing for commercial property,
casualty and professional insurance premiums, mainly
through insurance agents and brokers in the
northeastern portion of the United States and
California. Broadway, now a subsidiary of the Companys
FIRST Insurance Funding (FIRST) premium finance unit,
expands the footprint of our commercial premium finance
receivables niche and serves a segment of small- to
mid-sized businesses not previously covered by FIRST.
We welcome the Broadway team to the Wintrust family and
are excited about the growth opportunities that exist
in their niche of the premium finance market.
The Big Banks and Merger Mania
Over the course of 2007, there were a
couple of highly publicized bank mergers
that affected the markets where our
current banks compete. This creates a beneficial environment for the Company as
mergers and
acquisitions set money in motion. Suddenly, a client that used to be a big
fish in a small pond at one of the acquired institutions sees the pond increase in size comparable to an ocean.
Wintrust is
uniquely
positioned to
capture not only
retail customers,
but new
commercial clients as
well. Our philosophy of providing the same or
better big bank products, coupled with community bank
service we are known for, is ideal for this
opportunity. We get back to our bread-and-butter and
key differentiator, allowing us to position ourselves
as having the best customer service around.
As a result, we have gone on the offensive and begun to
use the Wintrust brand for the first time in the
commercial banking landscape. This includes
advertisements, direct mail and other marketing
collateral. We hope you enjoy the many Wintrust
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6
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Wintrust Financial Corporation |
commercial customers featured in the Client
Profiles or in the Clients Having It All sections
appearing throughout this Annual Report.
Our Key Advantage of Service, Service, Service
As we have continually stated, our key advantage is our
people. Our dedicated staff constantly carries forward
our mantra of Service, Service, Service.
Our decentralized management approach allows senior
management at each franchise to manage their company
and their employees. These employees are the key to
our success. Our clients and customers truly appreciate
the unparalleled service that our valued employees
provide.
Giving Thanks
As is customary in our letter to shareholders we feel a
debt of gratitude and feel some thank yous are in
order. Lets start by thanking our leadership
teamsour management and directors. Your stewardship
and efforts are an important reason for our success.
Thank you.
And then lets thank our employees and welcome
those who recently joined our Wintrust team, either
from our acquisition of Broadway Premium Funding, or
the launch of one of our new bank facilities, or by
joining an existing member of our family. As previously
mentioned, our dedicated employees provide our clients
and customers the best service around. Thank you.
Thanks as well to our shareholders for keeping us
focused on what we do best growing our franchises by
delivering products uniquely positioned to meet the financial needs of consumers with the key
differentiator of service.
And finally, thank you to our clients and
customers banking, lending, mortgage, wealth
management, premium finance, employment agencies for
trusting us to deliver our products and services.
Without you, we dont exist. Thank you.
In Summary
Muhammad Ali coined a phrase that we think is
applicable to our current state of mind as a Company.
He developed a strategy he called, Rope-a-Dope, with
the idea to lie on the ropes of a boxing ring, conserve
energy and allow the opponent to strike him repeatedly
in hopes of making him tire and open up weaknesses to
exploit for the inevitable counterattack, which would
eventually lead to victory.
We see 2007 as a year of conserving energy and are
poised to push off the ropes with gloves off as we
hopefully are quick to come out of the current credit
cycle and yield environment.
Your continued support of our business is greatly
appreciated and we are excited about making 2008 a good
year for the Company. Please enjoy the rest of our 2007
Annual Report. We hope to see you at our Annual
Meeting, to be held on Thursday, May 22, 2008 at
10:00a.m. It will be held at the Deer Path Inn located
at 255 East Illinois Road in Lake Forest, Illinois.
Sincerely,
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John S. Lillard
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Edward J. Wehmer
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David A. Dykstra |
Chairman
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President &
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Senior Executive Vice President
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Chief Executive Officer
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Chief Operating Officer |
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Overall Financial Performance
In 2007, total assets remained relatively unchanged
from 2006, and earnings suffered due to a challenging
interest rate environment and other market conditions
previously discussed. However, the Company did achieve
a record level of loans as we surpassed the $6.8
billion mark.
Core Growth
Though growth was not at the level our shareholders
have come to expect, our core balance sheet remains
strong. Total assets of $9.4 billion were near our 2006
record of $9.6 billion. Furthermore, the Company has
doubled in size in a five-year period, which is a
substantial achievement, especially in the competitive
financial services industry.
Earnings per diluted share decreased to $2.24 in
2007 from $2.56 in 2006. Shareholders equity also
decreased as a consequence of the repurchase of our
common shares. The amount of treasury stock increased
substantially from 2006 as the Company continued to
repurchase shares, a demonstration of our belief that
our stock was undervalued and represented a good
investment relative to other investment alternatives.
Despite the treasury stock purchases, book value per
common share increased by $1.18, or 3.9%, to $31.56.
Net Revenue
Overall net revenue, which includes net
interest income and non-interest
income, increased 0.4% to $341.6
million. Our net interest margin
remained relatively stable at 3.11% in
2007, up one basis point from the prior
year, as we continued to face extremely
competitive loan and deposit pricing
pressures.
Most banking institutions, ours
included, have been affected by the
inverted yield
curve. When long-term interest rates
are lower than short-term interest
rates, it squeezes the spread between
interest earned on our assets and
interest paid on liabilities. While the
curve has been begun to move toward a
normal positive-sloping shape, the
Federal Reserve Banks rate cuts make
for a complicated operating
environment. Lower interest rates are
generally not favorable to community
bank organizations because interest
spreads get compressed. Rates on lower
cost deposits generally can not be
lowered as much as the Federal
Reserves rate cuts. Asset yields,
however, are not so constrained. To
counteract deposit pricing pressures,
the Company has begun to make progress
in shifting its mix of retail deposits
away from high-rate CDs into lower
cost, variable-rate NOW, money market
and wealth management deposits.
Our other main source of revenue, non-interest
income, fell 12.2% in 2007 to $80.1 million. The
decrease was primarily attributed to $8.5 million
less of trading income recognized on interest rate
swaps in 2006 and a decline in mortgage banking revenue
of $7.5 million. Offsetting these two large decreases
were the BOLI death benefit recorded in the third
quarter of 2007, the gain recognized on the Companys
investment in an unaffiliated bank holding company that
was acquired by another bank holding company and the
gain recognized on the sale of Company owned land.
Asset Quality
At December 31, 2007, non-performing assets were
$75.7 million, or 0.81%, of total
assets, compared to $37.4 million, or
0.39%, of total assets at December 31, 2006. The
increase in non-performing assets is
concentrated in three credit
relationships. These relationships are
being carefully monitored with
work-out plans in process.
We believe our consistent underwriting
standards are geared towards incurring
credit losses in the range of 20-30
basis
You have all the parts for our commercial banking
needs. By understanding what we are trying to do as a
business, you know what needs to get done, and you
take care of it quickly for us.
Brian and Greg Panek, Panek Precision
I switched from my old bank to a Wintrust Community
Bank because they provide personal service, theyre
always available and most importantly they
understand the business.
Marc Kresmery, Marc Kresmery Construction LLC
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Wintrust Financial Corporation |
points, which was
generally our
history from 1991
to 2003. The last few
years have been
extraordinarily
good from a credit
loss perspective.
As we have
indicated before,
we believe the
current credit
cycle may result in
loss ratios closer
to pre-2004 levels.
Both
non-performing
assets and net
charge-offs
increased in 2007,
but are at levels
that are within
acceptable
operating ranges
and are as
expected. Sound
asset quality has
always been a basic
operating tenet for
us and we are
committed to
maintaining a good
quality loan
portfolio. As mentioned
earlier, we believe
the current credit
cycle may result in
higher loss ratios
in 2008, but
hopefully only back
to the historical
levels we
experienced prior
to 2004. We
believe that the
allowance for loan
losses is adequate
to provide for
inherent losses in
the portfolio.
Dividend Payouts
In January and July of 2007, our Board of Directors
approved semiannual cash dividends of $0.16 per share
of outstanding common stock. These dividends were paid
in February and August. This annualized cash dividend of
$0.32 per share represented a 14% increase over the per
share common stock dividends paid during 2006.
And in January 2008, our Board approved a
semi-annual cash dividend of $0.18 per share of
outstanding common stock. The dividend was paid on
February 21, 2008, to shareholders of record as of
February 7, 2008. This cash dividend, on an annualized
basis, represents a 13%
increase over the per share common stock dividends
paid during 2007. Following is a historical summary of
our increasing dividend distributions:
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Diluted |
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Dividend |
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Dividend |
Year |
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Earnings |
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Per Share |
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Payout Ratio |
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2007 |
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$ |
2.24 |
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$ |
0.320 |
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14.3 |
% |
2006 |
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2.56 |
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0.280 |
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10.9 |
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2004 |
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2.75 |
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0.240 |
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8.7 |
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2003 |
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2.34 |
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0.200 |
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8.5 |
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2002 |
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1.98 |
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0.160 |
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8.1 |
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2001 |
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1.60 |
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0.120 |
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7.5 |
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While we have increased our dividend every year since
we initiated payment of dividends, we continue to
retain the majority of our earnings to fund future
growth and to build a strong, long-term franchise.
Although the payment of future dividends will be
subject to our Boards periodic review of the financial
condition, earnings, and capital requirements of the
Company, it is our present intent to continue paying
regular semiannual cash dividends.
I switched from my old bank because you make banking the way it used to be I get personal
service, even though I am hundreds of miles away. Wintrust is more flexible than the larger banks,
with tailored products and services that fit my needs.
John Petrakis, McDonalds Owner/Operator, Orlando, FL
Our Banking and Wealth Management Locations
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Wintrust Financial Corporation |
Our Other Locations and Our Brands
FIRST Insurance/Broadway Premium Finance, Tricom Funding, and WestAmerica Mortgage Distribution
Our Bank Brands
Our Other Brands
Retail Banking
As we have grown over the years, many wonder how
we can stay true to our community banking model. With
15 chartered banks and 77 facilities, it may seem like
a challenging task to outsiders. However, our
decentralized, multi-chartered approach means that our
local leadership teams maintain proper focus on the
communities we serve and on our customers.
In 2007, we made a renewed commitment to the customer
service experience. We sent mystery shoppers to our
retail facilities to gauge how well we are satisfying
customer needs and implementing cross-sell initiatives.
The shopping results showed that the consistency of the
retail experience across our 15 chartered banks is
solid, but can always be improved. In a tough interest
rate environment where it does not make sense to
compete on rates, we believe more than ever before
that top-notch customer service is our strongest
point of differentiation.
Below is a chart of FDIC deposit market share as of
June 30, 2007, for each Wintrust main bank zip code.
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Deposit |
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Market |
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De Novo |
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Acquisition |
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Share |
Bank |
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Opening |
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Date |
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Rank |
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1. Lake Forest Bank |
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12/91 |
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1 (out of 10) |
2. Hinsdale Bank |
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10/93 |
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2 (out of 14) |
3. North Shore Bank |
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9/94 |
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1 (out of 7) |
4. Libertyville Bank |
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10/95 |
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1 (out of 9) |
5. Barrington Bank |
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12/96 |
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2 (out of 9) |
6. Crystal Lake Bank |
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12/97 |
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2 (out of 15) |
7. Northbrook Bank |
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11/00 |
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3 (out of 14) |
8. Advantage Bank |
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10/03 |
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2 (out of 15) |
9. Village Bank |
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12/03 |
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1 (out of 10) |
10. Beverly Bank |
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4/04 |
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3 (out of 9) |
11. Wheaton Bank |
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9/04 |
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3 (out of 19) |
12. Town Bank |
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10/04 |
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1 (out of 5) |
13. State Bank |
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1/05 |
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1 (out of 8) |
14. Old Plank Bank |
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3/06 |
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4 (out of 13) |
15. St. Charles Bank |
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5/06 |
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16 (out of 20) |
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With aggressive marketing, all retail locations are
striving increase penetration into their markets and increase market share. The tried-and-true approach
is to erode the market share of big bank competitors.
Bank mergers and acquisitions in the Chicagoland area
generally assist us in this task. We are
well-positioned as a customer-centric alternative to
the big banks in our markets. This positioning is
central to our continued retail growth.
Indeed, as the true community banks in our
markets, we provide a number of value-added services
that the big banks cant or wont offer. From community
shredding days to credit scoring seminars to events for
children via our Junior Savers Club to travel clubs for
our senior citizen customers, our banks are clearly
more than just a place to make deposits. We are fully
invested in the communities we serve, and it doesnt
just stop at the bank level. Our bankers are actively
involved in their communities and local organizations,
effectively putting community interests first in all
they do.
Commercial Banking
In 2006, Wintrust banks enhanced the infrastructure,
sales people and products to better enable us to go
headtohead with larger banks. This year proved to be an
opportune time for our aggressive rollout and
positioning of these services. Big banks were
swallowing up the banking leaders in our Chicago bank
market. For the first time in our Companys history we began
marketing the Wintrust Financial Corporation name to
establish a brand in the commercial banking arena.
Our efforts started with a letter to the top 100
personal banking customers for each individual bank
brand that were identified as local businesspersons.
The letter introduced
Wintrust, but also positioned the bank as locally
managed, with local decision making authority.
However, we let them in on the fact their local
community bank is not just that. Behind their
community bank and its superior customer service is a
larger financial services company. The response was
favorable with many customers surprised and receptive
to the news. They know that
My Wintrust Bank is easy to do business with, trusting, accommodating and flexible. They have
been great to work with and have made business easier by customizing products to fit my companys
specific needs.
Todd Augustine, President, Augustine Custom Homes, Inc., Fox Valley Homebuilders
Association
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Wintrust Financial Corporation |
our community banks develop and foster relationships,
both in personal and commercial banking.
Given the favorable response to our initial efforts,
the Company followed up with advertising in local and
regional business publications. The original
advertisements (three of the four can be viewed on page
6) were based upon one of our more historically
successful anti-big bank merger advertisements. From
July to December, we ran this campaign of four
advertisements, followed with direct mail pieces to
targeted commercial and small business lists. The
response to our commercial banking initiative has been
gratifying. We will continue to pursue growth in this
area as we truly believe we can competitively offer all
the commercial services that our customers need and do
so in a more tailored fashion than our large bank
competitors.
Wintrust has also developed a few specialty
divisions as needs have become apparent within our
commercial banking business. Wintrust Commercial Realty
Advisors, based out of our Northbrook Bank, provides
brokering services to some of our commercial
relationships for loans that do no necessarily fit the
criteria for our Banks loan portfolios. Yet, we maintain the primary relationship and receive fees
for this service. Wintrust Government Funds is charged
with assisting our Banks in the municipal, school
districts and other institutional arenas. Physicians
Financial Care, based out of our Barrington and Village
Banks, is providing specialized, personal and commercial
banking, as well as financial planning needs to doctors
in our market areas.
For 2008, Wintrust plans to continue aggressive
commercial marketing to further spread our message of
community bank service, backed by big bank resources
and technology. Our clients Have It All and we want
prospective clients to know they can too.
At Plastic Bottle Corporation, Im committed to my customers, employees and vendors. I believe in
trust and integrity. I expect that from my bank as well, and thats what I get from our banking
relationship. We mold plastic bottles, you mold relationships. Youve wanted to understand our
business first, and then help with our financial needs. Its a relationship that works.
- Stuart Feen, President, Plastic Bottle Corporation
Update on Our Other Companies
Wayne Hummer Wealth Management
As one of the oldest and most successful
Chicago-based wealth management organizations, Wayne Hummer
Wealth Management (Wayne Hummer) has more than 170 professionals, over
15,000 clients and approximately $7 billion in client
assets under administration. Wayne Hummer marked its fifth year as a Wintrust company in 2007, and it has
grown from just two offices to 23 branch locations,
mostly in our community banks, in that time.
A provider of
comprehensive
wealth management
services including
financial planning,
investments, trust
services, asset
management and
insurance, Wayne
Hummer has a
strong heritage of
ethics, integrity,
client service and
dependability. We
offer all the
products,
technology and
capabilities of a
national company
with the personal
service and
attention of a
boutique wealth
management firm.
The strategy of cross-selling Wintrust
bank customers our wealth management products
and services is working. For 2007, Wayne
Hummers referral program generated more than
2,400 referrals from over 350 Wintrust bankers.
Both clients and our bankers are realizing the
benefits of getting a complete array of
financial solutions from their hometown bank.
Significant investments have been made in the core
business as well. In October 2007, Wayne Hummer moved
its headquarters to a new location right above Union
Station in downtown Chicago. The move allowed Wayne
Hummer to centralize all downtown employees to a single
floor, resulting in better servicing of our clients
needs. We also added 12 net new wealth managers to
our stable of professionals.
Since the acquisition of the Wayne Hummer Companies in
2002, we have focused on providing smooth
integration of all the wealth management units together
and into our banking network. We have successfully
established one brand image and upgraded the
capabilities throughout the wealth management system.
The trust arm of the wealth management companies
continues to have success in servicing existing
customers and attracting new ones. In fact, in 2007,
the trust assets under administration surpassed the $1
billion level.
Likewise, our brokerage business
continues to grow its revenue base after
significant investments in state-of-the-art
systems and upgraded product offerings. Growth
associated with Financial Advisors located in
our banking locations is especially promising
with most reporting double-digit growth in
their brokerage revenue.
The third aspect of the
wealth management business is
asset management, an area we are targeting for significant future growth.
In order to
provide for the
growth of this
important aspect of
the business
model, it was
essential that we
supplement our
existing talent
base to provide
the appropriate
infrastructure for
growth. To that
end, in the first
quarter of 2008,
the ongoing search
for additional
senior management
resulted in the
hiring of a new
Chief Investment
Officer and new
Product Head for
our asset
management
division. We are
excited about the
opportunities that
exist in the
marketplace and the
national
recognition and
skill set that recent executive hires are bringing to the table. We intend
to build a
comprehensive array
of products to fill
out a diversified
aggregate
portfolio. Our
steadfast
commitment
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Wintrust Financial Corporation |
to invest in and grow the asset management
business coupled with the rich heritage of the Wayne
Hummer franchise should enable us to develop new
winning investment strategies for our private clients
and institutional investors.
WestAmerica Mortgage Company
In 2007, WestAmerica focused on improving
operating efficiencies, boosting service standards and
managing every production branch to contribute to
overall profitability. This focus was necessary with the
mortgage industry in a state
of disarray as a result of the widespread issues
surrounding sub-prime mortgages. Additionally,
warehouse interest spreads were virtually non-existent
with the inverted yield curve and, as noted earlier in
this report, we had losses associated with certain
recourse obligations due primarily to early payment
defaults on loans that had been sold into the secondary
market.
However, we remain cautiously optimistic that 2008 will
bode well for our mortgage operation. The yield curve
has improved somewhat in early 2008, which should
provide additional margins on loans that we warehouse,
pending sale to the secondary market. Also, the
overall rate environment has lowered which, if rates
stay low, should provide for increased refinancing
volumes. Further, recent increases in conventional and government loan limits should help WestAmericas business.
We will also continue our ongoing effort to gain
further presence in more of our banking facilities. To that end,
WestAmerica will boost its presence with lobby signage,
point-of-sale displays, and participation in every
possible cross-sell opportunity. This should
build awareness to over 125,000 Wintrust bank
households at a relatively low cost.
The people at our Wintrust Community Bank raised the comfort level with what we had to do. This
was a major project. Everyone made us feel comfortable, from the top down. The bank worked with us
and educated us every step of the way. They were knowledgeable, walked us through the process and
even did the leg work for us. At the time, no other bank could step up to the plate and deliver.
Our bank knew our mission and was very supportive. I would highly recommend it to anyone to pursue
a Wintrust Bank for a commercial project like ours. Their communication is excellent, they have
superior knowledge of the process, and demonstrate a willingness and passion for getting the job
done.
Robert M. Martens, Chief Executive Officer, Family Service & Community Mental Health Center for McHenry County
FIRST Insurance Funding Corp.
The premium finance
industry in 2007 faced a second tough year as the volatile interest rate environment and soft
insurance market saw premiums drop up to 20% in some
markets, reducing loan volume and interest margins. However,
unlike many of its competitors who saw a decline in origination
volumes due to the soft insurance market, FIRST increased its
loan production level slightly to $3.1 billion while it increased
its number of loans by almost 10%. The increase in the number
of accounts is reflective of the solid reputation that FIRST has
in the premium finance arena and the hard work put forth
by the team at FIRST. It is important to understand that
the expanded customer base positions us well for substantial
increases in volumes when the insurance market swings back to
higher premium levels.
Like the Wintrust banks, FIRST is also positioning itself as
the provider of complete financial solutions. One new product
line established by FIRST in 2007 was the financing for life
insurance polices tied to high-net-worth estate planning needs.
Additionally, working with our subsidiary bank, Lake Forest
Bank, FIRST can provide its independent insurance agency
customers with loans for agency perpetuation, acquisitions,
equipment, real estate and working capital. Coupled with
FIRSTs core premium finance business, its leading edge
technology and Lake Forest Banks deposit products, FIRSTs
customers have access to a full suite of financial tools to help
make them more successful in a very competitive market.
The November addition of Broadway Premium Funding
Corporation, one of the leaders in premium financing for the
small-to middle-market that will continue to run as a separate
brand, gives Wintrust access to a segment of smaller and midsized
insurance agents not previously covered by FIRST.
As one of the largest premium finance organizations in the
country, FIRST and Broadway continue to prove their industry
leadership with cutting edge technology and unique products
and services.
The products and services Ive received from my Wintrust Community Bank really measure up. It is
clear that the bank is committed to
working with businesses and serving their needs. I get the products available at a large, downtown
bank and the personalized service of a
small, hometown bank. Im not just a number here Ive become a bigger fish in a smaller pond.
Mark E. Echales, Executive Vice-President & GM, American Building Services
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Wintrust Financial Corporation |
Tricom Inc. of Milwaukee
The general temporary staffing industry once again
saw temperate growth in 2007. This is causing
intensified pricing competition among providers of
temporary staffing industry financing and back office
solutions. Nonetheless, Tricom maintained a net
revenue contribution to the Company of approximately $8
million in 2007, and a net income contribution of $1.4
million. Acceptable results considering the significant
compression of spreads in the industry.
The strategy of aggressive marketing is working.
Juxtaposing Tricoms strengths against the identified
weaknesses of our primary competition is a method being
used to generate awareness of the benefits of working with Tricom. In Tricoms business, the key driver to growth is
demonstrating our service levels and capabilities
coupled with fair pricing.
We think we provide better and more services per dollar
of cost than our competitors. As we unbundled the
price of combined services and fully disclose our
pricing structure, potential customers consistently
realize that Tricom really does offer excellent value.
We fully intend to build the customer base of this
franchise in 2008.
i-Business Banking, superior customer service and the
experienced professionals at my community bank define
whats best to me. I expect a high level commitment
from my business
partners and thats what Im now getting from my bank.
You can bet the house on it!
Patrick A. Finn, Custom Homes and Remodeling
When we partnered with a Wintrust Community Bank, we
knew that our decision was as important as choosing the
quality products that go into every project we build.
We switched from our old bank to a Wintrust Community
Bank because they made banking the way it used to be
we get personal service.
Mike & Bob Brenner, Micro
Builders
Growth and Earnings Strategies
It is Time For Everyone to Have It All
Almost since our inception, weve had the same mantra
Same or better products as the big banks. Same or
better technology as the big banks. Win customers with
exceptional service. Our product offering and
technology have always put us on the same playing field
as the big-and mega-national banks. What has always
differentiated us is service.
Service First
We make fulfilling clients needs our top
priority, whether in banking, mortgages, wealth
management or any of our other businesses. This
results in more satisfied customers and higher customer
loyalty.
Over the years, weve always measured our
customers level of satisfaction and have been proud of
our results. In 2007, we went one step further and
began a Mystery Shopping program with our banks. While
we confirmed what we always knew, that our banks
performed better than our peers, we also learned that
there is always room for improvement. This valuable tool
now presents us with new opportunities to train our
employees and improve our already high level of
customer service.
To ensure customer service improvements at our banking
facilities, each charter is appointing an Ambassador of
Customer Experience, who will make it his or her job to
ensure each banking facility is as warm, inviting,
attractive, and functional from a customers
perspective as it possibly can be. In other words, we
continue to look for all possible ways to not become
complacent with our level of service but rather find
ways to always improve upon the most important
differentiating aspect of our business.
Proven Recipe for a Strong Franchise
In 2007, we started reminding everyone, customers and
non-customers that with Wintrust banks they could in
fact Have It All Big Bank Resources and Community
Bank Service. This belief has always been at the core
of what we do and allowed us to develop a long-term
recipe for success:
|
1. |
|
Start with a strong base of community banks; |
|
|
2. |
|
Add a growing commercial banking business; |
|
|
3. |
|
Fold in expanding wealth management services; and |
|
|
4. |
|
Top off with asset niches and
other income generators. |
1. Start with a Strong Base of Community Banks
Wintrusts 15 bank charters and 77 locations are the
backbone of our organization. It is here that we
strengthen our relationships, serve our communities and
build our business. Nine banks and 56 facilities were
de novo launches. The remaining banks and locations have
been added via acquisition since 2003. We will
continue to add additional branches via de novo
launches and perhaps acquisition if the right
opportunity presents itself.
Deposit Market Share-Chicago MSA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2007 |
|
At June 30, 2006 |
|
|
In-market |
|
Deposit |
|
In-market |
|
Deposit |
|
|
Deposit |
|
Market |
|
Deposit |
|
Market |
Bank Holding Company |
|
Dollars |
|
Share |
|
Dollars |
|
Share |
|
1) JP Morgan Chase & Co. * |
|
$38.9 BB |
|
|
14.5 |
% |
|
$40.1 BB |
|
|
15.3 |
% |
2) ABN AMRO Holding N.V. * |
|
$34.6 BB |
|
|
12.9 |
% |
|
$37.0 BB |
|
|
14.1 |
% |
3) Bank of Montreal * |
|
$29.7 BB |
|
|
11.1 |
% |
|
$25.6 BB |
|
|
9.8 |
% |
4) Northern Trust Corporation |
|
$8.9 BB |
|
|
3.3 |
% |
|
$7.3 BB |
|
|
2.8 |
% |
5) Fifth Third Bancorp * |
|
$8.4 BB |
|
|
3.1 |
% |
|
$8.5 BB |
|
|
3.2 |
% |
6) Corus Bankshares |
|
$8.4 BB |
|
|
3.1 |
% |
|
$8.2 BB |
|
|
3.2 |
% |
7) Royal Bank of Scotland Group * |
|
$7.8 BB |
|
|
2.9 |
% |
|
$7.3 BB |
|
|
2.8 |
% |
8) Citigroup, Inc. * |
|
$7.6 BB |
|
|
2.8 |
% |
|
$7.3 BB |
|
|
2.6 |
% |
9) Wintrust Financial Corporation |
|
$7.2 BB |
|
|
2.7 |
% |
|
$7.2 BB |
|
|
2.8 |
% |
|
Source: FDIC website Summary of Deposits as of June 30, 2007 and June 30, 2006. Market share
data is for the Chicago Metropolitan Statistical Area.
* - Corporate Headquarters is out-of-state.
|
|
|
|
|
|
|
|
|
|
18
|
|
Wintrust Financial Corporation |
Since our inception in 1991, weve used a proven mix of
operating and marketing strategies that allow us to
position ourselves differently from the centralized big
banks and to better deliver our community bank
products and services. Our unique growth strategies include:
Decentralized Management. The management teams at
each of our 15 banks ultimately control the fate of
their banks. Each has profit responsibilities and the
authority to make decisions locally. Our local
decision making structure results in more flexibility
and customized products to better meet local needs. It
also allows better pricing, quicker decisions, more
community involvement and customer service more in tune
with local customers and businesses. This autonomy lets
us attract and retain the best and most entrepreneurial
bankers in the area who embrace the responsibility,
accountability and the glory.
Local Board and Local Bankers. Each bank is governed
by a local board of directors made up of business and
community leaders who are influential in the banks
market. These boards not only bring local oversight,
they also supply local contacts and their involvement
is required to make our banks real community banks.
We staff our banks with local bankers who are
deeply involved and well known in their communities.
Their local roots are what make each Wintrust bank a good
hometown bank. Though the Shop Locally fads often
come and go, we know that most people prefer to bank
with the professionals and institutions they know.
Ultimately, everyone wants to work with local bankers
that know them and can better meet their needs.
Local Branding. We not only run our banks locally, we
also brand many of our banks and branches after the
local communities. The Advantage Bank group is a good
example, with its branches also positioned locally as
Old Town Bank & Trust of Bloomingdale, Elk Grove Village Bank & Trust
and Roselle Bank & Trust.
Aggressive and Creative Marketing. When Wintrust
enters a new market, we have a variety of very
aggressive introductory marketing programs. These are
designed to quickly acquire new customers, expand
our customer base and allow us to grow into our
overhead and reach profitability quickly.
After our introductory period, our banks continue to be
aggressive with marketing to grow household penetration
and accounts per household. We do this with targeted
direct mail and consistent campaigns that build our
distinct community bank positioning. Sometimes, this
may take the form of ads that poke fun at the big
banks, positioning them as profits-over-service
institutions. Other times, its simply a matter of
defining what community banking is and proving that
Wintrust banks live up to that definition.
2. Add a Growing Commercial Banking Business
Mid-2007 saw a new
marketing initiative
from Wintrust. For the
first time in our history,
we started promoting
the Wintrust brand to
commercial customers. Our fish campaign began to promote
Wintrusts complete suite of commercial banking products and
superior customer service.
In 2008, well continue this with our Have It All campaign.
Focusing on customer testimonials, this series of ads and direct
mail highlights the complete financial solutions weve provided
to Wintrust commercial customers, while promoting our key
differentiator service and strong relationships.
As in years past, our key target is middle market commercial and
industrial businesses and our primary competition is the larger
banks. We have sophisticated treasury management capabilities
and technology that are every bit as good as the big banks and
the professionals who know how to sell and implement these
programs.
The opportunities available to Wintrust in 2008, especially in
commercial banking, are almost incalculable. The acquisitions
of some competitors and the credit foibles of others have opened
up a window that the Wintrust banks can perfectly fit through.
3. Fold in Expanding Wealth Management Services
The wealth management services provided by our three
Wayne Hummer companies (Investment, Trust and Asset
Management) allow us to be complete financial providers to
all Wintrust customers.
We still have an amazing opportunity to grow our investment
and trust groups within our community banks. Our Banks
are in most of the desirable markets of northeastern Illinois
and southern Wisconsin. We will continue to convince our
bank customers that we can serve their wealth management
needs better than the big-box type, national firms.
Wayne Hummer Asset Management Company is also primed
to see real growth in 2008. The appointment of Daniel J.
Cardell, CFA, as President and Chief Investment Officer
and Todd D. Doersch as Head of Product Management,
will enable us to develop new investment strategies for our
private clients and institutional investors and be a key step in
realizing our vision of becoming the areas premier money
manager.
As in previous years, we will continue increasing the number
of Wayne Hummer Wealth Management personnel at our
Banks. We are concentrating on opportunities for new wealth
management experts that live within our communities, giving
them the opportunity, like our bankers, to work in the same
communities in which they live.
4. Top Off with Asset Niches and Other Income Generators
One of the things that allows our community banks to be
flexible in meeting the needs of customers and not chasing the
latest banking fads is Wintrusts commitment to asset niches
and other income generators.
Many community and regional banks have difficulty generating
loans from the local consumers and small businesses that
exceed 60% of their lending capacity without
compromising credit quality. Some overcome this by making
questionable loans or following the nationals into questionable
sectors.
I switched from my old bank to a Wintrust Community Bank because I get personal service from them.
They know who I am, and they help me take care of my business.
Vicki Baker, Gifts of Distinction
|
|
|
|
|
|
|
|
|
|
20
|
|
Wintrust Financial Corporation |
Wintrust overcomes this limitation by augmenting
our community banks loan portfolios with
non-traditional earning assets. This improves the
profitability of our community banks, gives us
additional income to continue to invest in growth,
diversifies our loan portfolios and allows the banks
to maintain their credit standards. Asset niches allow
us to grow the right way, so we never feel compelled to
pursue bad credits for the sake of growth.
Wintrust banks and their subsidiaries operate a number
of companies that specialize in non-traditional bank
lending functions. Non-bank asset niches account for
16.3% of total loans while specialty banking asset
niches account for 5.6%.
% of Total Loans
|
|
|
|
|
Non-Bank Asset Niches |
|
|
|
|
Premium finance
lending (FIRST and Broadway) |
|
|
15.9 |
% |
Temporary staffing industry
financing (Tricom) |
|
|
0.4 |
% |
|
|
|
|
|
|
|
16.3 |
% |
|
|
|
|
Specialty Banking Asset Niches |
|
|
|
|
Indirect consumer (primarily auto lending at Hinsdale Bank) |
|
|
3.5 |
% |
Mortgage warehouse lending
(Hinsdale Bank) |
|
|
0.8 |
% |
Condominium and association lending
(Community Advantage-
Barrington Bank) |
|
|
0.7 |
% |
Small craft aviation lending
(NorthAmerican Aviation
Finance-Crystal Lake Bank) |
|
|
0.6 |
% |
|
|
|
|
|
|
|
5.6 |
% |
|
We also continue to develop fee based services and internal specialties that help Wintrust
diversify revenue. This includes not only our wealth management (Wayne Hummer) and residential
mortgage (WestAmerica) companies, but also a number of other specialties like commercial mortgage
brokerage and municipal services.
Acquisitions
Acquisitions remain an important and viable source
of growth for many companies. Since 1999, Wintrust has
added a number of banking and other complementary
businesses via acquisition. These acquisitions are an
important tactic for Wintrust to add key strategic and
niche assets, as well as expand into banking locations
and markets, creating value for our shareholders.
Banking Acquisitions. Over the past several years,
weve been contacted by many Midwestern community banks
with the goal of merging their community-based bank and
branches into the Wintrust family. This year has not
been any different. While we entertained several
proposals, there were no opportunities that brought the
necessary value to Wintrust.
It is our goal to continue to add new banks in
attractive markets, either on a de novo basis or by
acquisition, always taking into account business sense
and shareholder value.
Our bank acquisitions have proved successful in the
past and have grown deposits, assets, and market share.
Other Acquisitions. We also
continue to evaluate non-banking
opportunities. These include wealth
management and asset or fee
income generators. Adding these
types of companies will diversify our earning assets and
fee-based income businesses to supplement
and diversify Wintrusts revenue
stream.
|
|
|
|
|
|
|
|
|
|
22
|
|
Wintrust Financial Corporation |
Beginning of Financial Review Section
Now that you have read some of the highlights for the
Company in the year 2007, take a closer look at the full
story of our financial performance in the remaining pages
of our Annual Report.
Contents of Financial Review Section
|
|
|
Page 24 |
|
Managements Discussion and Analysis |
Page 58 |
|
Consolidated Financial Statements |
Page 62 |
|
Notes to Consolidated Financial Statements |
Page 95 |
|
Reports of Internal Control |
Page 97 |
|
Report of Independent Auditors |
Page 98 |
|
Annual Report on Form 10-K |
Page 124 |
|
Exhibits |
Page 127 |
|
Signatures |
Page 128 |
|
Corporate Locations |
Page 132 |
|
Corporate Information |
Managements Discussion and Analysis
FORWARD-LOOKING STATEMENTS
This document and the documents incorporated by reference herein contain 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.
Forward-looking statements and information are not historical facts, are premised on many factors,
and represent only managements expectations, estimates and projections regarding future events.
Similarly, these statements are not guarantees of future performance and involve certain risks and
uncertainties that are difficult to predict, which may include, but are not limited to, those
listed below and the risk factors discussed in Item 1A on page 115 of this Report. 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
Companys projected growth, anticipated improvements in earnings, earnings per share and other
financial performance measures, and managements long-term performance goals, as well as statements
relating to the anticipated effects on financial results of condition from expected developments or
events, the Companys 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 as a
result of numerous factors, including the following:
|
|
|
Competitive pressures in the financial services business which may affect the
pricing of the Companys loan and deposit products as well as its services (including
wealth management services). |
|
|
|
|
Changes in the interest rate environment, which may influence, among other things,
the growth of loans and deposits, the quality of the Companys loan portfolio, the
pricing of loans and deposits and interest income. |
|
|
|
|
The extent of defaults and losses on our loan portfolio. |
|
|
|
|
Unexpected difficulties or unanticipated developments related to the Companys
strategy of de novo bank formations and openings. De novo banks typically require 13 to
24 months of operations before becoming profitable, due to the impact of organizational
and overhead expenses, the startup phase of generating deposits and the time lag
typically involved in redeploying deposits into attractively priced loans and other
higher yielding earning assets. |
|
|
|
|
The ability of the Company to obtain liquidity and income from the sale of premium
finance receivables in the future and the unique collection and delinquency risks
associated with such loans. |
|
|
|
|
Failure to identify and complete acquisitions in the future or unexpected
difficulties or unanticipated developments related to the integration of acquired
entities with the Company. |
|
|
|
|
Legislative or regulatory changes or actions, or significant litigation involving
the Company. |
|
|
|
|
Changes in general economic conditions in the markets in which the Company operates. |
|
|
|
|
The ability of the Company to receive dividends from its subsidiaries. |
|
|
|
|
The loss of customers as a result of technological changes allowing consumers to
complete their financial transactions without the use of a bank. |
|
|
|
|
The ability of the Company to attract and retain senior management experienced in
the banking and financial services industries. |
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 Securities
and Exchange Commission (SEC) and in its press releases.
The Company undertakes no obligation to release revisions to these forward-looking statements or
reflect events or circumstances after the date of this Annual Report.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights the significant factors affecting the operations and financial
condition of Wintrust for the three years ended December 31, 2007. This discussion and analysis
should be read in conjunction with the Companys Consolidated Financial Statements and Notes
thereto, and Selected Financial Highlights appearing elsewhere within this report.
|
|
|
|
|
24
|
|
|
|
Wintrust
Financial Corporation |
OPERATING SUMMARY
Wintrusts key measures of profitability and balance sheet changes are shown in the following table
(dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% or |
|
% or |
|
|
Years Ended |
|
basis point |
|
basis point |
|
|
December 31, |
|
(bp)change |
|
(bp)change |
|
|
2007 |
|
2006 |
|
2005 |
|
2006 to 2007 |
|
2005 to 2006 |
|
|
|
Net income |
|
$ |
55,653 |
|
|
$ |
66,493 |
|
|
$ |
67,016 |
|
|
|
(16)% |
|
|
|
(1)% |
|
Net income per common share Diluted |
|
$ |
2.24 |
|
|
$ |
2.56 |
|
|
$ |
2.75 |
|
|
|
(13)% |
|
|
|
(7)% |
|
Net revenue (1) |
|
$ |
341,638 |
|
|
$ |
340,118 |
|
|
$ |
310,316 |
|
|
|
% |
|
|
|
10% |
|
Net interest income |
|
$ |
261,550 |
|
|
$ |
248,886 |
|
|
$ |
216,759 |
|
|
|
5 % |
|
|
|
15% |
|
Net interest margin (5) |
|
|
3.11 |
% |
|
|
3.10 |
% |
|
|
3.16 |
% |
|
1 bp |
|
(6)bp |
Core net interest margin(2)(5) |
|
|
3.38 |
% |
|
|
3.32 |
% |
|
|
3.37 |
% |
|
6 bp |
|
(5)bp |
Net overhead ratio (3) |
|
|
1.72 |
% |
|
|
1.54 |
% |
|
|
1.39 |
% |
|
18 bp |
|
15 bp |
Efficiency ratio(4)(5) |
|
|
71.06 |
% |
|
|
66.96 |
% |
|
|
63.97 |
% |
|
410 bp |
|
299 bp |
Return on average assets |
|
|
0.59 |
% |
|
|
0.74 |
% |
|
|
0.88 |
% |
|
(15)bp |
|
(14)bp |
Return on average equity |
|
|
7.64 |
% |
|
|
9.47 |
% |
|
|
11.00 |
% |
|
(183)bp |
|
(153)bp |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,368,859 |
|
|
$ |
9,571,852 |
|
|
$ |
8,177,042 |
|
|
|
(2)% |
|
|
|
17% |
|
Total loans |
|
$ |
6,801,602 |
|
|
$ |
6,496,480 |
|
|
$ |
5,213,871 |
|
|
|
5% |
|
|
|
25% |
|
Total deposits |
|
$ |
7,471,441 |
|
|
$ |
7,869,240 |
|
|
$ |
6,729,434 |
|
|
|
(5)% |
|
|
|
17% |
|
Total equity |
|
$ |
739,555 |
|
|
$ |
773,346 |
|
|
$ |
627,911 |
|
|
|
(4)% |
|
|
|
23% |
|
Book value per common share |
|
$ |
31.56 |
|
|
$ |
30.38 |
|
|
$ |
26.23 |
|
|
|
4% |
|
|
|
16% |
|
Market price per common share |
|
$ |
33.13 |
|
|
$ |
48.02 |
|
|
$ |
54.90 |
|
|
|
(31)% |
|
|
|
(13)% |
|
Common shares outstanding |
|
|
23,430,490 |
|
|
|
25,457,935 |
|
|
|
23,940,744 |
|
|
|
(8)% |
|
|
|
6% |
|
|
|
|
|
(1) |
|
Net revenue is net interest income plus non-interest income. |
|
(2) |
|
Core net interest margin excludes the effect of the net interest expense associated with
Wintrusts junior subordinated debentures and the interest expense incurred to fund common
stock repurchases. |
|
(3) |
|
The net overhead ratio is calculated by netting total non-interest expense and total
non-interest income and dividing by that periods total average assets. A lower ratio
indicates a higher degree of efficiency. |
|
(4) |
|
The efficiency ratio is calculated by dividing total non-interest expense by tax-equivalent
net revenue (excluding securities gains or losses). A lower ratio indicates more efficient
revenue generation. |
|
(5) |
|
See Non-GAAP Financial Measures/Ratios for additional information on this performance
measure/ratio. |
Please refer to the Consolidated Results of Operations section later in this discussion for an
analysis of the Companys operations for the past three years.
NON-GAAP FINANCIAL MEASURES/RATIOS
The accounting and reporting policies of the Company conform to generally accepted accounting
principles (GAAP) in the United States and prevailing practices in the banking industry.
However, certain non-GAAP performance measures and ratios are used by management to evaluate and
measure the Companys performance. These include taxable-equivalent net interest income (including
its individual components), net interest margin (including its individual components), core net
interest margin and the efficiency ratio. Management believes that these measures and ratios
provide users of the Companys financial information with a more meaningful view of the performance
of the interest-earning assets and interest-bearing liabilities and of the Companys operating
efficiency. Other financial holding companies may define or calculate these measures and ratios
differently.
Management reviews yields on certain asset categories and the net interest margin of the Company
and its banking subsidiaries on a fully taxable-equivalent (FTE) basis. In this non-GAAP
presentation, net interest income is adjusted to reflect tax-exempt interest income on an
equivalent before-tax basis. This measure ensures the comparability of net interest income arising
from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the
calculation of the Companys efficiency ratio. The efficiency ratio, which is calculated by
dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or
losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses
are excluded from this calculation to better match revenue from daily operations to operational
expenses.
Management also evaluates the net interest margin excluding the interest expense associated with
the Companys junior subordinated debentures and the interest expense incurred to fund common stock
repurchases (Core Net Interest Margin). Because junior subordinated debentures are utilized by
the Company primarily as capital instruments and the cost incurred to fund common stock repurchases
is capital utilization related, management finds it useful to view the net interest margin
excluding these expenses and deems it to be a more meaningful view of the operational net interest
margin of the Company.
The following table presents a reconciliation of certain non-GAAP performance measures and ratios
used by the Company to evaluate and measure the Companys performance to the most directly
comparable GAAP financial measures for the years ended December 31, 2007, 2006 and 2005 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
(A) Interest income (GAAP) |
|
$ |
611,557 |
|
|
$ |
557,945 |
|
|
$ |
407,036 |
|
Taxable-equivalent adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
- Loans |
|
|
826 |
|
|
|
409 |
|
|
|
531 |
|
- Liquidity management assets |
|
|
2,388 |
|
|
|
1,195 |
|
|
|
777 |
|
- Other earning assets |
|
|
13 |
|
|
|
17 |
|
|
|
19 |
|
|
|
|
Interest income FTE |
|
$ |
614,784 |
|
|
$ |
559,566 |
|
|
$ |
408,363 |
|
(B) Interest expense (GAAP) |
|
|
350,007 |
|
|
|
309,059 |
|
|
|
190,277 |
|
|
|
|
Net interest income FTE |
|
$ |
264,777 |
|
|
$ |
250,507 |
|
|
$ |
218,086 |
|
|
|
|
(C) Net interest income (GAAP) (A minus B) |
|
$ |
261,550 |
|
|
$ |
248,886 |
|
|
$ |
216,759 |
|
Net interest income FTE |
|
$ |
264,777 |
|
|
$ |
250,507 |
|
|
$ |
218,086 |
|
Add: Interest expense on junior
subordinated debentures and interest cost incurred for common stock
repurchases(1) |
|
|
23,170 |
|
|
|
17,838 |
|
|
|
14,672 |
|
|
|
|
Core net interest income FTE(2) |
|
$ |
287,947 |
|
|
$ |
268,345 |
|
|
$ |
232,758 |
|
|
|
|
(D) Net interest margin (GAAP) |
|
|
3.07% |
|
|
|
3.07% |
|
|
|
3.14% |
|
Net interest margin FTE |
|
|
3.11% |
|
|
|
3.10% |
|
|
|
3.16% |
|
Core net interest margin FTE(2) |
|
|
3.38% |
|
|
|
3.32% |
|
|
|
3.37% |
|
(E) Efficiency ratio (GAAP) |
|
|
71.74% |
|
|
|
67.28% |
|
|
|
64.25% |
|
Efficiency ratio FTE |
|
|
71.06% |
|
|
|
66.96% |
|
|
|
63.97% |
|
|
(1) |
|
Interest expense from the junior subordinated debentures is net of the interest income on
the Common Securities owned by the Trusts and included in
interest income. Interest cost incurred for common stock repurchases is estimated using
current period average rates on certain debt obligations. |
|
(2) |
|
Core net interest income and core net interest margin are by definition a non-GAAP
measure/ratio. The GAAP equivalents are the net interest income and net interest margin
determined in accordance with GAAP (lines C and D in the table). |
OVERVIEW AND STRATEGY
Wintrust is a financial holding company, providing traditional community banking services as well
as a full array of wealth management services. The Company has grown rapidly since its inception
and its Banks have been among the fastest growing community-oriented de novo banking operations in
Illinois and the country. As of December 31, 2007, the Company operated 15 community-oriented bank
subsidiaries (the Banks) with 77 banking locations. During 2007, the Company acquired a premium
finance company and opened five new bank branches. During 2006, the Company acquired one bank with
five locations, opened its ninth de novo bank and opened five new branches. However, the Company
temporarily curtailed balance sheet growth trends in 2007 given the interest rate and credit
environments. Additionally, the historical financial performance of the Company has been affected
by costs associated with growing market share in deposits and loans, establishing new banks and
opening new branch facilities, and building an experienced management team. The Companys
experience has been that it generally takes 13-24 months for new banking offices to first achieve
operational profitability.
Managements ongoing focus is to balance further asset growth with earnings growth by seeking to
fully leverage the existing capacity within each of the Banks and non-bank subsidiaries. One
aspect of this strategy is to continue to pursue specialized lending or earning asset niches in
order to maintain the mix of earning assets in higher-yielding loans as well as diversify the loan
portfolio. Another aspect of this strategy is a continued focus on less aggressive deposit pricing
at the Banks with significant market share and more established customer bases.
Wintrust also provides a full range of wealth management
services through its trust, asset management and broker-dealer subsidiaries.
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26
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Wintrust
Financial Corporation |
De Novo Bank Formations, Branch Openings and Acquisitions
The Company developed its community banking franchise through the formation of nine de novo banks,
the opening of branch offices of the Banks and acquisitions. Following is a summary of the
expansion of the Companys banking franchise through newly chartered banks, new branching locations
and acquisitions over the last three years.
2007 Banking Expansion Activity
Opened the following branch locations
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Hoffman Estates, Illinois, a branch of Barrington Bank |
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Hartland, Wisconsin, a branch of Town Bank |
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Bloomingdale, Illinois, a branch of Advantage Bank |
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Island Lake, Illinois, a branch of Libertyville Bank |
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North Chicago, Illinois, a branch of Lake Forest Bank |
Closed the following branch location
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Glen Ellyn Bank, temporary facility opened in 2005, a
branch of Wheaton Bank |
2006 Banking Expansion Activity
Opened the Companys ninth de novo bank
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Old Plank Trail Bank in Frankfort, Illinois |
Opened the following branch locations
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|
St. Charles, Illinois, a branch of St. Charles Bank |
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|
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Algonquin Bank & Trust, a branch of Crystal Lake Bank |
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Mokena, Illinois, a branch of Old Plank Trail Bank |
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Elm Grove, Wisconsin, a branch of Town Bank |
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New Lenox, Illinois, a branch of Old Plank Trail Bank |
Acquired the following banks
|
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Hinsbrook Bank with locations in Willowbrook,
Downers Grove, Glen Ellyn, Darien and Geneva |
2005 Banking Expansion Activity
Opened the following branch locations
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Wales, Wisconsin, a branch of Town Bank |
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Glen Ellyn Bank, a branch of Wheaton Bank |
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West Northbrook, a branch of Northbrook Bank |
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Lake Bluff drive through facility added to existing
banking office; a branch of Lake Forest Bank |
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Northwest Highway in Barrington, a branch of
Barrington Bank |
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Palatine Bank & Trust, a branch of Barrington Bank
Acquired the following banks |
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State Bank of The Lakes with locations in Antioch, Lindenhurst, Grayslake, Spring Grove and
McHenry |
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First Northwest Bank with two locations in Arlington Heights |
Closed the following branch location
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Wayne Hummer Bank, a branch of North Shore Bank |
Earning Asset, Wealth Management
and Other Business Niches
As previously mentioned, the Company continues to pursue specialized earning asset and business
niches in order to maximize the Companys revenue stream as well as diversify its loan portfolio.
A summary of the Companys more significant earning asset niches and non-bank operating
subsidiaries follows.
Wayne Hummer Investments LLC (WHI), a registered broker-dealer, provides a full-range of
investment products and services tailored to meet the specific needs of individual and
institutional investors throughout the country, primarily in the Midwest. In addition, WHI
provides a full range of investment services to clients through a network of relationships with
community-based financial institutions located primarily in Illinois. Although headquartered in
Chicago, WHI also operates an office in Appleton, Wisconsin that opened in 1936 and serves the
greater Appleton area. As of December 31, 2007, WHI had branch locations in offices in a majority
of the Companys fifteen banks. WHI had approximately $5.6 billion in client assets at December
31, 2007.
Wayne Hummer Asset Management (WHAMC), a registered investment advisor, is the investment
advisory affiliate of WHI. WHAMC provides money management, financial planning and investment
advisory services to individuals and institutional, municipal and tax-exempt organizations. WHAMC
also provides portfolio management and financial supervision for a wide-range of pension and profit
sharing plans. At December 31, 2007, assets under management totaled approximately $541 million.
Wayne Hummer Trust Company (WHTC) was formed to offer trust and investment management services to
all communities served by the Banks. In addition to offering trust services to existing bank
customers at each of the Banks, the Company believes WHTC can successfully compete for trust
business by targeting small to mid-size businesses and affluent individuals whose needs command the
personalized attention offered by WHTCs experienced trust professionals. Services offered by WHTC
typically include traditional trust products and services, as well as investment management
services. Assets under administration by WHTC as of December 31, 2007 were approximately $1.0
billion.
First Insurance Funding Corp. (FIFC) is the Companys
most significant specialized earning asset niche,
originating approximately $3.1 billion in loan (premium
finance receivables) volume during 2007. 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.
Because of the indirect nature of this lending and
because the borrowers are located nationwide, this
segment may be more susceptible to third party fraud,
however no material third party fraud has occurred
since the third quarter of 2000. The majority of these
loans are purchased by the Banks in order to more fully
utilize their lending capacity, and these loans
generally provide the Banks with higher yields than
alternative investments. However, excess FIFC
originations over the capacity to retain such loans
within the Banks loan portfolios may be sold to an
unrelated third party with servicing retained.
Additionally, in 2007, FIFC began to make loans to
irrevocable life insurance trusts to purchase life
insurance policies for high net-worth individuals. The
loans are originated through independent insurance
agents or financial advisors and legal counsel. The
life insurance policy is the primary collateral on the
loan and, in most cases, the loans are also secured by a letter of credit.
On
November 1, 2007, the Company acquired Broadway Premium
Funding Corporation (Broadway). Broadway is a
commercial finance company that specializes in
financing insurance premiums for corporate entities.
Its products are marketed through insurance agents and
brokers to their small to mid-size corporate clients.
Broadway is headquartered in New York City and services
clients primarily in the northeastern United States and
California. Broadway is a subsidiary of FIFC.
SGB Corporation d/b/a WestAmerica Mortgage Company
(WestAmerica) engages primarily in the origination
and purchase of residential mortgages for sale into the
secondary market. WestAmericas affiliate Guardian Real
Estate Services, Inc. (Guardian) provides the
document preparation and other loan closing services to
West America and its network of mortgage brokers. West
America sells its loans with servicing released and
does not currently engage in servicing loans for
others. WestAmerica maintains principal origination
offices in nine 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 each Bank to better utilize existing
operational capacity and expand the
mortgage products offered to the Banks customers.
WestAmericas production of adjustable rate mortgage
loans may be retained by the Banks in their loan
portfolios, resulting in additional earning assets to
the combined organization, thus adding further desired
diversification to the Companys earning asset base.
Tricom, Inc (Tricom) is a company that has been in
business since 1989 and specializes in providing
high-yielding, short-term accounts receivable financing
and value-added out-sourced administrative services,
such as data processing of payrolls, billing and cash
management services to clients in the temporary
staffing industry. Tricoms clients, located throughout
the United States, provide staffing services to
businesses in diversified industries. These receivables
may involve greater credit risks than generally
associated with the loan portfolios of more traditional
community banks depending on the marketability of the
collateral. The principal sources of repayments on the
receivables are payments received by the borrowers from
their customers who are located throughout the United
States. Tricom mitigates this risk by employing
lockboxes and other cash management techniques to
protect its interests. Tricoms revenue principally
consists of interest income from financing activities
and fee-based revenues from administrative services.
Tricom processed payrolls with associated client
billings of approximately $467 million in 2007 and $531
million in 2006.
In addition to the earning asset niches provided by the
Companys non-bank subsidiaries, several earning asset
niches operate within the Banks, including indirect
auto lending which is conducted through Hinsdale Bank,
and Barrington Banks Community Advantage program that
provides lending, deposit and cash management services
to condominium, homeowner and community associations.
In addition, Hinsdale Bank operates a mortgage
warehouse lending program that provides loan and
deposit services to mortgage brokerage companies
located predominantly in the Chicago metropolitan area,
and Crystal Lake Bank has a specialty in small aircraft
lending. The Company continues to pursue the
development or acquisition of other specialty lending
businesses that generate assets suitable for bank
investment and/or secondary market sales.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
The Companys Consolidated Financial Statements are
prepared in accordance with generally accepted
accounting principles in the United States and
prevailing practices of
the banking industry. Application of these principles
requires management to make estimates, assumptions, and
judgments that affect the amounts reported in the
financial statements and accompanying notes. These
estimates, assumptions and judgments are based on
information available as of the date of the financial
statements; accordingly, as this information changes,
the financial statements could reflect different
estimates, assumptions, and judgments. Certain
policies and accounting principles inher-
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28
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Wintrust
Financial Corporation |
ently have a greater reliance on the use of estimates,
assumptions and judgments and as such have a greater
possibility of producing results that could be
materially different than originally reported.
Estimates, assumptions and judgments are necessary when
assets and liabilities are required to be recorded at
fair value, when a decline in the value of an asset not
carried on the financial statements at fair value
warrants an impairment write-down or valuation reserve
to be established, or when an asset or liability needs
to be recorded contingent upon a future event. Carrying
assets and liabilities at fair value inherently results
in more financial statement volatility. The fair
values and the information used to record valuation
adjustments for certain assets and liabilities are
based either on quoted market prices or are provided by
other third-party sources, when available. When third
party information is not available, valuation
adjustments are estimated in good faith by management
primarily through the use of internal cash flow
modeling techniques.
A summary of the Companys significant accounting
policies is presented in Note 1 to the Consolidated
Financial Statements. These policies, along with the
disclosures presented in the other financial statement
notes and in this Managements Discussion and Analysis
section, provide information on how significant assets
and liabilities are valued in the financial statements
and how those values are determined. Management views
critical accounting policies to be those which are
highly dependent on subjective or complex judgments,
estimates and assumptions, and where changes in those
estimates and assumptions could have a significant
impact on the financial statements. Management
currently views the determination of the allowance for
loan losses and the allowance for losses on
lending-related commitments, the valuation of the
retained interest in the premium finance receivables
sold, the valuations required for impairment testing of
goodwill, the valuation and accounting for derivative
instruments and income taxes as the accounting areas
that require the most subjective and complex judgments,
and as such could be the most subject to revision as
new information becomes available.
Allowance for Loan Losses and Allowance for
Losses on Lending-Related Commitments
The allowance for loan losses represents managements
estimate of probable credit losses inherent in the loan
portfolio. Determining the amount of the allowance for
loan losses is considered a critical accounting
estimate because it requires significant judgment and
the use of estimates related to the amount 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 economic trends and conditions, all of which
are susceptible to significant change. The loan
portfolio also represents the largest asset type on the
consolidated balance sheet. The Company also maintains
an allowance for lending-related commitments,
specifically unfunded loan commitments and letters of
credit, which relates
to certain amounts the Company is committed to lend but
for which funds have not yet been disbursed.
Management has established credit committees at each of
the Banks that evaluate the credit quality of the loan
portfolio and the level of the adequacy of the
allowance for loan losses and the allowance for
lending-related commitments. See Note 1 to the
Consolidated Financial Statements and the section
titled Credit Risk and Asset Quality later in this
report for a description of the methodology used to
determine the allowance for loan losses and the
allowance for lending-related commitments.
Sales of Premium Finance Receivables
The gains on the sale of premium finance receivables
are determined based on managements estimates of the
underlying future cash flows of the loans sold. Cash
flow projections are used to allocate the Companys
initial investment in a loan between the loan, the
servicing asset and the Companys retained interest,
including its guarantee obligation, based on their
relative fair values. Gains or losses are recognized
for the difference between the proceeds received and
the cost basis allocated to the loan. The Companys
retained interest includes a servicing asset, an
interest only strip and a guarantee obligation pursuant
to the terms of the sale agreement. The estimates of
future cash flows from the underlying loans incorporate
assumptions for prepayments, late payments and other
factors. The Companys guarantee obligation is
estimated based on the historical loss experience and
credit risk factors of the loans. If actual cash flows
from the underlying loans are less than originally
anticipated, the Companys retained interest may be
impaired, and such impairment would be recorded as a
charge to earnings. Because the terms of the loans sold
are less than ten months, the estimation of the cash
flows is inherently easier to monitor than if the
assets had longer durations, such as mortgage loans.
See Note 1 to the Consolidated Financial Statements and
the section titled Non-interest Income later in this
report for further analysis of the gains on sale of
premium finance receivables.
Impairment Testing of Goodwill
As required by Statement of Financial Accounting
Standards (SFAS) 142, Goodwill and Other Intangible
Assets, the Company performs impairment testing of
goodwill on an annual basis or more frequently when
events warrant. Valuations are estimated in good faith
by management primarily through the use of publicly
available valuations of comparable entities for the
Companys bank
subsidiaries and internal cash flow models using
financial projections in the reporting units business
plan, if public valuations are not available for the
Companys non-bank entities.
Valuation and Accounting for Derivative Instruments
The Company utilizes derivative instruments to manage
risks such as interest rate risk or market risk. The
Companys policy prohibits using derivatives for
speculative purposes.
Accounting for derivatives differs significantly
depending on whether a derivative is designated as a
hedge, which is a transaction intended to reduce a risk
associated with a specific asset or liability or future
expected cash flow at the time it is purchased. In
order to qualify as a hedge, a derivative must be
designated as such by management. Management must also
continue to evaluate whether the instrument effectively
reduces the risk associated with that item. To
determine if a derivative instrument continues to be an
effective hedge, the Company must make assumptions and
judgments about the continued effectiveness of the
hedging strategies and the nature and timing of
forecasted transactions. If the Companys hedging
strategy were to become ineffective, hedge accounting
would no longer apply and the reported results of
operations or financial condition could be materially
affected.
Income Taxes
The Company is subject to the income tax laws of the
U.S., its states and other jurisdictions where it
conducts business. These laws are complex and subject
to different interpretations by the taxpayer and the
various taxing authorities. In determining the
provision for income taxes, management must make
judgments and estimates about the application of these
inherently complex laws, related regulations and case
law. In the process of preparing the Companys tax
returns, management attempts to make reasonable
interpretations of the tax laws. These interpretations
are subject to challenge by the tax authorities upon
audit or to reinterpretation based on managements
ongoing assessment of facts and evolving case law.
On a quarterly basis, management assesses the
reasonableness of its effective tax rate based upon its
current best estimate of net income and the applicable
taxes expected for the full year. Deferred tax assets
and liabilities are reassessed on a quarterly basis, if
business events or circumstances warrant.
On January 1, 2007, the Company adopted FASB
Interpretation No. 48 (FIN 48) which clarifies the
accounting for income taxes by prescribing the minimum
recognition threshold a tax position is required to
meet before being recognized in the financial
statements. FIN 48 also provides guidance on
dere-cognition, measurement, classification, interest
and penalties, accounting in interim periods,
disclosure and transition. The adoption of FIN 48 did
not have a material impact on the Company.
CONSOLIDATED RESULTS OF OPERATIONS
The following discussion of Wintrusts results of
operations requires an understanding that a majority of
the Companys bank subsidiaries have been started as
new banks since December 1991. Wintrust is still a
relatively young company that has a strategy of
continuing to build its customer base and securing
broad product penetration in each marketplace that it
serves. The Company has expanded its banking franchise
from three banks with five offices in 1994 to 15 Banks
with 77 offices at the end of 2007. FIFC has matured
from its limited operations in 1991 to a company that
generated, on a national basis, $3.1 billion in premium
finance receivables in 2007. In addition, the wealth
management companies have been building a team of
experienced professionals who are located within a
majority of the Banks. These expansion activities have
understandably suppressed faster, opportunistic
earnings. However, as the Company matures and our
existing Banks become more profitable, the start-up
costs associated with future bank and branch openings
and other new financial services ventures will not have
as significant an impact on earnings. Additionally,
the Companys more mature Banks have several operating
ratios that are either comparable to or better than
peer group data, suggesting that as the Banks become
more established, the overall earnings level will
continue to increase.
Earnings Summary
Net income for the year ended December 31, 2007,
totaled $55.7 million, or $2.24 per diluted common
share, compared to $66.5 million, or $2.56 per diluted
common share, in 2006, and $67.0 million, or $2.75 per
diluted common share, in 2005. During 2007, net income
declined by 16% while earnings per diluted common share
declined by 13%, and during 2006, net income remained
essentially the same, decreasing 1%, while earnings per
diluted common share decreased 7%. Financial results
in 2007 were negatively impacted by a continued
compression of interest rate spreads, an increase in
provision for credit losses, lower levels of mortgage
banking revenue and a reduced level of trading income.
Financial results in 2006 were negatively impacted by
the adoption of SFAS 123R (stock option expense),
compressed interest spreads, a decrease in fees from
covered call options, lower levels of mortgage banking
revenue and lower sales of premium finance receivables,
and was positively impacted by the fair value
adjustments related to certain derivatives.
Net Interest Income
The primary source of the Companys revenue is net
interest income. Net interest income is the difference
between interest income and fees on earning assets,
such as loans and securities, and interest expense on
the liabilities to fund those assets, including
interest bearing deposits and
other borrowings. The amount of net interest income is
affected by both changes in the level of interest rates
and the amount and composition of earn-
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30
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Wintrust
Financial Corporation |
ing assets and interest bearing liabilities. In order
to compare the tax-exempt asset yields to taxable
yields, interest income in the following discussion and
tables is adjusted to tax-equivalent yields based on
the marginal corporate Federal tax rate of 35%.
Tax-equivalent net interest income in 2007 totaled
$264.8 million, up from $250.5 million in 2006 and
$218.1 million in 2005, representing increases of $14.3
million, or 6%, in 2007 and $32.4 million, or 15%, in
2006. These improved levels of net interest income
were primarily attributable to increases in average
earning assets. The table presented later in this
section, titled Changes in Interest Income and
Expense, presents the dollar amount of changes in
interest income and expense, by major category,
attributable to changes in the volume of the balance
sheet category and changes in the rate earned or paid
with respect to that category of assets or liabilities
for 2007 and 2006. Average earning assets increased
$426.5 million, or 5%, in 2007 and $1.2 billion, or
17%, in 2006. Loans are the most significant component
of the earning asset base as they earn interest at a
higher rate than the other earning assets. Average
loans increased $811.5 million, or 14%, in 2007 and
$875.4 million, or 17%, in 2006. Total average loans
as a percentage of total average earning assets were
80%, 74% and 75% in 2007, 2006, and 2005, respectively.
The average yield on loans was 7.71% in 2007, 7.60% in
2006 and 6.54% in 2005, reflecting an increase of 11
basis points in 2007 and an increase of 106 basis
points in 2006. The higher loan yield in 2007 compared
to 2006 is a result of the higher average rate
environment in the first three quarters of 2007. The
higher loan yield in 2006 compared to 2005 is
reflective of the interest rate increases effected by
the Federal Reserve Bank offset by continued
competitive loan pricing pressures. Similarly, the
average rate paid on interest bearing deposits, the
largest component of the Companys interest bearing
liabilities, was 4.26% in 2007, 3.97% in 2006 and 2.80%
in 2005, representing an increase of 29 basis points in
2007 and an increase of 117 basis points in 2006. The
interest bearing deposits yield increased in 2007 due
to higher costs of retail deposits as rates have
generally risen in 2007, continued competitive pricing
pressures on fixed-maturity time deposits in
most markets and promotional pricing activities
associated with opening additional de novo branches.
Net interest margin, which reflects net interest income
as a per-cent of average earning assets, remained
relatively flat at 3.11% in 2007 compared to 3.10% in
2006. During 2007, the Companys focus on retail
deposit pricing and changing the mix of deposits has
helped offset the competitive pricing of retail
certificates of deposit. The Company has made progress
in shifting its mix of retail deposits away from
certificates of deposit into lower cost, more variable
rate
NOW, money market and wealth management deposits. Net
interest margin in 2005 was 3.16%.
The core net interest margin was 3.38% in 2007, 3.32%
in 2006 and 3.37% in 2005. Management evaluates the
core net interest margin excluding the net interest
expense associated with the Companys junior
subordinated debentures and the interest expense
incurred to fund common stock repurchases. Because
junior subordinated debentures are utilized by the
Company primarily as capital instruments and the cost
incurred to fund common stock repurchases is capital
utilization related, management finds it useful to view
the net interest margin excluding these expenses and
deems them to be a more accurate view of the
operational net interest margin of the Company. See
Non-GAAP Financial Measures/Ratios section of this
report.
Net interest income and net interest margin were also
affected by amortization of valuation adjustments to
earning assets and interest-bearing liabilities of
acquired businesses. Under the purchase method of
accounting, assets and liabilities of acquired
businesses are required to be recognized at their
estimated fair value at the date of acquisition. These
valuation adjustments represent the difference between
the estimated fair value and the carrying value of
assets and liabilities acquired. These adjustments are
amortized into interest income and interest expense
based upon the estimated remaining lives of the assets
and liabilities acquired. See Note 7 of the
Consolidated Financial Statements for further
discussion of the Companys business combinations.
Average Balance Sheets, Interest Income and Expense, and Interest Rate Yields and Costs
The following table sets forth the average balances, the interest earned or paid thereon, and the
effective interest rate, yield or cost for each major category of interest-earning assets and
interest-bearing liabilities for the years ended December 31, 2007, 2006 and 2005. The yields and
costs include loan origination fees and certain direct origination costs that are considered
adjustments to yields. Interest income on non-accruing loans is reflected in the year that it is
collected, to the extent it is not applied to principal. Such amounts are not material to net
interest income or the net change in net interest income in any year. Non-accrual loans are
included in the average balances and do not have a material effect on the average yield. Net
interest income and the related net interest margin have been adjusted to reflect tax-exempt
income, such as interest on municipal securities and loans, on a tax-equivalent basis. This table
should be referred to in conjunction with this analysis and discussion of the financial condition
and results of operations (dollars in thousands):
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Years Ended December 31, |
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2005 |
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Yield/ |
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Balance(1) |
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Balance(1) |
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Interest |
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|
Balance(1) |
|
Interest |
|
Rate |
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with banks |
|
$ |
14,036 |
|
|
$ |
841 |
|
|
|
5.99 |
% |
|
$ |
13,361 |
|
|
$ |
651 |
|
|
|
4.87 |
% |
|
$ |
9,003 |
|
|
$ |
278 |
|
|
|
3.10 |
% |
Securities |
|
|
1,588,542 |
|
|
|
81,790 |
|
|
|
5.15 |
|
|
|
1,930,662 |
|
|
|
94,593 |
|
|
|
4.90 |
|
|
|
1,627,523 |
|
|
|
67,333 |
|
|
|
4.14 |
|
Federal funds sold and securities
purchased under resale agreements |
|
|
72,141 |
|
|
|
3,774 |
|
|
|
5.23 |
|
|
|
110,775 |
|
|
|
5,393 |
|
|
|
4.87 |
|
|
|
102,199 |
|
|
|
3,485 |
|
|
|
3.41 |
|
|
|
|
Total liquidity management assets(2) (8) |
|
|
1,674,719 |
|
|
|
86,405 |
|
|
|
5.16 |
|
|
|
2,054,798 |
|
|
|
100,637 |
|
|
|
4.90 |
|
|
|
1,738,725 |
|
|
|
71,096 |
|
|
|
4.09 |
|
|
|
|
Other earning assets(2) (3) |
|
|
24,721 |
|
|
|
1,943 |
|
|
|
7.86 |
|
|
|
29,675 |
|
|
|
2,136 |
|
|
|
7.20 |
|
|
|
23,644 |
|
|
|
1,345 |
|
|
|
5.69 |
|
Loans, net of unearned income(2) (4) (8) |
|
|
6,824,880 |
|
|
|
526,436 |
|
|
|
7.71 |
|
|
|
6,013,344 |
|
|
|
456,793 |
|
|
|
7.60 |
|
|
|
5,137,912 |
|
|
|
335,922 |
|
|
|
6.54 |
|
|
|
|
Total earning assets(8) |
|
|
8,524,320 |
|
|
|
614,784 |
|
|
|
7.21 |
|
|
|
8,097,817 |
|
|
|
559,566 |
|
|
|
6.91 |
|
|
|
6,900,281 |
|
|
|
408,363 |
|
|
|
5.92 |
|
|
|
|
Allowance for loan losses |
|
|
(48,605 |
) |
|
|
|
|
|
|
|
|
|
|
(44,648 |
) |
|
|
|
|
|
|
|
|
|
|
(40,566 |
) |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
|
131,271 |
|
|
|
|
|
|
|
|
|
|
|
125,253 |
|
|
|
|
|
|
|
|
|
|
|
138,253 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
835,291 |
|
|
|
|
|
|
|
|
|
|
|
747,135 |
|
|
|
|
|
|
|
|
|
|
|
589,634 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,442,277 |
|
|
|
|
|
|
|
|
|
|
$ |
8,925,557 |
|
|
|
|
|
|
|
|
|
|
$ |
7,587,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits interest bearing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
$ |
938,960 |
|
|
$ |
25,033 |
|
|
|
2.67 |
% |
|
$ |
774,481 |
|
|
$ |
19,548 |
|
|
|
2.52 |
% |
|
$ |
699,323 |
|
|
$ |
11,973 |
|
|
|
1.71 |
% |
Wealth management deposits |
|
|
547,408 |
|
|
|
24,871 |
|
|
|
4.54 |
|
|
|
464,438 |
|
|
|
20,456 |
|
|
|
4.40 |
|
|
|
407,816 |
|
|
|
10,181 |
|
|
|
2.50 |
|
Money market accounts |
|
|
696,760 |
|
|
|
22,427 |
|
|
|
3.22 |
|
|
|
639,590 |
|
|
|
17,497 |
|
|
|
2.74 |
|
|
|
657,788 |
|
|
|
11,071 |
|
|
|
1.68 |
|
Savings accounts |
|
|
302,339 |
|
|
|
4,504 |
|
|
|
1.49 |
|
|
|
307,142 |
|
|
|
4,275 |
|
|
|
1.39 |
|
|
|
298,468 |
|
|
|
2,629 |
|
|
|
0.88 |
|
Time deposits |
|
|
4,442,469 |
|
|
|
218,079 |
|
|
|
4.91 |
|
|
|
4,509,488 |
|
|
|
203,953 |
|
|
|
4.52 |
|
|
|
3,507,771 |
|
|
|
120,398 |
|
|
|
3.43 |
|
|
|
|
Total interest bearing deposits |
|
|
6,927,936 |
|
|
|
294,914 |
|
|
|
4.26 |
|
|
|
6,695,139 |
|
|
|
265,729 |
|
|
|
3.97 |
|
|
|
5,571,166 |
|
|
|
156,252 |
|
|
|
2.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
|
400,552 |
|
|
|
17,558 |
|
|
|
4.38 |
|
|
|
364,149 |
|
|
|
14,675 |
|
|
|
4.03 |
|
|
|
333,108 |
|
|
|
11,912 |
|
|
|
3.58 |
|
Notes payable and other borrowings |
|
|
318,540 |
|
|
|
13,794 |
|
|
|
4.33 |
|
|
|
149,764 |
|
|
|
5,638 |
|
|
|
3.76 |
|
|
|
167,930 |
|
|
|
4,178 |
|
|
|
2.49 |
|
Subordinated notes |
|
|
75,000 |
|
|
|
5,181 |
|
|
|
6.81 |
|
|
|
66,742 |
|
|
|
4,695 |
|
|
|
6.94 |
|
|
|
50,000 |
|
|
|
2,829 |
|
|
|
5.66 |
|
Junior subordinated debentures |
|
|
249,739 |
|
|
|
18,560 |
|
|
|
7.33 |
|
|
|
237,249 |
|
|
|
18,322 |
|
|
|
7.62 |
|
|
|
217,983 |
|
|
|
15,106 |
|
|
|
6.93 |
|
|
|
|
Total interest bearing liabilities |
|
|
7,971,767 |
|
|
|
350,007 |
|
|
|
4.39 |
|
|
|
7,513,043 |
|
|
|
309,059 |
|
|
|
4.11 |
|
|
|
6,340,187 |
|
|
|
190,277 |
|
|
|
3.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits |
|
|
647,715 |
|
|
|
|
|
|
|
|
|
|
|
623,542 |
|
|
|
|
|
|
|
|
|
|
|
592,879 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
94,823 |
|
|
|
|
|
|
|
|
|
|
|
87,178 |
|
|
|
|
|
|
|
|
|
|
|
45,369 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
727,972 |
|
|
|
|
|
|
|
|
|
|
|
701,794 |
|
|
|
|
|
|
|
|
|
|
|
609,167 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
9,442,277 |
|
|
|
|
|
|
|
|
|
|
$ |
8,925,557 |
|
|
|
|
|
|
|
|
|
|
$ |
7,587,602 |
|
|
|
|
|
|
|
|
|
|
Interest rate spread(5) (8) |
|
|
|
|
|
|
|
|
|
|
2.82 |
% |
|
|
|
|
|
|
|
|
|
|
2.80 |
% |
|
|
|
|
|
|
|
|
|
|
2.92 |
% |
Net free funds/contribution (6) |
|
$ |
552,553 |
|
|
|
|
|
|
|
0.29 |
% |
|
$ |
584,774 |
|
|
|
|
|
|
|
0.30 |
% |
|
$ |
560,094 |
|
|
|
|
|
|
|
0.24 |
% |
Net interest income/Net interest margin (8) |
|
|
|
|
|
$ |
264,777 |
|
|
|
3.11 |
% |
|
|
|
|
|
$ |
250,507 |
|
|
|
3.10 |
% |
|
|
|
|
|
$ |
218,086 |
|
|
|
3.16 |
% |
Core net interest margin(7) (8) |
|
|
|
|
|
|
|
|
|
|
3.38 |
% |
|
|
|
|
|
|
|
|
|
|
3.32 |
% |
|
|
|
|
|
|
|
|
|
|
3.37 |
% |
|
|
|
|
(1) |
|
Average balances were generally computed using daily balances. |
|
(2) |
|
Interest income on tax-advantaged loans, trading account securities and securities reflects a
tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total
adjustments reflected in the above table are $3.2 million, $1.6 million and $1.3 million in 2007,
2006 and 2005 respectively. |
|
(3) |
|
Other earning assets include brokerage customer receivables
and trading account securities. |
|
(4) |
|
Loans, net of unearned
income, include mortgages held-for-sale and non-accrual loans. |
|
(5) |
|
Interest rate spread is the difference between the yield earned on earning assets and the rate
paid on interest-bearing liabilities. |
|
(6) |
|
Net free funds are the difference between total average earning assets and total average
interest-bearing liabilities. The estimated contribution to net interest margin from net free
funds is calculated using the rate paid for total interest-bearing liabilities. |
|
(7) |
|
The core net interest margin excludes the effect of the net interest expense associated with
Wintrusts junior subordinated debentures and the interest expense incurred to fund common stock
repurchases. |
|
(8) |
|
See Non-GAAP Financial Measures/Ratios for additional information on this performance
measure/ratio. |
|
|
|
|
|
32
|
|
|
|
Wintrust
Financial Corporation |
Changes in Interest Income and Expense
The following table shows the dollar amount of changes in interest income (on a tax-equivalent
basis) and expense by major categories of interest-earning assets and interest-bearing liabilities
attributable to changes in volume or rate for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2007 Compared to 2006 |
|
2006 Compared to 2005 |
|
|
Change |
|
Change |
|
|
|
|
|
Change |
|
Change |
|
|
|
|
Due to |
|
Due to |
|
Total |
|
Due to |
|
Due to |
|
Total |
|
|
Rate |
|
Volume |
|
Change |
|
Rate |
|
Volume |
|
Change |
|
|
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits with banks |
|
$ |
156 |
|
|
|
34 |
|
|
|
190 |
|
|
$ |
202 |
|
|
|
171 |
|
|
|
373 |
|
Securities |
|
|
4,633 |
|
|
|
(17,436 |
) |
|
|
(12,803 |
) |
|
|
13,536 |
|
|
|
13,724 |
|
|
|
27,260 |
|
Federal funds sold and securities purchased
under resale agreement |
|
|
375 |
|
|
|
(1,994 |
) |
|
|
(1,619 |
) |
|
|
1,595 |
|
|
|
313 |
|
|
|
1,908 |
|
|
|
|
Total liquidity management assets |
|
|
5,164 |
|
|
|
(19,396 |
) |
|
|
(14,232 |
) |
|
|
15,333 |
|
|
|
14,208 |
|
|
|
29,541 |
|
|
|
|
Other earning assets |
|
|
185 |
|
|
|
(378 |
) |
|
|
(193 |
) |
|
|
404 |
|
|
|
387 |
|
|
|
791 |
|
Loans |
|
|
6,749 |
|
|
|
62,894 |
|
|
|
69,643 |
|
|
|
58,934 |
|
|
|
61,937 |
|
|
|
120,871 |
|
|
|
|
Total interest income |
|
|
12,098 |
|
|
|
43,120 |
|
|
|
55,218 |
|
|
|
74,671 |
|
|
|
76,532 |
|
|
|
151,203 |
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits interest bearing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW accounts |
|
|
1,199 |
|
|
|
4,286 |
|
|
|
5,485 |
|
|
|
5,437 |
|
|
|
2,138 |
|
|
|
7,575 |
|
Wealth management deposits |
|
|
667 |
|
|
|
3,748 |
|
|
|
4,415 |
|
|
|
8,690 |
|
|
|
1,585 |
|
|
|
10,275 |
|
Money market accounts |
|
|
3,266 |
|
|
|
1,664 |
|
|
|
4,930 |
|
|
|
6,742 |
|
|
|
(316 |
) |
|
|
6,426 |
|
Savings accounts |
|
|
296 |
|
|
|
(67 |
) |
|
|
229 |
|
|
|
1,567 |
|
|
|
79 |
|
|
|
1,646 |
|
Time deposits |
|
|
17,220 |
|
|
|
(3,094 |
) |
|
|
14,126 |
|
|
|
51,354 |
|
|
|
32,201 |
|
|
|
83,555 |
|
|
|
|
Total interest expense deposits |
|
|
22,648 |
|
|
|
6,537 |
|
|
|
29,185 |
|
|
|
73,790 |
|
|
|
35,687 |
|
|
|
109,477 |
|
|
|
|
Federal Home Loan Bank advances |
|
|
1,340 |
|
|
|
1,543 |
|
|
|
2,883 |
|
|
|
1,587 |
|
|
|
1,176 |
|
|
|
2,763 |
|
Notes payable and other borrowings |
|
|
966 |
|
|
|
7,190 |
|
|
|
8,156 |
|
|
|
2,849 |
|
|
|
(1,389 |
) |
|
|
1,460 |
|
Subordinated notes |
|
|
(86 |
) |
|
|
572 |
|
|
|
486 |
|
|
|
786 |
|
|
|
1,080 |
|
|
|
1,866 |
|
Junior subordinated debentures |
|
|
(699 |
) |
|
|
937 |
|
|
|
238 |
|
|
|
1,822 |
|
|
|
1,394 |
|
|
|
3,216 |
|
|
|
|
Total interest expense |
|
|
24,169 |
|
|
|
16,779 |
|
|
|
40,948 |
|
|
|
80,834 |
|
|
|
37,948 |
|
|
|
118,782 |
|
|
|
|
Net interest income |
|
$ |
(12,071 |
) |
|
|
26,341 |
|
|
|
14,270 |
|
|
$ |
(6,163 |
) |
|
|
38,584 |
|
|
|
32,421 |
|
|
The changes in net interest income are created by changes in both interest rates and volumes. The
change in the Companys net interest income for the periods under review was predominantly impacted
by the growth in the volume of the overall interest-earning assets (specifically loans) and
interest-bearing deposit liabilities. In the table above, volume variances are computed using the
change in volume multiplied by the previous years rate. Rate variances are computed using the
change in rate multiplied by the previous years volume. The change in interest due to both rate
and volume has been allocated between factors in proportion to the relationship of the absolute
dollar amounts of the change in each.
Provision for Credit Losses
The provision for credit losses totaled $14.9 million in 2007, $7.1 million in 2006, and $6.7
million in 2005. Net charge-offs totaled $10.9 million in 2007, $5.2 million in 2006 and $4.9
million in 2005. The allowance for loan losses as a percentage of loans at December 31, 2007, 2006
and 2005 was 0.74%, 0.71% and 0.77%, respectively. Non-performing loans were $71.9 million and
$36.9 million at December 31, 2007 and 2006, respectively. The increase in non-performing loans in
2007 as compared to 2006 was primarily the result of $32.3 million related to three credit
relationships. See the Credit Risk and Asset Quality section of this report for more detail on
non-performing loans. In 2007, the Company reclassified $36,000 from its allowance for loan losses
to a separate liability account which represents the portion of the allowance for loan losses that
was associated with lending-related commitments, specifically unfunded loan commitments and letters
of credit. In 2006, the Company reclassified $92,000 from the allowance for lending-relating
commitments to its allowance for loan losses. In future periods, the provision for credit losses
may contain both a component related to funded loans (provision for loan losses) and a component
related to lending-related commitments (provision for unfunded loan commitments and letters of
credit). Management believes the allowance for loan losses is adequate to provide for inherent
losses in the port-
folio. There can be no assurances however, that future losses will not exceed
the amounts provided for, thereby affecting future results of operations. The amount of future
additions to the allowance for loan losses and the allowance for lending-related commitments will
be dependent upon managements assessment of the adequacy of the allowance based on its evaluation
of economic conditions, changes in real estate values, interest rates, the regulatory environment,
the level of past-due and non-performing loans, and other factors. Please refer to the Credit
Risk and Asset Quality section of this report for further discussion of the Companys loan loss
experience and non-performing assets.
Non-interest Income
Non-interest income totaled $80.1 million in 2007, $91.2 million in 2006 and $93.6 million in 2005,
reflecting a decrease of 12% in 2007 compared to 2006, and a decrease of 3% in 2006 compared to
2005. Non-interest income as a percentage of net revenue declined to 23% in 2007 compared to 27%
in 2006 and 30% in 2005. The decline in non-interest income in 2007 compared to 2006 is
attributable to lower levels of trading income recognized on interest rate swaps and mortgage
banking valuation and recourse obligation adjustments in 2007 and the $2.4 million gain on the sale
of the Wayne Hummer Growth Fund in 2006 offset by higher levels of gains on available-for-sale
securities and higher wealth managment fees. The following table presents non-interest income by
category for 2007, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2007 compared to 2006 |
|
2006 compared to 2005 |
|
|
2007 |
|
2006 |
|
2005 |
|
$ Change |
|
% Change |
|
$ Change |
|
% Change |
|
|
|
Brokerage |
|
$ |
20,346 |
|
|
|
19,615 |
|
|
|
20,154 |
|
|
$ |
731 |
|
|
|
4 |
% |
|
$ |
(539 |
) |
|
|
(3 |
)% |
Trust and asset management |
|
|
10,995 |
|
|
|
12,105 |
|
|
|
9,854 |
|
|
|
(1,110 |
) |
|
|
(9 |
) |
|
|
2,251 |
|
|
|
23 |
|
|
|
|
Total wealth management fees |
|
|
31,341 |
|
|
|
31,720 |
|
|
|
30,008 |
|
|
|
(379 |
) |
|
|
(1 |
) |
|
|
1,712 |
|
|
|
6 |
|
Mortgage banking |
|
|
14,888 |
|
|
|
22,341 |
|
|
|
25,913 |
|
|
|
(7,453 |
) |
|
|
(33 |
) |
|
|
(3,572 |
) |
|
|
(14 |
) |
Service charges on deposit accounts |
|
|
8,386 |
|
|
|
7,146 |
|
|
|
5,983 |
|
|
|
1,240 |
|
|
|
17 |
|
|
|
1,163 |
|
|
|
19 |
|
Gain on sales of premium
finance receivables |
|
|
2,040 |
|
|
|
2,883 |
|
|
|
6,499 |
|
|
|
(843 |
) |
|
|
(29 |
) |
|
|
(3,616 |
) |
|
|
(56 |
) |
Administrative services |
|
|
4,006 |
|
|
|
4,598 |
|
|
|
4,539 |
|
|
|
(592 |
) |
|
|
(13 |
) |
|
|
59 |
|
|
|
1 |
|
Gains on available-for-sale securities, net |
|
|
2,997 |
|
|
|
17 |
|
|
|
1,063 |
|
|
|
2,980 |
|
|
NM |
|
|
(1,046 |
) |
|
|
(98 |
) |
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees from covered call options |
|
|
2,628 |
|
|
|
3,157 |
|
|
|
11,434 |
|
|
|
(529 |
) |
|
|
(17 |
) |
|
|
(8,277 |
) |
|
|
(72 |
) |
Trading income net cash settlement
of swaps |
|
|
|
|
|
|
1,237 |
|
|
|
440 |
|
|
|
(1,237 |
) |
|
NM |
|
|
797 |
|
|
|
181 |
|
Trading income (loss) change in fair
market value |
|
|
265 |
|
|
|
7,514 |
|
|
|
(1,339 |
) |
|
|
(7,249 |
) |
|
|
(97 |
) |
|
|
8,853 |
|
|
|
661 |
|
Bank Owned Life Insurance |
|
|
4,909 |
|
|
|
2,948 |
|
|
|
2,431 |
|
|
|
1,961 |
|
|
|
67 |
|
|
|
517 |
|
|
|
21 |
|
Miscellaneous |
|
|
8,628 |
|
|
|
7,671 |
|
|
|
6,586 |
|
|
|
957 |
|
|
|
13 |
|
|
|
1,085 |
|
|
|
17 |
|
|
|
|
Total other |
|
|
16,430 |
|
|
|
22,527 |
|
|
|
19,552 |
|
|
|
(6,097 |
) |
|
|
(27 |
) |
|
|
2,975 |
|
|
|
15 |
|
|
|
|
Total non-interest income |
|
$ |
80,088 |
|
|
|
91,232 |
|
|
|
93,557 |
|
|
$ |
(11,144 |
) |
|
|
(12 |
)% |
|
$ |
(2,325 |
) |
|
|
(3 |
)% |
|
Wealth management is comprised of the trust and asset management revenue of WHTC and the asset
management fees, brokerage commissions, trading commissions and insurance product commissions
generated by the Wayne Hummer Companies. Trust and asset management fees represent WHTCs trust
fees which include fees earned on assets under management, custody fees and other trust related
fees and WHAMCs fees for advisory services to individuals and institutions, municipal and
tax-exempt organizations, including the management of the Wayne Hummer proprietary mutual funds.
The brokerage income is generated by WHI, the Companys broker-dealer subsidiary.
Brokerage revenue is directly impacted by trading volumes. In 2007, brokerage revenue totaled $20.3
million, reflecting an increase of $731,000, or 4%, compared to 2006. The Company anticipates
continued recognition of revenue enhancement capabilities and continued growth of the wealth
management platform throughout its banking locations. In 2006, brokerage revenue totaled $19.6
million reflecting a decrease of $539,000, or 3%, compared to 2005.
Trust and asset management revenue totaled $11.0 million in 2007, a decrease of $1.1 million, or
9%, compared to 2006. The Wayne Hummer Growth Fund, which was managed by WHAMC and had total
assets of $162 million at December 31, 2005, was sold during the first quarter of 2006 for a gain
of $2.4 million which is included in this category. In 2006, trust and asset management fees
totaled $12.1 million and increased $2.3 million, or 23%, compared to 2005. This increase is
attributable to the $2.4 million gain
|
|
|
|
|
34
|
|
|
|
Wintrust
Financial Corporation |
recorded in 2006 on the sale of the Wayne Hummer Growth Fund.
Trust and asset management fees are based primarily on the market value of the assets under
management or administration. Trust assets and assets under management totaled $1.6 billion at
December 31, 2007, $1.4 billion at December 31, 2006 and $1.6 billion at December 31, 2005.
Mortgage banking includes revenue from activities related to originating, selling and servicing
residential real estate loans for the secondary market. Mortgage banking revenue totaled $14.9
million in 2007, $22.3 million in 2006, and $25.9 million in 2005, reflecting a decrease of $7.4
million, or 33%, in 2007, and $3.6 million, or 14%, in 2006. In 2007, the Company recorded $4.2
million in losses related to recourse obligations on residential mortgage loans sold to investors.
These losses primarily related to mortgages originated through wholesale channels which experienced
early payment defaults. Also, in 2007 compared to 2006, the Company recorded an additional $1.8
million in lower of cost or market adjustments for residential mortgage loans held-for-sale. The
remainder of the decrease in mortgage banking is a result of lower origination volumes in 2007
compared to 2006. Future growth of mortgage banking is impacted by the interest rate environment
and will continue to be dependent upon the relative level of long-term interest rates. A
continuation of the existing depressed residential real estate environment may continue to hamper
mortgage banking production growth. Effective January 1, 2006, the Company adopted the provisions
of SFAS 156 and elected the fair value measurement method for mortgage servicing rights (MSRs).
Prior to January 1, 2006, MSRs were accounted for at the lower of their initial carrying value, net
of accumulated amortization, or fair value. Included in the 2007 mortgage banking revenue decrease
is $125,000 of MSR valuation adjustment (additional expense) compared to 2006.
Included in the 2006 mortgage banking revenue decrease is $514,000 of MSR valuation
adjustment compared to 2005 amortization expense.
Service charges on deposit accounts totaled $8.4 million in 2007, $7.1 million in 2006 and $6.0
million in 2005. These increases of 17% in 2007 and 19% in 2006, were due primarily to the overall
larger household account base. The majority of deposit service charges relates to customary fees
on overdrawn accounts and returned items. The level of service charges received is substantially
below peer group levels, as management believes in the philosophy of providing high quality service
without encumbering that service with numerous activity charges.
Gain on sales of premium finance receivables results from the Companys sales of premium finance
receivables to unrelated third parties. However, from the third quarter of 2006 to the third
quarter of 2007, all of the receivables originated by FIFC were purchased by the Banks to more
fully utilize their lending capacity. In the fourth quarter of 2007, due to the Companys average
loan-to-average deposit ratio being consistently above the target of 85% to 90%, the Company
reinstated its program of selling premium finance receivables, with servicing retained, to
unrelated third parties. Having a program in place to sell premium finance receivables to third
parties allows the Company to execute its strategy to be asset-driven while providing the benefits
of additional sources of liquidity and revenue. The level of premium finance receivables sold to
unrelated third parties depends in large part on the capacity of the Banks to retain such loans in
their portfolio and therefore, it is possible that sales of these receivables may occur in the
future.
Loans sold to unrelated third parties totaled $230 million in 2007, $303 million in 2006 and $562
million in 2005, representing 8%, 10% and 21% of FIFCs total originations in 2007, 2006 and 2005,
respectively. The Company recognized net gains totaling $2.0 million in 2007, $2.9 million in 2006
and $6.5 million in 2005 related to this activity.
As FIFC continues to service the loans sold, it recognizes a retained interest in the loans sold
which consists of a servicing asset, interest only strip and a recourse obligation, upon each sale.
Recognized gains, recorded in accordance with SFAS 140, as well as the Companys retained
interests in these loans are based on the Companys projection of cash flows that will be generated
from the loans. The cash flow model incorporates the amounts FIFC is contractually entitled to
receive from the customer, including an estimate of late fees, the amounts due to the purchaser of
the loans, fees paid to insurance agents as well as estimates of the term of the loans and credit
losses. Significant differences in actual cash flows and the projected cash flows can cause
impairment to the servicing asset and interest only strip as well as the recourse obligation. The
Company monitors the performance of these loans on a static pool basis and adjusts the
assumptions in its cash flow model when warranted. These loans have relatively short maturities
(less than 12 months) and prepayments are not highly correlated to movements in interest rates.
Due to the short-term nature of these loans, the Company believes that the book value of the
servicing asset approximates fair value.
The Company capitalized $2.0 million and amortized $590,000 in servicing assets related to the sale
of these loans in 2007, and capitalized $2.8 million and amortized $4.7 million in servicing assets
related to sale of these loans in 2006. As of December 31, 2007, the Companys retained interest
in the loans sold included a servicing asset of $1.9 million, an interest only strip of $2.6
million and a liability for its recourse obligation of $179,000.
Gains are significantly dependent on the spread between the net yield on the loans sold and the
rate passed on to the purchasers. The net yield on the loans sold and the rates passed on to the
purchasers typically do not react in a parallel fashion, therefore causing the spreads to vary from
period to period. This spread was 3.70% in 2007, compared to 2.62% to 3.24% in 2006 and 2.71% to
3.74% in 2005.
The Company typically makes a clean up call by repurchasing the remaining loans in the pools sold
after approximately ten months from the sale date. Upon repurchase, the loans are recorded in the
Companys premium finance receivables portfolio and any remaining balance of the Companys retained
interest is recorded as an adjustment to the gain on sale of premium finance receivables. Clean-up
calls resulted in increased gains of $444,000, $761,000, and $248,000 in 2007, 2006 and 2005,
respectively. The Company continuously monitors the performance of the loan pools to the
projections and adjusts the assumptions in its cash flow model when warranted. Credit losses on
loans sold were estimated at 0.20% of the estimated average balances in 2007, at 0.15% for 2006 and
at a range of 0.15% to 0.25% for 2005. The gains are also influenced by the number of months
these loans are estimated to be outstanding. The estimated average terms of the loans were nine
months in 2007 and in 2006, and eight to nine months in 2005. The applicable discount rate used in
determining gains related to this activity was the same in 2007, 2006 and 2005.
At December 31, 2007 and 2006, premium finance loans sold and serviced for others for which the
Company retains a recourse obligation related to credit losses totaled approximately $219.9 million
and $58.3 million, respectively. The remaining estimated recourse obligation carried in other
liabilities was approximately $179,000 and $129,000, at December 31, 2007 and 2006, respectively.
Credit losses incurred on loans sold are applied against the recourse obligation liability that is
established at the date of sale. Credit losses, net of recoveries, for premium finance receivables
sold and serviced for others totaled $129,000 in 2007, $191,000 in 2006 and $269,000 in 2005. At
December 31, 2007, non-performing loans related to this sold portfolio were approximately $180,000,
or less than 1% of the sold loans, compared to $3.5 million, or 6%, of the sold loans at December
31, 2006. The premium finance portfolio owned by the Company had a ratio of non-performing loans
to total loans of 1.80% at December 31, 2007 and 1.07% at December 31, 2006. Ultimate losses on
premium finance loans are substantially less than non-performing loans for the reasons noted in the
Non-performing Premium Finance Receivables portion of the Credit Risk and Asset Quality section
of this report.
Administrative services revenue generated by Tricom was $4.0 million in 2007, $4.6 million in 2006
and $4.5 million in 2005. This revenue comprises income from administrative services, such as data
processing of payrolls, billing and cash management services, to temporary staffing service clients
located throughout the United States. Tricom also earns interest and fee income from providing
high-yielding, short-term accounts receivable financing to this same client base, which is included
in the net interest income category. The decrease in revenue in 2007 compared to 2006 is a result
of slower growth in new customer relationships and a decrease in revenue from existing clients. In
2006 compared to 2005, Tricom increased sales volumes with its current client base, however
experienced competitive rate pressures.
Gains on available-for-sale securities totaled $3.0 million in 2007, $17,000 in 2006 and $1.1
million in 2005. Included in gains in 2007 was a $2.5 million gain recognized in the fourth
quarter of 2007 on the Companys investment in an unaffiliated bank holding company that was
acquired by another bank holding company.
Premium income from covered call option transactions totaled $2.6 million in 2007, $3.2 million in
2006 and $11.4 million in 2005. The higher fees from covered call options in 2005 was due to the
mix in the types of underlying securities and the volatility in the marketplace that resulted in
higher premiums for the options.
During 2007, call option contracts were written against $1.1 billion of underlying securities,
compared to $1.6 billion in 2006 and $3.3 billion in 2005. The same security may be included in
this total more than once to the extent that multiple call option contracts were written against it
if the initial call option contracts were not exercised. The Company routinely writes call options
with terms of less than three months against certain U.S. Treasury and agency securities held in
its portfolio for liquidity and other purposes. Management enters into these transactions with the
goal of enhancing its overall return on its investment portfolio by using the fees generated from
these options to compensate for net interest margin compression. These option transactions are
designed to increase the total return associated with holding certain investment securities and do
not qualify as hedges pursuant to SFAS 133. There were no outstanding call option contracts at
December 31, 2007 or December 31, 2006.
The Company recognized trading income related to interest rate swaps not designated in hedge
relationships and the trading account assets of its broker-dealer. Trading income recognized for
the net cash settlement of swaps is income that would have been recognized regardless of whether
the swaps were designated in hedging relationships. However, in the absence of hedge accounting,
the net cash settlement of the swaps is included in trading income rather than net interest income.
Trading income totaled $265,000 in 2007 and $8.8 million in 2006, compared to a loss of $0.9
million in 2005. At June 30, 2006, the Company had $231.1 million of interest rate swaps that were
initially documented at their inception dates as being in hedging relationships with the Companys
variable rate junior subordinated debentures and subordinated notes, but subsequently, management
determined that the hedge documentation did not meet the standards of SFAS 133. In July 2006, the
Company settled its position in these interest rate swap contracts by selling them
|
|
|
|
|
36
|
|
|
|
Wintrust
Financial Corporation |
to third parties. The Company realized approximately $5.8 million from the settlement of these swaps and
eliminated any further earnings volatility due to the changes in fair values.
Bank Owned Life Insurance (BOLI) generated non-interest income of $4.9 million in 2007, $2.9
million in 2006 and $2.4 million in 2005. This income typically represents adjustments to the cash
surrender value of BOLI policies; however in the third quarter of 2007, the Company recorded a
non-taxable $1.4 million death benefit gain. The Company initially purchased BOLI to consolidate
existing term life insurance contracts of executive officers and to mitigate the mortality risk
associated with death benefits provided for in executive employment contracts and in connection
with certain deferred compensation arrangements. The Company has purchased additional BOLI since
then, including $8.9 million of BOLI that was owned by State Bank of the Lakes and $8.4 million
owned by Hinsbrook Bank when Wintrust acquired these banks. BOLI totaled $84.7 million at December
31, 2007 and $82.1 million at December 31, 2006, and is included in other assets.
Miscellaneous other non-interest income includes loan servicing fees, service charges, rental
income from equipment leases and miscellaneous other income. In 2007, the Company recognized a
$2.6 million gain from the sale of property held by the Company, which was partially offset by $1.4
million of losses recognized on various limited partnership investments. Approximately $1.0
million of these partnership losses relate to a low income housing tax credit investment which
generates tax credits that are recorded directly to income tax expense. The increase in 2006
compared to 2005 is as a result of growth in the Companys balance sheet.
Non-interest Expense
Non-interest expense totaled $242.9 million in 2007, and increased $14.1 million, or 6%, compared
to 2006. In 2006, non-interest expense totaled $228.8 million, and increased $30.1 million, or
15%, compared to 2005. The non-interest expense categories increased as a result of acquisitions
in 2005, 2006 and 2007, the new branch locations opened and the new de novo bank opened at the end
of the first quarter of 2006. In 2007, Wintrust added five locations that added to all categories
of non-interest expense.
The following table presents non-interest expense by category for 2007, 2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2007 compared to 2006 |
|
2006 compared to 2005 |
|
|
2007 |
|
2006 |
|
2005 |
|
$ Change |
|
% Change |
|
$ Change |
|
% Change |
|
|
|
Salaries and employee benefits |
|
$ |
141,816 |
|
|
|
137,008 |
|
|
|
118,071 |
|
|
$ |
4,808 |
|
|
|
4 |
% |
|
$ |
18,937 |
|
|
|
16 |
% |
Equipment |
|
|
15,363 |
|
|
|
13,529 |
|
|
|
11,779 |
|
|
|
1,834 |
|
|
|
14 |
|
|
|
1,750 |
|
|
|
15 |
|
Occupancy, net |
|
|
21,987 |
|
|
|
19,807 |
|
|
|
16,176 |
|
|
|
2,180 |
|
|
|
11 |
|
|
|
3,631 |
|
|
|
22 |
|
Data processing |
|
|
10,420 |
|
|
|
8,493 |
|
|
|
7,129 |
|
|
|
1,927 |
|
|
|
23 |
|
|
|
1,364 |
|
|
|
19 |
|
Advertising and marketing |
|
|
5,318 |
|
|
|
5,074 |
|
|
|
4,970 |
|
|
|
244 |
|
|
|
5 |
|
|
|
104 |
|
|
|
2 |
|
Professional fees |
|
|
7,090 |
|
|
|
6,172 |
|
|
|
5,609 |
|
|
|
918 |
|
|
|
15 |
|
|
|
563 |
|
|
|
10 |
|
Amortization of other intangible assets |
|
|
3,861 |
|
|
|
3,938 |
|
|
|
3,394 |
|
|
|
(77 |
) |
|
|
(2 |
) |
|
|
544 |
|
|
|
16 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions 3rd party brokers |
|
|
3,854 |
|
|
|
3,842 |
|
|
|
3,823 |
|
|
|
12 |
|
|
|
|
|
|
|
19 |
|
|
|
1 |
|
Postage |
|
|
3,841 |
|
|
|
3,940 |
|
|
|
3,665 |
|
|
|
(99 |
) |
|
|
(3 |
) |
|
|
275 |
|
|
|
8 |
|
Stationery and supplies |
|
|
3,159 |
|
|
|
3,233 |
|
|
|
3,262 |
|
|
|
(74 |
) |
|
|
(2 |
) |
|
|
(29 |
) |
|
|
(1 |
) |
FDIC Insurance |
|
|
3,713 |
|
|
|
911 |
|
|
|
926 |
|
|
|
2,802 |
|
|
|
308 |
|
|
|
(15 |
) |
|
|
(2 |
) |
Miscellaneous |
|
|
22,513 |
|
|
|
22,873 |
|
|
|
19,886 |
|
|
|
(360 |
) |
|
|
(2 |
) |
|
|
2,987 |
|
|
|
15 |
|
|
|
|
Total other |
|
|
37,080 |
|
|
|
34,799 |
|
|
|
31,562 |
|
|
|
2,281 |
|
|
|
7 |
|
|
|
3,237 |
|
|
|
10 |
|
|
|
|
Total non-interest expense |
|
$ |
242,935 |
|
|
|
228,820 |
|
|
|
198,690 |
|
|
$ |
14,115 |
|
|
|
6 |
% |
|
$ |
30,130 |
|
|
|
15 |
% |
|
Wintrusts net overhead ratio, which is non-interest expense less non-interest income as a percent
of total average assets, was 1.72% in 2007, 1.54% in 2006 and 1.39% in 2005. This ratio has
steadily increased the past few years as the Company has increased staff levels to accommodate new
facilities and growth at existing facilities, while non-interest income from mortgage banking and
fees generated from covered call options have slowed over the past few years.
Salaries and employee benefits is the largest component of non-interest expense, accounting for 58%
of the total in 2007, 60% of the total in 2006 and 59% in 2005. For the year ended December 31,
2007, salaries and employee benefits totaled $141.8 million and increased $4.8 million, or 4%
compared to 2006. Base pay components and the impact of the Hinsbrook and Broadway acquisitions
contributed to the majority of the increase in 2007 compared to 2006. The increase in 2006
compared to 2005 is comprised of fixed and variable compensation components increasing $10.9
million, the adoption of SFAS 123(R) increasing costs by $5.6 million and
total benefits increasing $2.4 million. See Note 18 of
the Consolidated Financial Statements for further
information on SFAS 123(R). For the year ended
December 31, 2006, salaries and employee benefits
totaled $137.0 million, and increased $18.9 million, or
16%, compared to 2005.
Equipment expense, which includes furniture, equipment
and computer software depreciation and repairs and
maintenance costs, totaled $15.4 million in 2007, $13.5
million in 2006 and $11.8 million in 2005, reflecting
increases of 14% in 2007 and 15% in 2006. These
increases were caused by higher levels of expense
related to the furniture, equipment and computer
software required at new facilities and at existing
facilities due to increased staffing.
Occupancy expense for the years 2007, 2006 and 2005 was
$22.0 million, $19.8 million and $16.2 million,
respectively, reflecting increases of 11% in 2007 and
22% in 2006. Occupancy expense includes depreciation
on premises, real estate taxes, utilities and
maintenance of premises, as well as net rent expense
for leased premises. Increases in 2007 and 2006
reflect the increases in the number of facilities
operated as well as market increases in operating costs
of such facilities.
Data processing expenses totaled $10.4 million in 2007,
$8.5 million in 2006 and $7.1 million in 2005,
representing increases of 23% in 2007 and 19% in 2006.
The increases are primarily due to the additional costs
of acquired banks, new branch facilities at existing
banks and the overall growth of loan accounts.
Advertising and marketing expenses totaled $5.3 million
for 2007, $5.1 million for 2006 and $5.0 million for
2005. Marketing costs are necessary to attract loans
and deposits at the newly chartered banks, to announce
new branch openings as well as the expansion of the
wealth management business, to continue to promote
community-based products at the more established
locations and, in 2007, to promote the Companys
commercial banking capabilities. The level of
marketing expenditures depends on the type of marketing
programs utilized which are determined based on the
market area, targeted audience, competition and various
other factors. Management continues to utilize
targeted marketing programs in the more mature market
areas.
Professional fees include legal, audit and tax fees,
external loan review costs and normal regulatory exam
assessments. These fees totaled $7.1 million in 2007,
$6.2 million in 2006 and $5.6 million in 2005. The
increase for 2007 is primarily related to increased
legal costs related to non-performing loans. The
increase for 2006 is attributable to the general growth
in the Companys total assets, the expansion of the
banking franchise and the acquisition of Hinsbrook
Bank.
Amortization of other intangibles assets relates to the
amortization of core deposit premiums and customer list
intangibles
established in connection with the application of SFAS
142 to business combinations. See Note 8 of the
Consolidated Financial Statements for further
information on these intangible assets.
Commissions paid to 3rd party brokers primarily
represent the commissions paid on revenue generated by
WHI through its network of unaffiliated banks.
FDIC insurance totaled $3.7 million in 2007 and $0.9
million in both 2006 and 2005. The significant
increase in 2007 is a result of a higher rate structure
imposed on all financial institutions beginning in
2007.
Miscellaneous non-interest expense includes ATM
expenses, correspondent banking charges, directors
fees, telephone, travel and entertainment, corporate
insurance and dues and subscriptions. These expenses
represent a large collection of controllable daily
operating expenses. This category decreased $0.4
million, or 2%, in 2007 and increased $3.0 million, or
15%, in 2006. The decrease in 2007 compared to 2006
reflects managements continued efforts to control
daily operating expenses. The increase in 2006
compared to 2005 is in line with increases in the other
non-interest expense categories for that period and
reflects the growth in the Companys balance sheet.
Income Taxes
The Company recorded income tax expense of $28.2
million in 2007, $37.7 million in 2006 and $37.9
million in 2005. The effective tax rates were 33.6%,
36.2% and 36.1% in 2007, 2006 and 2005, respectively.
Please refer to Note 17 to the Consolidated Financial
Statements for further discussion and analysis of the
Companys tax position, including a reconciliation of
the tax expense computed at the statutory tax rate to
the Companys actual tax expense.
Operating Segment Results
As described in Note 24 to the Consolidated Financial
Statements, the Companys operations consist of four
primary segments: banking, premium finance, Tricom and
wealth management. The Companys profitability is
primarily dependent on the net interest income,
provision for credit losses, non-interest income and
operating expenses of its banking segment. The net
interest income of the banking segment includes income
and related interest costs from portfolio loans that
were purchased from the premium finance segment. For
purposes of internal segment profitability analysis,
management reviews the
results of its premium finance segment as if all loans
originated and sold to the banking segment were
retained within that segments operations. Similarly,
for purposes of analyzing the contribution from the
wealth management segment, management allocates the net
interest income earned by the banking segment on
deposit balances of customers of the wealth management
segment to the wealth management segment.
|
|
|
|
|
38
|
|
|
|
Wintrust
Financial Corporation |
The banking segments net interest income for the year
ended December 31, 2007 totaled $259.0 million as
compared to $235.2 million for the same period in 2006,
an increase of $23.8 million, or 10%. The increase in
net interest income for 2006 when compared to the total
of $211.7 million in 2005 was $23.5 million, or 11%.
The increase in 2007 compared to 2006 is primarily a
result of an increase in net interest margin which was
attributable to a higher loan-to-deposit ratio and the
shift in deposits away from higher cost retail
certificates of deposit in 2007. The increase in 2006
compared to 2005 was primarily the result of continued
growth in the loan portfolio partially offset by the
effect of a decrease in net interest margin. Total
loans increased 8% in 2007 and 22% in 2006. Provision
for credit losses increased to $14.3 million in 2007
compared to $6.3 million in 2006 and $6.5 million in
2005. The banking segments non-interest income
totaled $36.3 million in 2007, a decrease of $4.3
million, or 11%, when compared to the 2006 total of
$40.6 million. The decrease in non-interest income in
2007 is primarily a result of lower mortgage banking
revenues which were impacted by mortgage banking
valuation and recourse obligation adjustments totaling
$6.0 million. In 2006, non-interest income for the
banking segment decreased $10.4 million, or 20% when
compared to the 2005 total of $51.0 million. The
decrease in 2006 compared to 2005 is primarily a result
of a lower level of fees from covered call options and
lower mortgage banking revenues. The banking segments
net income for the year ended December 31, 2007 totaled
$62.3 million, an increase of $1.2 million, or 2%, as
compared to the 2006 total of $61.1 million. Net
income for the year ended December 31, 2006 decreased
$8.3 million, or 12%, as compared to the 2005 total of
$69.4 million.
The premium finance segments net interest income
totaled $60.5 million for the year ended December 31,
2007 and increased $18.1 million, or 43%, over the
$42.4 million in 2006. This increase was primarily the
result of $275 million of higher average levels of
premium finance receivables compared to 2006. In
November 2007, the Company completed the acquisition of
Broadway Premium Funding Corporation which is now
included in the premium finance segment results since
the date of acquisition. Wintrust did not sell any
premium finance receivables to an unrelated third party
financial institution in the third and fourth quarters
of 2006 or the first three quarters of 2007. The
premium finance segments non-interest income totaled
$2.0 million, $2.9 million and $6.5 million for the
years ended December 31, 2007, 2006 and 2005,
respectively. Non-interest income for this segment
reflects the gains from the sale of premium finance
receivables to an unrelated third party, as more fully
discussed in the Consolidated Results of Operations
section. Net after-tax profit of the premium finance
segment totaled $29.8 million, $19.6 million and $21.7
million for the years ended December 31, 2007, 2006 and
2005, respectively. New receivable
originations totaled $3.1 billion in 2007, $3.0 billion
in 2006 and $2.7 billion in 2005. The
increases in new volumes each year is indicative of
this segments ability to increase market penetration
in existing markets and establish a presence in new
markets.
The Tricom segment data reflects the business
associated with short-term accounts receivable
financing and value-added out-sourced administrative
services, such as data processing of payrolls, billing
and cash management services that Tricom provides to
its clients in the temporary staffing industry. The
segments net interest income was $3.9 million in 2007
and 2006, and $4.1 million in 2005. Non-interest
income for 2007 was $4.0 million, decreasing $592,000
or 13%, from the $4.6 million reported in 2006.
Revenue trends at Tricom reflect the general staffing
trends of the economy and the entrance of new
competitors in most market places served by Tricom.
The segments net income was $1.4 million in 2007, $1.8
million in 2006 and $1.8 million 2005. The decrease in
net income in 2007 compared to 2006 and 2005 is a
result of growth in new customer relationships offset
by a decrease in revenue from existing clients.
The wealth management segment reported net interest
income of $12.9 million for 2007 compared to $6.3
million for 2006 and $1.4 million for 2005. Net
interest income is comprised of the net interest earned
on brokerage customer receivables at WHI and an
allocation of the net interest income earned by the
banking segment on non-interest bearing and
interest-bearing wealth management customer account
balances on deposit at the Banks. The allocated net
interest income included in this segments
profitability was $11.7 million ($7.2 million after
tax) in 2007 and $5.2 million ($3.2 million after tax)
in 2006. During the third quarter of 2006, the Company
changed the measurement methodology for the net
interest income component of the wealth management
segment. In conjunction with the change in the
executive management team for this segment in the third
quarter of 2006, the contribution attributable to the
wealth management deposits was redefined to measure the
full net interest income contribution. In previous
periods, the contribution from these deposits was
limited to the value as an alternative source of
funding for each bank. As such, the contribution in
previous periods did not capture the total net interest
income contribution of this funding source. Current
executive management of this segment uses this measured
contribution to determine overall profitability.
Wealth management customer account balances on deposit
at the Banks averaged $538.7 million, $465.4 million
and $407.8 million in 2007, 2006 and 2005,
respectively. This segment recorded non-interest
income of $39.3 million for 2007 as compared to $38.0
million for 2006 and $36.6 million in 2005. In 2006,
this segments
non-interest income included a $2.4 million gain on the sale of the Wayne Hummer
Growth Fund. Distribution of wealth management
services through each bank subsidiary continues to be a
focus of the Company as the number of brokers in its
Banks continues to increase. Wealth management revenue
growth generated in the banking locations is
significantly outpacing the growth derived from the
traditional Wayne Hummer Investment downtown Chicago sources. Wintrust is committed to growing the
wealth management segment in order to better service its customers and create a more diversified
revenue stream and continues to focus on reducing the fixed cost structure of this segment to a
variable cost structure. This segment reported net income of $7.7 million for 2007 compared to
$3.3 million for 2006 and a net loss of $589,000 for 2005.
ANALYSIS OF FINANCIAL CONDITION
The Companys total assets were $9.4 billion at December 31, 2007, a decrease of $203.0 million, or
2%, when compared to the $9.6 billion at December 31, 2006. Total assets increased $1.4 billion,
or 17%, in 2006 over the $8.2 billion at December 31, 2005. In 2007, available-for-sale securities
decreased $535.9 million, while loans increased $305.1 million. In 2006, loans increased $1.3
billion, representing the most significant component of the total asset growth in 2006.
Interest-Earning Assets
The following table sets forth, by category, the composition of average earning assets and the
relative percentage of each category to total average earning assets for the periods presented
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
|
|
2007 |
2006 |
2005 |
|
|
Average |
|
Percent |
|
Average |
|
Percent |
|
Average |
|
Percent |
|
|
Balance |
|
of Total |
|
Balance |
|
of Total |
|
Balance |
|
of Total |
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
commercial real estate |
|
$ |
4,182,205 |
|
|
|
49 |
% |
|
$ |
3,647,982 |
|
|
|
45 |
% |
|
$ |
2,931,230 |
|
|
|
42 |
% |
Home equity |
|
|
652,034 |
|
|
|
8 |
|
|
|
641,494 |
|
|
|
8 |
|
|
|
621,160 |
|
|
|
9 |
|
Residential real estate (1) |
|
|
335,894 |
|
|
|
4 |
|
|
|
365,159 |
|
|
|
5 |
|
|
|
401,473 |
|
|
|
6 |
|
Premium finance receivables |
|
|
1,264,941 |
|
|
|
15 |
|
|
|
989,689 |
|
|
|
12 |
|
|
|
847,970 |
|
|
|
12 |
|
Indirect consumer loans |
|
|
248,203 |
|
|
|
3 |
|
|
|
229,757 |
|
|
|
3 |
|
|
|
195,697 |
|
|
|
3 |
|
Tricom finance receivables |
|
|
33,552 |
|
|
|
|
|
|
|
41,703 |
|
|
|
1 |
|
|
|
36,599 |
|
|
|
1 |
|
Consumer and other loans |
|
|
108,051 |
|
|
|
1 |
|
|
|
97,560 |
|
|
|
1 |
|
|
|
103,783 |
|
|
|
2 |
|
|
|
|
Total loans, net of
unearned income (2) |
|
|
6,824,880 |
|
|
|
80 |
|
|
|
6,013,344 |
|
|
|
75 |
|
|
|
5,137,912 |
|
|
|
75 |
|
Liquidity management assets (3) |
|
|
1,674,719 |
|
|
|
20 |
|
|
|
2,054,798 |
|
|
|
25 |
|
|
|
1,738,725 |
|
|
|
25 |
|
Other earnings assets (4) |
|
|
24,721 |
|
|
|
|
|
|
|
29,675 |
|
|
|
|
|
|
|
23,644 |
|
|
|
|
|
|
|
|
Total average earning assets |
|
$ |
8,524,320 |
|
|
|
100 |
% |
|
$ |
8,097,817 |
|
|
|
100 |
% |
|
$ |
6,900,281 |
|
|
|
100 |
% |
|
|
|
Total average assets |
|
$ |
9,442,277 |
|
|
|
|
|
|
$ |
8,925,557 |
|
|
|
|
|
|
$ |
7,587,602 |
|
|
|
|
|
|
|
|
Total average earning assets to
total average assets |
|
|
|
|
|
|
90 |
% |
|
|
|
|
|
|
91 |
% |
|
|
|
|
|
|
91 |
% |
|
|
|
|
(1) |
|
Includes mortgage loans held-for-sale |
|
(2) |
|
Includes non-accrual loans |
|
(3) |
|
Includes available-for-sale securities, interest earning deposits with banks and federal
funds sold and securities purchased under resale agreements |
|
(4) |
|
Includes brokerage customer receivables and trading account securities |
Average earning assets increased $426.5 million, or 5%, in 2007 and $1.2 billion, or 17%, in 2006.
The ratio of average earning assets as a percent of total average assets in 2007 declined slightly
to 90% from 91% in 2006 and 2005.
Total average loans increased $811.5 million, or 14%, in 2007, and $875.4 million, or 17%, in 2006.
The increase in average loans was primarily funded by proceeds from maturing liquidity management
assets and higher levels of average deposits. The average loans to average deposits ratio
increased to 90.1% in 2007 from 82.2% in 2006 and 83.4% in 2005. Due to the increase of the
average loan-to-deposit ratio in 2007 to the high-end of managements
target range of 85% 90%, the Company reinstated its program of selling
premium
finance receivables to unrelated third parties by selling $230.0 million of outstanding balances in
the fourth quarter of 2007. The sale of premium finance receivables is discussed below in more
detail.
Loans. Total loans at December 31, 2007 were $6.8 billion, increasing $305.1 million, or 5%, over
the December 31, 2006 total of $6.5 billion. Average total loans, net of unearned income, totaled
$6.8 billion in 2007, $6.0 billion in 2006 and $5.1 billion in 2005.
|
|
|
|
|
40
|
|
|
|
Wintrust
Financial Corporation |
Average commercial and commercial real estate loans, the largest
loan category, totaled $4.2 billion in 2007, and increased $534.2
million, or 15%, over the average balance in 2006. The average
balance in 2006 increased $716.8 million, or 24%, over the average
balance in 2005. This category comprised 61% of the average
loan portfolio in 2007 and 2006. The growth realized in this category
is attributable to increased business development efforts,
acquisitions, and to a lesser extent the reclassification of $78.6 million
of loans in the fourth quarter of 2006 from the residential real
estate category to commercial and commercial real estate.
In order to minimize the time lag typically experienced by de
novo banks in redeploying deposits into higher yielding earning
assets, the Company has developed lending programs focused on
specialized earning asset niches that generally have large volumes
of homogeneous assets that can be acquired for the Banks portfolios
and possibly sold in the secondary market to generate fee
income. These specialty niches also diversify the Banks loan
portfolios and add higher yielding earning assets that help to
improve the net interest margin. However, these loans may
involve greater credit risk than generally associated with loan
portfolios of more traditional community banks due to marketability
of the collateral, or because of the indirect relationship
the Company has with the underlying borrowers. Specialty loan
programs include premium finance, indirect auto, Tricom
finance receivables, mortgage broker warehouse lending through
Hinsdale Bank, the Community Advantage program at Barrington
Bank, which provides lending, deposit and cash management
services to condominium, homeowner and community
associations and the small aircraft lending program at Crystal
Lake Bank. Other than the premium finance receivables, Tricom
finance receivables and indirect auto, all of the loans generated
by these specialty loan programs are included in commercial
and commercial real estate loans in the preceding table.
Management continues to evaluate other specialized types of
earning assets to assist with the deployment of deposit funds and
to diversify the earning asset portfolio.
Home equity loans averaged $652.0 million in 2007, and
increased $10.5 million, or 2%, when compared to the average
balance in 2006. Home equity loans averaged $641.5 million in
2006, and increased $20.3 million, or 3%, when compared to
the average balance in 2005. Unused commitments on home
equity lines of credit totaled $878.1 million at December 31,
2007 and $846.8 million at December 31, 2006.
Residential real estate loans averaged $335.9 million in 2007,
and decreased $29.3 million, or 8%, from the average balance in
2006. This category includes mortgage loans held-for-sale. By
selling residential mortgage loans into the secondary market, the
Company eliminates the interest-rate risk associated with these
loans, as they are predominantly long-term fixed rate loans, and
provides a source of non-interest revenue. The remaining loans
in this category are maintained within the Banks loan portfolios
and represent mostly adjustable rate mortgage loans and shorter-term
fixed rate mortgage loans.
The Company does not think it has a
significant exposure related to subprime mortgages. WestAmerica,
which originated certain subprime mortgages for sale into the
secondary market, substantially modified its product offerings in the
second quarter of 2007 in an effort to reduce the risk associated
with subprime mortgages. The lower average residential
real estate loans in 2007 have resulted from the Companys
reclassification of $78.6 million of loans in the fourth quarter of
2006, which are now included in commercial and commercial
real estate.
Premium finance receivables are originated through FIFC and to
a lesser extent Broadway. These receivables represent loans to
businesses to finance the insurance premiums they pay on their
commercial insurance policies. All premium finance receivables
originated by FIFC are subject to the Companys credit standards,
and substantially all such loans are made to commercial
customers. The Company rarely finances consumer insurance
premiums.
Average premium finance receivables totaled $1.3 billion in
2007, and accounted for 19% of the Companys average total
loans. Average premium finance receivables increased $275.3
million, or 28%, from the average balance of $989.7 million in
2006. The increase in the average balance of premium finance
receivables is a result of the Companys decision to suspend the
sale of premium finance receivables to an unrelated third party
beginning in the third quarter of 2006 and to a lesser extent
from loans acquired through the Broadway acquisition in the
fourth quarter of 2007. Also, in the fourth quarter of 2007, due
to the Companys average loan-to-average deposit ratio being
consistently above the target range of 85% to 90%, the Company
reinstated its program of selling premium finance receivables,
with servicing retained, to unrelated third parties. The
majority of the receivables originated by FIFC are sold to the
Banks and retained in their loan portfolios. Having a program
in place to sell premium finance receivables to third parties
allows the Company to execute its strategy to be asset-driven
while providing the benefits of additional sources of liquidity
and revenue. The level of premium finance receivables sold to
unrelated third parties depends in large part on the capacity of the
Banks to retain such loans in their portfolio and therefore, it is
possible that sales of these receivables may occur in the future. See
Consolidated Results of Operations for further information on
these loan sales. Total premium finance loan originations were
$3.1 billion, $3.0 billion and $2.7 billion in 2007, 2006 and
2005, respectively.
Indirect consumer loans are comprised primarily of automobile
loans (94% of the indirect portfolio) and boat loans at State
Bank of The Lakes. These loans are financed from networks of
unaffiliated automobile and boat dealers located throughout the
Chicago and southern Wisconsin metropolitan areas with which
the Company has established relationships. Indirect auto loans
are secured by new and used automobiles and generally have an
original maturity of 36 to 72 months with the average actual
maturity estimated to be approximately 40 to 45 months. The
risks associated with the Companys portfolios are diversified
among many individual borrowers. Like other consumer loans,
the indirect consumer loans are subject to the Banks
established credit standards. Management regards substantially all
of these loans as prime quality loans. Management
continually monitors the dealer relationships to ensure
the Banks are not dependent on any one dealer as a
source of such loans. During 2007, 2006 and 2005
average indirect consumer loans totaled $248.2 million,
$229.8 million and $195.7 million, respectively.
Tricom finance receivables represent high-yielding
short-term accounts receivable financing to Tricoms
clients in the temporary staffing industry located
throughout the United States. These receivables may
involve greater credit risks than generally associated
with the loan portfolios of more traditional community
banks depending on the marketability of the collateral.
The principal sources of repayments on the receivables
are payments due to the borrowers from their customers
who are located throughout the United States. The
Company mitigates this risk by employing lockboxes and
other cash management techniques to protect their
interests. Typically, Tricom also provides value-added
out-sourced administrative services to many of these
clients, such as data processing of payrolls, billing
and cash management services, which generate additional
fee income. Average Tricom finance receivables were
$33.6 million in 2007, $41.7 million in 2006 and $36.6
million in 2005. Lower activity from existing clients
and slower growth in new customer relationships has
lead to the decrease in Tricom finance receivables in
2007 compared with 2006. Higher sales volumes with
Tri-coms existing client base coupled with new client
business lead to the higher level of Tricom finance
receivables in 2006 compared with 2005.
Liquidity Management Assets. Funds that are not
utilized for loan originations are used to purchase
investment securities and short-term money market
investments, to sell as federal funds and to maintain
in interest-bearing deposits with banks. The balances
of these assets fluctuate frequently based on deposit
inflows, the level of other funding services and loan
demand. Average liquidity management assets accounted
for 20% of total average earning assets in 2007 and 25%
in 2006 and 2005. Average liquidity management assets
decreased $380.1 million in 2007 compared to 2006, and
increased $316.1 million in 2006 compared to 2005. The
decrease in average liquidity management assets in 2007
is the result of the maturity of various
available-for-sale securities, primarily in the first
half of 2007. As a result of the current interest rate
environment, loan growth and the Companys balance
sheet strategy, not all maturities were replaced with
new purchases. The Company has put in place a deposit
pricing strategy which has resulted in a gradual shift
away from dependence upon retail certificates of
deposits and resulted in an increase in the average
loan-to-average-deposit ratio. The increase in average
liquidity management assets in 2006 compared to 2005
was a result of increases in average
deposits and other funding sources exceeding increases
in average loans in 2006.
Other earning assets. Average other earning assets
include trading account securities and brokerage
customer receivables at WHI. In the normal course of
business, WHI activities involve the execution,
settlement, and financing of various securities
transactions. WHIs customer securities activities are
transacted on either a cash or margin basis. In margin
transactions, WHI, under an agreement with the
out-sourced securities firm, extends credit to its
customers, subject to various regulatory and internal
margin requirements, collateralized by cash and
securities in customers accounts. In connection with
these activities, WHI executes and the out-sourced firm
clears customer transactions relating to the sale of
securities not yet purchased, substantially all of
which are transacted on a margin basis subject to
individual exchange regulations. Such transactions may
expose WHI to off-balance-sheet risk, particularly in
volatile trading markets, in the event margin
requirements are not sufficient to fully cover losses
that customers may incur. In the event a customer
fails to satisfy its obligations, WHI, under an
agreement with the outsourced securities firm, may be
required to purchase or sell financial instruments at
prevailing market prices to fulfill the customers
obligations. WHI seeks to control the risks associated
with its customers activities by requiring customers
to maintain margin collateral in compliance with
various regulatory and internal guidelines. WHI
monitors required margin levels daily and, pursuant to
such guidelines, requires customers to deposit
additional collateral or to reduce positions when
necessary.
Deposits and Other Funding Sources
The dynamics of community bank balance sheets are
generally dependent upon the ability of management to
attract additional deposit accounts to fund the growth
of the institution. As the Banks and branch offices
are still relatively young, the generation of new
deposit relationships to gain market share and
establish themselves in the community as the bank of
choice is particularly important. When determining a
community to establish a de novo bank, the Company
generally will enter a community where it believes the
new bank can gain the number one or two position in
deposit market share. This is usually accomplished by
initially paying competitively high deposit rates to
gain the relationship and then by introducing the
customer to the Companys unique way of providing local
banking services.
Deposits. Total deposits at December 31, 2007, were
$7.5 billion, decreasing $398 million, or 5%, compared
to the $7.9 billion at December 31, 2006. Average
deposit balances in 2007 were $7.6 billion, reflecting
an increase of $257 million, or 4%, compared to the average balances
in 2006. During 2006, average deposits increased $1.2
billion, or 19%, compared to the prior year.
|
|
|
|
|
42
|
|
|
|
Wintrust
Financial Corporation |
The decrease in year end deposits in 2007 over 2006 reflects the Companys initiatives in 2007 to
reduce the level of higher rate certificates of deposit. During 2007, the Companys retail deposit
pricing strategies focused on shifting the mix of deposits away from certificates of deposit into
lower rate and more variable rate NOW and money market accounts.
The following table presents the composition of average deposits by product category for each of
the last three years (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
|
Average |
|
Percent |
|
Average |
|
Percent |
|
Average |
|
Percent |
|
|
Balance |
|
of Total |
|
Balance |
|
of Total |
|
Balance |
|
of Total |
|
|
|
Non-interest
bearing deposits |
|
$ |
647,715 |
|
|
|
9 |
% |
|
$ |
623,542 |
|
|
|
9 |
% |
|
$ |
592,879 |
|
|
|
9 |
% |
NOW accounts |
|
|
938,960 |
|
|
|
12 |
|
|
|
774,481 |
|
|
|
10 |
|
|
|
699,323 |
|
|
|
11 |
|
Wealth management
deposits |
|
|
547,408 |
|
|
|
7 |
|
|
|
464,438 |
|
|
|
6 |
|
|
|
407,816 |
|
|
|
7 |
|
Money market
accounts |
|
|
696,760 |
|
|
|
9 |
|
|
|
639,590 |
|
|
|
9 |
|
|
|
657,788 |
|
|
|
11 |
|
Savings accounts |
|
|
302,339 |
|
|
|
4 |
|
|
|
307,142 |
|
|
|
4 |
|
|
|
298,468 |
|
|
|
5 |
|
Time certificates
of deposit |
|
|
4,442,469 |
|
|
|
59 |
|
|
|
4,509,488 |
|
|
|
62 |
|
|
|
3,507,771 |
|
|
|
57 |
|
|
|
|
Total deposits |
|
$ |
7,575,651 |
|
|
|
100 |
% |
|
$ |
7,318,681 |
|
|
|
100 |
% |
|
$ |
6,164,045 |
|
|
|
100 |
% |
|
Wealth management deposits are funds from the brokerage customers of WHI and the trust and asset
management customers managed by Wayne Hummer Trust Company which have been placed into deposit
accounts of the Banks (Wealth management deposits in table above). Consistent with reasonable
interest rate risk parameters, the funds have generally been invested in loan production of the
Banks as well as other investments suitable for banks.
The following table presents average deposit balances for each Bank and the relative percentage of
total consolidated average deposits held by each Bank during each of the past three years (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
|
Average |
|
Percent |
|
Average |
|
Percent |
|
Average |
|
Percent |
|
|
Balance |
|
of Total |
|
Balance |
|
of Total |
|
Balance |
|
of Total |
|
|
|
Lake Forest Bank |
|
$ |
1,060,954 |
|
|
|
14 |
% |
|
$ |
1,048,493 |
|
|
|
14 |
% |
|
$ |
947,014 |
|
|
|
15 |
% |
Hinsdale Bank(3) |
|
|
1,037,514 |
|
|
|
14 |
|
|
|
888,430 |
|
|
|
12 |
|
|
|
740,092 |
|
|
|
12 |
|
North Shore Bank |
|
|
781,699 |
|
|
|
10 |
|
|
|
819,010 |
|
|
|
11 |
|
|
|
767,464 |
|
|
|
12 |
|
Libertyville Bank |
|
|
798,522 |
|
|
|
11 |
|
|
|
741,231 |
|
|
|
10 |
|
|
|
662,330 |
|
|
|
11 |
|
Barrington Bank |
|
|
700,728 |
|
|
|
9 |
|
|
|
707,620 |
|
|
|
10 |
|
|
|
653,509 |
|
|
|
11 |
|
Crystal Lake Bank |
|
|
470,586 |
|
|
|
6 |
|
|
|
457,486 |
|
|
|
6 |
|
|
|
410,168 |
|
|
|
7 |
|
Northbrook Bank |
|
|
613,943 |
|
|
|
8 |
|
|
|
632,337 |
|
|
|
9 |
|
|
|
554,717 |
|
|
|
9 |
|
Advantage Bank |
|
|
241,117 |
|
|
|
3 |
|
|
|
219,689 |
|
|
|
3 |
|
|
|
209,136 |
|
|
|
3 |
|
Village Bank(1) |
|
|
491,307 |
|
|
|
6 |
|
|
|
504,021 |
|
|
|
7 |
|
|
|
359,224 |
|
|
|
6 |
|
Beverly Bank |
|
|
141,186 |
|
|
|
2 |
|
|
|
138,800 |
|
|
|
2 |
|
|
|
83,285 |
|
|
|
1 |
|
Wheaton Bank(3) |
|
|
244,158 |
|
|
|
3 |
|
|
|
157,440 |
|
|
|
2 |
|
|
|
94,194 |
|
|
|
2 |
|
Town Bank |
|
|
399,857 |
|
|
|
6 |
|
|
|
358,295 |
|
|
|
5 |
|
|
|
283,548 |
|
|
|
5 |
|
State Bank of The Lakes |
|
|
428,653 |
|
|
|
6 |
|
|
|
418,805 |
|
|
|
6 |
|
|
|
399,364 |
|
|
|
6 |
|
Old Plank Trail
Bank(2) |
|
|
108,887 |
|
|
|
1 |
|
|
|
44,569 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
St. Charles
Bank(3) |
|
|
56,540 |
|
|
|
1 |
|
|
|
182,455 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
7,575,651 |
|
|
|
100 |
% |
|
$ |
7,318,681 |
|
|
|
100 |
% |
|
$ |
6,164,045 |
|
|
|
100 |
% |
|
|
|
Percentage increase
from prior year |
|
|
|
|
|
|
4 |
% |
|
|
|
|
|
|
19 |
% |
|
|
|
|
|
|
40 |
% |
|
|
|
|
(1) |
|
For 2005, represents effect on consolidated average deposits from effective acquisition date of
March 31, 2005 for First Northwest Bank, which was merged with Village Bank. At December 31, 2005,
Village Bank had total deposits of $498.0 million. |
|
(2) |
|
For 2006, represents effect on consolidated average deposits from effective organization date
of March 23, 2006 for Old Plank Trail Bank. At December 31, 2006, Old Plank Trail Bank had total
deposits of $92.0 million. |
|
(3) |
|
For 2006, represents effect on consolidated average deposits from
effective acquisition date of May 31, 2006 for Hinsbrook Bank. Branches (and related deposits) from
Hinsbrook Bank were sold to Hinsdale Bank and Wheaton Bank in the fourth quarter of 2006.
Hinsbrooks Geneva branch was renamed St. Charles Bank. |
Other Funding Sources. Although deposits are the Companys primary source of funding its
interest-earning assets, the Companys ability to manage the types and terms of deposits is
somewhat limited by customer preferences and market competition. As a result, in addition to
deposits and the issuance of equity securities, as well as the retention of earnings, the Company
uses several other funding sources to support its growth. These other sources include short-term
borrowings, notes payable, FHLB advances, subordinated debt and junior subordinated debentures. The
Company evaluates the terms and unique characteristics of each source, as well as its
asset-liability management position, in determining the use of such funding sources.
The composition of average other funding sources in 2007, 2006 and 2005 is presented in the
following table (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
|
Average |
|
Percent |
|
Average |
|
Percent |
|
Average |
|
Percent |
|
|
Balance |
|
of Total |
|
Balance |
|
of Total |
|
Balance |
|
of Total |
|
|
|
Notes payable |
|
$ |
51,979 |
|
|
|
5 |
% |
|
$ |
6,913 |
|
|
|
1 |
% |
|
$ |
12,100 |
|
|
|
2 |
% |
Federal Home Loan
Bank advances |
|
|
400,552 |
|
|
|
38 |
|
|
|
364,149 |
|
|
|
45 |
|
|
|
333,108 |
|
|
|
43 |
|
Subordinated notes |
|
|
75,000 |
|
|
|
7 |
|
|
|
66,742 |
|
|
|
8 |
|
|
|
50,000 |
|
|
|
7 |
|
Short-term
borrowings |
|
|
264,743 |
|
|
|
25 |
|
|
|
140,968 |
|
|
|
17 |
|
|
|
152,575 |
|
|
|
20 |
|
Junior subordinated
debentures |
|
|
249,739 |
|
|
|
25 |
|
|
|
237,249 |
|
|
|
29 |
|
|
|
217,983 |
|
|
|
28 |
|
Other |
|
|
1,818 |
|
|
|
|
|
|
|
1,883 |
|
|
|
|
|
|
|
3,255 |
|
|
|
|
|
|
|
|
Total other funding
sources |
|
$ |
1,043,831 |
|
|
|
100 |
% |
|
$ |
817,904 |
|
|
|
100 |
% |
|
$ |
769,021 |
|
|
|
100 |
% |
|
Notes payable balances represent the balances on a credit agreement with an unaffiliated bank. This credit facility is available for corporate purposes such as to provide capital to fund continued growth at existing bank subsidiaries,
possible future acquisitions and for other general corporate matters. At December 31, 2007 and
2006, the Company had $60.7 million and $12.8 million, respectively, of notes payable outstanding.
See Note 11 to the Consolidated Financial Statements for further discussion of the terms of this
credit facility.
FHLB advances provide the Banks with access to fixed rate funds which are useful in mitigating
interest rate risk and achieving an acceptable interest rate spread on fixed rate loans or
securities. FHLB advances to the Banks totaled $415.2 million at December 31, 2007, and $325.5
million at December 31, 2006. See Note 12 to the Consolidated Financial Statements for further
discussion of the terms of these advances.
The Company borrowed $75.0 million under three separate $25 million subordinated note agreements.
Each subordinated note requires annual principal payments of $5.0 million beginning in the sixth
year of the note and has terms of ten years with final maturity dates in 2012, 2013 and 2015. These
notes qualify as Tier II regulatory capital. See Note 13 to the Consolidated Financial Statements
for further discussion of the terms of the notes.
Short-term borrowings include securities sold under repurchase agreements and federal funds
purchased. These borrowings totaled $252.6 million and $159.9 million at December 31, 2007 and
2006, respectively. Securities sold under repurchase agreements primarily represent sweep accounts
for certain customers in connection with master repurchase agreements at the Banks. This funding
category fluctuates based on customer preferences and daily liquidity needs of the Banks, their
customers and the Banks operating subsidiaries.
The Company has $249.7 million of junior subordinated debentures outstanding as of December 31,
2007. The amounts reflected on the balance sheet represent the junior subordinated debentures
issued to nine trusts by the Company and equal the amount of the preferred and common securities
issued by the trusts. On September 1, 2006, the Company issued $51.5 million of 6.84% fixed rate
junior subordinated debentures in connection with a private placement of the related Trust
Preferred Securities and on September 5, 2006, the Company used the proceeds from this issuance to
redeem at par $32.0 million of 9.0% fixed rate junior subordinated debentures originally issued in
1998. See Note 15 of the Consolidated Financial Statements for further discussion of the Companys
junior subordinated debentures.
Junior subordinated debentures, subject to certain limitations, currently qualify as Tier 1
regulatory capital. Interest expense on these debentures is deductible for tax purposes, resulting in
a cost-efficient form of regulatory capital.
|
|
|
|
|
44
|
|
|
|
Wintrust
Financial Corporation |
Shareholders Equity. Total shareholders equity was
$739.6 million at December 31, 2007 reflecting a
decrease of $33.7 million from the December 31, 2006
total of $773.3 million. In 2006, shareholders equity
increased $145.4 million over the December 31, 2005
balance. During 2007, shareholders equity increased
$47.8 million as a result of earnings retention ($55.7
million of net income less dividends of $7.8 million),
$10.8 million due to stock-based compensation costs,
$8.9 million from the issuance of shares (including
related tax benefits) pursuant to various stock-based
compensation plans and $4.1 million from other
comprehensive income, net of tax. Shareholders equity
decreased $105.9 million in 2007 as a result of the
purchase of 2,506,717 shares of treasury stock, at an
average price of $42.23 per share.
The $145.4 million increase in shareholders equity in
2006 was primarily due to the retention of $59.5
million of earnings
($66.5 million of net income less dividends of $7.0
million), $57.1 million due to stock issued in business
combinations, $11.6 million from the issuance of
200,000 new shares in final settlement of a forward
sale agreement of the companys common stock, $17.3
million due to stock-based compensation costs pursuant
to the adoption of SFAS 123R, $14.2 million from the
issuance of shares (including related tax benefits)
pursuant to various stock-based compensation plans and
$1.1 million from the cumulative effect adjustment of a
change in accounting for MSRs pursuant to the adoption
of SFAS 156. Shareholders equity decreased $16.3
million in 2006 as a result of the purchase of 344,089
shares of treasury stock, at an average price of $47.50
per share.
CREDIT RISK AND ASSET QUALITY
Allowance for Credit Losses
The following table summarizes the activity in the allowance for credit losses during the last five
years (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Allowance for loan
losses at beginning of
year |
|
$ |
46,055 |
|
|
|
40,283 |
|
|
|
34,227 |
|
|
|
25,541 |
|
|
|
18,390 |
|
Provision for credit
losses |
|
|
14,879 |
|
|
|
7,057 |
|
|
|
6,676 |
|
|
|
6,298 |
|
|
|
10,999 |
|
Allowance acquired in
business combinations |
|
|
362 |
|
|
|
3,852 |
|
|
|
4,792 |
|
|
|
5,110 |
|
|
|
1,602 |
|
Reclassification
from/(to) allowance for
lending-related
commitments |
|
|
(36 |
) |
|
|
92 |
|
|
|
(491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
commercial real
estate loans |
|
|
8,958 |
|
|
|
4,534 |
|
|
|
3,252 |
|
|
|
2,356 |
|
|
|
2,382 |
|
Home equity loans |
|
|
289 |
|
|
|
97 |
|
|
|
88 |
|
|
|
|
|
|
|
358 |
|
Residential real
estate loans |
|
|
147 |
|
|
|
81 |
|
|
|
198 |
|
|
|
|
|
|
|
|
|
Consumer and other
loans |
|
|
593 |
|
|
|
371 |
|
|
|
363 |
|
|
|
204 |
|
|
|
222 |
|
Premium finance
receivables |
|
|
2,425 |
|
|
|
2,760 |
|
|
|
2,067 |
|
|
|
1,852 |
|
|
|
2,558 |
|
Indirect consumer
loans |
|
|
873 |
|
|
|
584 |
|
|
|
555 |
|
|
|
425 |
|
|
|
937 |
|
Tricom finance
receivables |
|
|
252 |
|
|
|
50 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
13,537 |
|
|
|
8,477 |
|
|
|
6,523 |
|
|
|
4,870 |
|
|
|
6,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
commercial real
estate loans |
|
|
1,732 |
|
|
|
2,299 |
|
|
|
527 |
|
|
|
1,148 |
|
|
|
339 |
|
Home equity loans |
|
|
61 |
|
|
|
31 |
|
|
|
|
|
|
|
6 |
|
|
|
39 |
|
Residential real
estate loans |
|
|
6 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Consumer and other
loans |
|
|
178 |
|
|
|
148 |
|
|
|
243 |
|
|
|
104 |
|
|
|
40 |
|
Premium finance
receivables |
|
|
514 |
|
|
|
567 |
|
|
|
677 |
|
|
|
738 |
|
|
|
399 |
|
Indirect consumer
loans |
|
|
172 |
|
|
|
191 |
|
|
|
155 |
|
|
|
152 |
|
|
|
173 |
|
Tricom finance
receivables |
|
|
3 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
Total recoveries |
|
|
2,666 |
|
|
|
3,248 |
|
|
|
1,602 |
|
|
|
2,148 |
|
|
|
1,007 |
|
|
|
|
Net charge-offs |
|
|
(10,871 |
) |
|
|
(5,229 |
) |
|
|
(4,921 |
) |
|
|
(2,722 |
) |
|
|
(5,450 |
) |
|
|
|
Allowance for loan
losses at end of year |
|
$ |
50,389 |
|
|
|
46,055 |
|
|
|
40,283 |
|
|
|
34,227 |
|
|
|
25,541 |
|
|
|
|
Allowance for
lending-related
commitments
at end of year |
|
|
493 |
|
|
|
457 |
|
|
|
491 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit
losses at end of year |
|
$ |
50,882 |
|
|
|
46,512 |
|
|
|
40,774 |
|
|
|
34,227 |
|
|
|
25,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
(recoveries) by
category
as a percentage of
its own respective
categorys average: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
commercial real
estate loans |
|
|
0.17 |
% |
|
|
0.06 |
% |
|
|
0.09 |
% |
|
|
0.06 |
% |
|
|
0.14 |
% |
Home equity loans |
|
|
0.04 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
(0.00 |
) |
|
|
0.08 |
|
Residential real
estate loans |
|
|
0.04 |
|
|
|
0.02 |
|
|
|
0.05 |
|
|
|
|
|
|
|
(0.01 |
) |
Consumer and other
loans |
|
|
0.38 |
|
|
|
0.23 |
|
|
|
0.12 |
|
|
|
0.13 |
|
|
|
0.34 |
|
Premium finance
receivables |
|
|
0.15 |
|
|
|
0.22 |
|
|
|
0.16 |
|
|
|
0.14 |
|
|
|
0.34 |
|
Indirect consumer
loans |
|
|
0.28 |
|
|
|
0.17 |
|
|
|
0.20 |
|
|
|
0.15 |
|
|
|
0.45 |
|
Tricom finance
receivables |
|
|
0.74 |
|
|
|
0.10 |
|
|
|
|
|
|
|
0.12 |
|
|
|
(0.02 |
) |
|
|
|
Total loans, net
of unearned
income |
|
|
0.16 |
% |
|
|
0.09 |
% |
|
|
0.10 |
% |
|
|
0.07 |
% |
|
|
0.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs as a
percentage of the
provision
for credit losses |
|
|
73.07 |
% |
|
|
74.10 |
% |
|
|
73.71 |
% |
|
|
43.22 |
% |
|
|
49.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-end total loans |
|
$ |
6,801,602 |
|
|
|
6,496,480 |
|
|
|
5,213,871 |
|
|
|
4,348,346 |
|
|
|
3,297,794 |
|
Allowance for loan
losses as a percentage
of loans at end
of year |
|
|
0.74 |
% |
|
|
0.71 |
% |
|
|
0.77 |
% |
|
|
0.79 |
% |
|
|
0.77 |
% |
Allowance for credit
losses as a percentage
of loans at end
of year |
|
|
0.75 |
% |
|
|
0.72 |
% |
|
|
0.78 |
% |
|
|
0.79 |
% |
|
|
0.77 |
% |
|
|
|
|
|
|
46
|
|
|
|
Wintrust
Financial Corporation |
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|
|
|
|
|
% of Loan |
|
|
|
|
|
% of Loan |
|
|
|
|
|
% of Loan |
|
|
|
|
|
% of Loan |
|
|
|
|
|
% of Loan |
|
|
|
|
|
|
Type to |
|
|
|
|
|
Type to |
|
|
|
|
|
Type to |
|
|
|
|
|
Type to |
|
|
|
|
|
Type to |
|
|
|
|
|
|
Total |
|
|
|
|
|
Total |
|
|
|
|
|
Total |
|
|
|
|
|
Total |
|
|
|
|
|
Total |
|
|
Amount |
|
Loans |
|
Amount |
|
Loans |
|
Amount |
|
Loans |
|
Amount |
|
Loans |
|
Amount |
|
Loans |
|
|
|
Allowance for loan losses allocation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate |
|
$ |
38,995 |
|
|
|
65 |
% |
|
$ |
32,943 |
|
|
|
63 |
% |
|
$ |
28,288 |
|
|
|
61 |
% |
|
$ |
20,016 |
|
|
|
57 |
% |
|
$ |
7,421 |
|
|
|
50 |
% |
Home equity |
|
|
2,057 |
|
|
|
10 |
|
|
|
1,985 |
|
|
|
10 |
|
|
|
1,835 |
|
|
|
12 |
|
|
|
1,404 |
|
|
|
13 |
|
|
|
467 |
|
|
|
14 |
|
Residential real estate |
|
|
1,290 |
|
|
|
3 |
|
|
|
1,381 |
|
|
|
3 |
|
|
|
1,372 |
|
|
|
5 |
|
|
|
993 |
|
|
|
5 |
|
|
|
417 |
|
|
|
5 |
|
Consumer and other |
|
|
1,442 |
|
|
|
2 |
|
|
|
1,757 |
|
|
|
1 |
|
|
|
1,516 |
|
|
|
1 |
|
|
|
1,585 |
|
|
|
2 |
|
|
|
418 |
|
|
|
2 |
|
Premium finance receivables |
|
|
3,672 |
|
|
|
16 |
|
|
|
4,838 |
|
|
|
18 |
|
|
|
4,586 |
|
|
|
16 |
|
|
|
7,708 |
|
|
|
18 |
|
|
|
5,495 |
|
|
|
23 |
|
Indirect consumer loans |
|
|
2,900 |
|
|
|
4 |
|
|
|
3,019 |
|
|
|
4 |
|
|
|
2,538 |
|
|
|
4 |
|
|
|
2,149 |
|
|
|
4 |
|
|
|
915 |
|
|
|
5 |
|
Tricom finance receivables |
|
|
33 |
|
|
|
|
|
|
|
132 |
|
|
|
1 |
|
|
|
148 |
|
|
|
1 |
|
|
|
372 |
|
|
|
1 |
|
|
|
143 |
|
|
|
1 |
|
Unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses |
|
$ |
50,389 |
|
|
|
100 |
% |
|
$ |
46,055 |
|
|
|
100 |
% |
|
$ |
40,283 |
|
|
|
100 |
% |
|
$ |
34,227 |
|
|
|
100 |
% |
|
$ |
25,541 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance category as a percent of
total allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate |
|
|
77 |
% |
|
|
|
|
|
|
72 |
% |
|
|
|
|
|
|
70 |
% |
|
|
|
|
|
|
58 |
% |
|
|
|
|
|
|
29 |
% |
|
|
|
|
Home equity |
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
Residential real estate |
|
|
3 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Consumer and other |
|
|
3 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
Premium finance receivables |
|
|
7 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
Indirect consumer loans |
|
|
6 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
Tricom finance receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
Unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses |
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
|
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses on
lending-related commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and commercial real estate |
|
$ |
493 |
|
|
|
|
|
|
$ |
457 |
|
|
|
|
|
|
$ |
491 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for credit losses |
|
$ |
50,882 |
|
|
|
|
|
|
$ |
46,512 |
|
|
|
|
|
|
$ |
40,774 |
|
|
|
|
|
|
$ |
34,227 |
|
|
|
|
|
|
$ |
25,541 |
|
|
|
|
|
|
Management has determined that the allowance for loan losses and the allowance for losses on
lending-related commitments were adequate at December 31, 2007. The Companys 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 the 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. Managements philosophy is to be proactive and
conservative in assigning risk ratings to loans and identifying loans to be included on the Problem
Loan Report. The principal amount of loans on the Companys Problem Loan Report (exclusive of those
loans reported as non-performing) as of December 31, 2007 and December 31, 2006, was approximately
$142.1 million and $84.7 million, respectively. The increase in 2007 is primarily a result of
Problem Loan Report credits in the commercial and commercial real estate category. We believe
these loans are performing and, accordingly, do not cause management to have serious doubts as to
the ability of such borrowers to comply with the present loan repayment terms.
In 2004, the Company refined its methodology for
determining certain elements of the allowance for loan
losses. This refinement resulted in allocation of the
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, changes in the
composition of the loan portfolio, historical loss
experience, changes in lending policies and procedures,
including underwriting standards and collections,
charge-off and recovery practices, changes in the
experience, ability and depth of lending management and
staff, changes in national and local economic and
business conditions and developments, including the
condition of various market segments and changes in the
volume and severity of past due and classified loans
and trends in the volume of non-accrual loans, troubled
debt restructurings and other loan modifications. 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 since 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 2007, the increase in the
amount of allowance for loan losses can be primarily
attributed to the potential losses for loans on the
Companys Problem Loan Report, specifically commercial
and commercial real estate. 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.
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 managements 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.
The Company also maintains an allowance for
lending-related commitments, specifically unfunded loan
commitments and letters of credit, to provide for the
risk of loss inherent in these arrangements. The
allowance for lending-related commitments relates to
certain amounts that the Company is committed to lend
but for which funds have not yet been disbursed and is
computed using a methodology similar to that used to
determine the allowance for loan losses. This
allowance is included in other liabilities on the
Consolidated Statement of Condition while the
corresponding provision for these losses is recorded as
a component of the provision for credit losses.
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 loans effective interest rate, the
observable market price of the loan, or the fair value
of the collateral if the loan is collateral dependent.
Problem Loan Report loans, which include nonperforming
loans, are subject to impairment valuation. Commercial
and commercial real estate loans continue to represent
a larger percentage of the Companys 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 be 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.
The allowance for loan losses as of December 31, 2007,
increased $4.3 million to $50.4 million from December
31, 2006. The allowance for loan losses as a
percentage of total loans at December 31, 2007 and 2006
was 0.74% and 0.71%, respectively. As a percent of
average total loans, total net charge-offs for 2007 and
2006 were 0.16% and 0.09%, respectively. While
management believes that the allowance for loan losses
is adequate to provide for losses inherent in the
portfolio, there can be no assurances that future
losses will not exceed the amounts provided for,
thereby affecting future earnings. In 2007, the
Company reclassified $36,000 from its allowance for
loan losses to its allowance for lending-related
commitments, specifically unfunded loan commitments and
letters of credit. In 2006, the Company reclassified $92,000 from the allowance for
lending-related commitments to its allowance for loan
losses. The allowance for credit losses is comprised
of the allowance for loan losses and the allowance for
lending-related commitments. In future periods, the
provision for credit losses may contain both a
component related to funded loans (provision for loan
losses) and a component related to lending-related
commitments (provision for unfunded loan commitments
and letters of credit).
Commercial and commercial real estate loans represent
the largest loan category in the Companys loan
portfolio, accounting for 65% of total loans at
December 31, 2007. Net charge-offs in this category
totaled $7.2 million, or 0.17% of average loans in this
category in 2007, and $2.2 million, or 0.06% of average
loans in this category in 2006.
|
|
|
|
|
|
48
|
|
|
|
Wintrust
Financial Corporation |
Premium finance receivable loans represent the second largest loan category in the Companys
portfolio, accounting for 16% of total loans at December 31, 2007. Net charge-offs totaled $1.9
million in 2007 as compared to $2.2 million in 2006. Net charge-offs were 0.15% of average premium
finance receivables in 2007 versus 0.22% in 2006. As noted in the next section of this report,
non-performing premium finance receivables as a percent of total premium finance receivables were
1.80% at December 31, 2007 and 1.07% at December 31, 2006.
Past Due Loans and Non-performing Assets
The following table classifies the Companys non-performing assets as of December 31 for each of
last five years. The information in the table should be read in conjunction with the detailed
discussion following the table (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Loans past due greater than 90 days and still accruing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate and home equity(1) |
|
$ |
51 |
|
|
|
308 |
|
|
|
159 |
|
|
|
|
|
|
|
|
|
Commercial, consumer and other |
|
|
14,742 |
|
|
|
8,454 |
|
|
|
1,898 |
|
|
|
715 |
|
|
|
1,024 |
|
Premium finance receivables |
|
|
8,703 |
|
|
|
4,306 |
|
|
|
5,211 |
|
|
|
3,869 |
|
|
|
3,439 |
|
Indirect consumer loans |
|
|
517 |
|
|
|
297 |
|
|
|
228 |
|
|
|
280 |
|
|
|
313 |
|
Tricom finance receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans past due greater than 90 days
and still accruing |
|
|
24,013 |
|
|
|
13,365 |
|
|
|
7,496 |
|
|
|
4,864 |
|
|
|
4,776 |
|
|
|
|
Non-accrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate and home equity(1) |
|
|
3,215 |
|
|
|
1,738 |
|
|
|
457 |
|
|
|
2,660 |
|
|
|
3,217 |
|
Commercial, consumer and other |
|
|
33,267 |
|
|
|
12,959 |
|
|
|
11,712 |
|
|
|
3,550 |
|
|
|
9,646 |
|
Premium finance receivables |
|
|
10,725 |
|
|
|
8,112 |
|
|
|
6,189 |
|
|
|
7,396 |
|
|
|
5,994 |
|
Indirect consumer loans |
|
|
560 |
|
|
|
376 |
|
|
|
335 |
|
|
|
118 |
|
|
|
107 |
|
Tricom finance receivables |
|
|
74 |
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual |
|
|
47,841 |
|
|
|
23,509 |
|
|
|
18,693 |
|
|
|
13,724 |
|
|
|
18,964 |
|
|
|
|
Total non-performing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate and home equity(1) |
|
|
3,266 |
|
|
|
2,046 |
|
|
|
616 |
|
|
|
2,660 |
|
|
|
3,217 |
|
Commercial, consumer and other |
|
|
48,009 |
|
|
|
21,413 |
|
|
|
13,610 |
|
|
|
4,265 |
|
|
|
10,670 |
|
Premium finance receivables |
|
|
19,428 |
|
|
|
12,418 |
|
|
|
11,400 |
|
|
|
11,265 |
|
|
|
9,433 |
|
Indirect consumer loans |
|
|
1,077 |
|
|
|
673 |
|
|
|
563 |
|
|
|
398 |
|
|
|
420 |
|
Tricom finance receivables |
|
|
74 |
|
|
|
324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
71,854 |
|
|
|
36,874 |
|
|
|
26,189 |
|
|
|
18,588 |
|
|
|
23,740 |
|
|
|
|
Other real estate owned |
|
|
3,858 |
|
|
|
572 |
|
|
|
1,400 |
|
|
|
|
|
|
|
368 |
|
|
|
|
Total non-performing assets |
|
$ |
75,712 |
|
|
|
37,446 |
|
|
|
27,589 |
|
|
|
18,588 |
|
|
|
24,108 |
|
|
|
|
Total non-performing loans by category
as a percent of its own respective categorys
year end balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate and home equity(1) |
|
|
0.36 |
% |
|
|
0.23 |
% |
|
|
0.07 |
% |
|
|
0.32 |
% |
|
|
0.48 |
% |
Commercial, consumer and other |
|
|
1.06 |
|
|
|
0.51 |
|
|
|
0.42 |
|
|
|
0.17 |
|
|
|
0.63 |
|
Premium finance receivables |
|
|
1.80 |
|
|
|
1.07 |
|
|
|
1.40 |
|
|
|
1.46 |
|
|
|
1.26 |
|
Indirect consumer loans |
|
|
0.45 |
|
|
|
0.27 |
|
|
|
0.28 |
|
|
|
0.23 |
|
|
|
0.24 |
|
Tricom finance receivables |
|
|
0.27 |
|
|
|
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
1.06 |
% |
|
|
0.57 |
% |
|
|
0.50 |
% |
|
|
0.43 |
% |
|
|
0.72 |
% |
|
|
|
Total non-performing assets as a
percentage of total assets |
|
|
0.81 |
% |
|
|
0.39 |
% |
|
|
0.34 |
% |
|
|
0.29 |
% |
|
|
0.51 |
% |
|
|
|
Allowance for loan losses as a
percentage of non-performing loans |
|
|
70.13 |
% |
|
|
124.90 |
% |
|
|
153.82 |
% |
|
|
184.13 |
% |
|
|
107.59 |
% |
|
|
|
|
(1) |
|
Residential real estate and home equity loans that are non-accrual and past due greater than 90
days and still accruing do not include non-performing mortgage loans held-for-sale. These loans
totaled $2.0 million as of December 31, 2007. Mortgage loans held-for-sale are carried at the lower
of cost or market applied on an aggregate basis by loan type. Charges related to adjustments to
record the loans at fair value are recognized in mortgage banking revenue. |
Non-performing Residential Real Estate and
Home Equity
The non-performing residential real estate and home
equity loans totaled $3.3 million at December 31, 2007.
The balance increased $1.2 million from December 31,
2006. This category of non-performing loans consists
of 14 individual credits representing eight home equity
loans and six residential real estate loans. The
average balance of loans in this category is
approximately $233,000. On average, this is less than
one residential real estate loan or home equity loan
per chartered bank within the Company and the control
and collection of these loans is very manageable. Each
non-performing credit is well secured and in the
process of collection. Management does not expect any
material losses from the resolution of any of the
credits in this category.
Non-performing Commercial, Consumer and Other
The commercial, consumer and other non-performing loan
category totaled $48.0 million as of December 31, 2007.
The balance in this category increased $26.6 million
from December 31, 2006. The increase in the
non-performing loans since December 31, 2006 was
primarily the result of $32.3 million related to three
credit relationships.
One of the relationships, totaling approximately $15.8
million, relates to two residential real estate
developments in the southwestern suburbs of Chicago that
are partially developed and were acquired as a result of
the Hinsbrook Bank acquisition. Current market
conditions have substantially slowed the sale of single
family home lots. The Company believes the projects have
reasonable long term viability; however, given the
current state of the residential real estate market,
the ultimate resolution of these problem loans could span
a lengthy period of time until market conditions
stabilize. The Company is working on various scenarios
to minimize the holding periods and future losses, if
any.
Another addition to this non-performing loan category
relates to a credit that approximates $10.4 million
secured by a low rise apartment complex that is being
converted to condominiums. The project is located in
one of the Companys primary market areas. Sales have
slowed on the project to levels less than originally
projected. This loan was initially structured with
significant equity and mezzanine debt subordinate to
our position resulting in a conservative loan-to-value
position at the inception of the loan. The Company
believes that the current market conditions may have
impacted the valuation of the property, but not to a
level where our principal is at substantial risk. We
believe our first lien position relative to the value
of the collateral to be favorable. Management of the
Company believes that there is reasonable interest in
this property from investors and anticipates a
relatively quick resolution to this situation.
The other significant addition to this category of
non-performing loans is a $6.1 million loan
relationship made to a long-time commercial customer of
the Company who is involved in several small
residential developments in the northern suburbs of
Chicago. The slowdown in the residential real estate
market has impacted the borrowers ability to service
the debt; however, sales do continue at a slower than
projected pace. The loan relates to a variety of
properties and these properties are not concentrated in
any one development. Based on the Companys evaluation
of the collateral, we believe our loan is adequately
secured at this time and anticipate that this loan will
be resolved during 2008 as a result of collateral
liquidations.
Non-performing Premium Finance Receivables
The table below presents the level of non-performing
premium finance receivables as of December 31, 2007 and
2006, and the amount of net charge-offs for the years
then ended (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
Non-performing premium
finance receivables |
|
$ |
19,428 |
|
|
$ |
12,418 |
|
- as a percent of premium
finance receivables outstanding |
|
|
1.80 |
% |
|
|
1.07 |
% |
|
|
|
|
|
|
|
|
|
Net charge-offs of premium
finance receivables |
|
$ |
1,911 |
|
|
$ |
2,193 |
|
- annualized as a percent of average
premium finance receivables |
|
|
0.15 |
% |
|
|
0.22 |
% |
|
As noted below, fluctuations in this category may occur
due to timing and nature of account collections from
insurance carriers. Management is comfortable with
administering the collections at this level of non-performing premium
finance receivables and expects that such ratios will
remain at relatively low levels.
The ratio of non-performing premium finance receivables
fluctuates throughout the year due to the nature and
timing of canceled account collections from insurance
carriers. Due to the nature of collateral for premium
finance receivables, it customarily takes 60-150 days
to convert the collateral into cash collections. Accordingly, the level of non-performing
premium finance receivables is not necessarily
indicative of the loss inherent in the portfolio. In
the event of default, Wintrust has the power to cancel
the insurance policy and collect the unearned portion
of the premium from the insurance carrier. In the
event of cancellation, the cash returned in payment of
the unearned premium by the insurer should generally be
sufficient to cover the receivable balance, the
interest and other charges due. Due to notification
requirements and processing time by most insurance
carriers, many receivables will become delinquent
beyond 90 days while the insurer is processing the
return of the unearned premium. Interest continues to
accrue until maturity as the unearned premium is
usually sufficient to pay-off the outstanding
balance and contractual interest due.
|
|
|
|
|
|
50
|
|
|
|
Wintrust
Financial Corporation |
Non-performing Indirect Consumer Loans
Total non-performing indirect consumer loans were $1.1
million at December 31, 2007, compared to $673,000 at
December 31, 2006. The ratio of these non-performing
loans to total indirect consumer loans was 0.45% at
December 31, 2007 compared to 0.27% at December 31,
2006. As noted in the Allowance for Credit Losses
table, net charge-offs as a percent of total indirect
consumer loans were 0.28% for the year ended December
31, 2007 compared to 0.17% in the same period in 2006.
The level of nonperforming and net charge-offs of
indirect consumer loans continues to be below standard
industry ratios for this type of lending.
Potential Problem Loans
Management believes that any loan where there are
serious doubts as to the ability of such borrowers to
comply with the present loan repayment terms should be
identified as a non-performing loan and should be
included in the disclosure of Past Due Loans and
Non-performing Assets. Accordingly, at the periods
presented in this report, the Company has no potential
problem loans as defined by SEC regulations.
Loan Concentrations
Loan concentrations are considered to exist when there
are amounts loaned to multiple borrowers engaged in
similar activities which would cause them to be similarly
impacted by economic or other conditions. The Company
had no concentrations of loans exceeding 10% of total
loans at December 31, 2007, except for loans included
in the premium finance operating segment, which are
diversified throughout the United States.
EFFECTS OF INFLATION
A banking organizations assets and liabilities are
primarily monetary. Changes in the rate of inflation
do not have as great an impact on the financial
condition of a bank as do changes in interest rates.
Moreover, interest rates do not necessarily change at
the same percentage as does inflation. Accordingly,
changes in inflation are not expected to have a
material impact on the Company. An analysis of the
Companys asset and liability structure provides the
best indication of how the organization is positioned
to respond to changing interest rates.
Asset-Liability Management
As an ongoing part of its financial strategy, the Company attempts to manage the impact of
fluctuations in market interest rates on net interest income. This effort entails providing a
reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of
yield. Asset-liability management policies are established and monitored by management in
conjunction with the boards of directors of the Banks, subject to general oversight by the Risk
Management Committee of the Companys Board of Directors. The policies establish guidelines for
acceptable limits on the sensitivity of the market value of assets and liabilities to changes in
interest rates.
Interest rate risk arises when the maturity or repricing periods and interest rate indices of the
interest earning assets, interest bearing liabilities, and derivative financial instruments are
different. It is the risk that changes in the level of market interest rates will result in
disproportionate changes in the value of, and the net earnings generated from, the Companys
interest earning assets, interest bearing liabilities and derivative financial instruments. The
Company continuously monitors not only the organizations current net interest margin, but also the
historical trends of these margins. In addition, management attempts to identify potential adverse
changes in net interest income in future years as a result of interest rate fluctuations by
performing simulation analysis of various interest rate environments. If a potential adverse
change in net interest margin and/or net income is identified, management would take appropriate
actions with its asset-liability structure to mitigate these potentially adverse situations.
Please refer to earlier sections of this discussion and analysis for further discussion of the net
interest margin.
Since the Companys primary source of interest bearing liabilities is customer deposits, the
Companys ability to manage the types and terms of such deposits may be somewhat limited by
customer preferences and local competition in the market areas in which the Banks operate. The
rates, terms and interest rate indices of the Companys interest earning assets result primarily
from the Companys strategy of investing in loans and securities that permit the Company to limit
its exposure to interest rate risk, together with credit risk, while at the same time achieving an acceptable interest rate
spread.
One method utilized by financial institutions to manage interest rate risk is to enter into
derivative financial instruments. A derivative financial instrument includes interest rate swaps,
interest rate caps and floors, futures, forwards, option contracts and other financial instruments
with similar characteristics. See Note 21 of the Consolidated Financial Statements for information
on the Companys derivative financial instruments.
During 2007 and 2006, the Company also entered into certain covered call option transactions
related to certain securities held by the Company. The Company uses these option transactions
(rather than entering into other derivative interest rate contracts, such as interest rate floors)
to increase the total return associated with the related securities. Although the revenue received
from these options is recorded as non-interest income rather than interest income, the increased
return attributable to the related securities from these options contributes to the Companys
overall profitability. The Companys exposure to interest rate risk may be affected by these
transactions. To mitigate this risk, the Company may acquire fixed-rate term debt or use financial
derivative instruments. There were no covered call options outstanding as of December 31, 2007 or
December 31, 2006.
The Companys exposure to interest rate risk is reviewed on a regular basis by management and the
Risk Management Committees of the Boards of Directors of the Banks and the Company. The objective
is to measure the effect on net income and to adjust balance sheet and derivative financial
instruments to minimize the inherent risk while at the same time maximize net interest income.
Tools used by management include a standard gap analysis and a rate simulation model whereby
changes in net interest income are measured in the event of various changes in interest rate
indices. An institution with more assets than liabilities re-pricing over a given time frame is
considered asset sensitive and will generally benefit from rising rates, and conversely, a higher level of re-pricing liabilities versus assets
would generally be beneficial in a declining rate environment.
|
|
|
|
|
52
|
|
|
|
Wintrust
Financial Corporation |
Standard gap analysis reflects contractual re-pricing information for assets, liabilities and
derivative financial instruments. While the gap position and related ratios illustrated in the
following table are useful tools that management can use to assess the general positioning of the
Companys and its subsidiaries balance sheets, it is only as of a point in time and static in
nature. The following table illustrates the Companys estimated interest rate sensitivity and
periodic and cumulative gap positions based on contractual re-pricing and maturities as of December
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time to Maturity or Repricing |
|
|
0-90 |
|
91-365 |
|
1-5 |
|
Over 5 |
|
|
(Dollars in thousands) |
|
Days |
|
Days |
|
Years |
|
Years |
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and securities purchased
under resale agreements |
|
$ |
90,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,964 |
|
Interest-bearing deposits with banks |
|
|
10,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,410 |
|
Available-for-sale securities |
|
|
382,162 |
|
|
|
131,865 |
|
|
|
276,996 |
|
|
|
512,814 |
|
|
|
1,303,837 |
|
|
|
|
Total liquidity management assets |
|
|
483,536 |
|
|
|
131,865 |
|
|
|
276,996 |
|
|
|
512,814 |
|
|
|
1,405,211 |
|
Loans, net of unearned income (1) |
|
|
3,727,333 |
|
|
|
1,517,815 |
|
|
|
1,487,716 |
|
|
|
178,290 |
|
|
|
6,911,154 |
|
Other earning assets |
|
|
25,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,777 |
|
|
|
|
Total earning assets |
|
|
4,236,646 |
|
|
|
1,649,680 |
|
|
|
1,764,712 |
|
|
|
691,104 |
|
|
|
8,342,142 |
|
Other non-earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,026,717 |
|
|
|
1,026,717 |
|
|
|
|
Total assets (RSA) |
|
$ |
4,236,646 |
|
|
|
1,649,680 |
|
|
|
1,764,712 |
|
|
|
1,717,821 |
|
|
|
9,368,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits (2) |
|
$ |
4,162,455 |
|
|
|
1,949,766 |
|
|
|
694,525 |
|
|
|
431 |
|
|
|
6,807,177 |
|
Federal Home Loan Bank advances |
|
|
10,701 |
|
|
|
4,996 |
|
|
|
179,486 |
|
|
|
220,000 |
|
|
|
415,183 |
|
Notes payable and other borrowings |
|
|
254,434 |
|
|
|
60,700 |
|
|
|
|
|
|
|
|
|
|
|
315,134 |
|
Subordinated notes |
|
|
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,000 |
|
Junior subordinated debentures |
|
|
191,887 |
|
|
|
6,228 |
|
|
|
51,547 |
|
|
|
|
|
|
|
249,662 |
|
|
|
|
Total interest-bearing liabilities |
|
|
4,694,477 |
|
|
|
2,021,690 |
|
|
|
925,558 |
|
|
|
220,431 |
|
|
|
7,862,156 |
|
Demand deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664,264 |
|
|
|
664,264 |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,884 |
|
|
|
102,884 |
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739,555 |
|
|
|
739,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of derivative financial instruments (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (Company pays fixed, receives floating) |
|
|
(175,000 |
) |
|
|
|
|
|
|
85,000 |
|
|
|
90,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity including effect
of derivative financial instruments (RSL) |
|
$ |
4,519,477 |
|
|
|
2,021,690 |
|
|
|
1,010,558 |
|
|
|
1,817,134 |
|
|
|
9,368,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repricing gap (RSA RSL) |
|
$ |
(282,831 |
) |
|
|
(372,010 |
) |
|
|
754,154 |
|
|
|
(99,313 |
) |
|
|
|
|
Cumulative repricing gap |
|
$ |
(282,831 |
) |
|
|
(654,841 |
) |
|
|
99,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative RSA/Cumulative RSL |
|
|
94 |
% |
|
|
90 |
% |
|
|
101 |
% |
|
|
|
|
|
|
|
|
Cumulative RSA/Total assets |
|
|
45 |
% |
|
|
63 |
% |
|
|
82 |
% |
|
|
|
|
|
|
|
|
Cumulative RSL/Total assets |
|
|
48 |
% |
|
|
70 |
% |
|
|
81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative GAP/Total assets |
|
|
(3 |
)% |
|
|
(7 |
)% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
Cumulative GAP/Cumulative RSA |
|
|
(7 |
)% |
|
|
(11 |
)% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Loans, net of unearned income, include mortgage loans held-for-sale and nonaccrual loans. |
|
(2) |
|
Non-contractual interest-bearing deposits are subject to immediate withdrawal and, therefore,
are included in 0-90 days. |
|
(3) |
|
Excludes interest rate swaps to qualified commercial customers as they are offset with interest
rate swaps entered into with third parties and have no effect on the Companys interest rate
sensitivity. See Note 21 of the Consolidated Financial Statements for further discussion of these
interest rate swaps. |
As seen in the table, the Companys gap analysis as of December 31, 2007, reflects that the Company
is in a negative gap position, which generally indicates the Company would benefit from a declining
rate environment. However, the shape of the yield curve, an institutions funding sources and
deposit mix, and the inability to have negative interest rates can create undue margin compression
even for liability sensitive institutions operating in a low interest rate environment.
As a result of the static position and inherent limitations of gap analysis, management uses an
additional measurement tool to evaluate its asset-liability sensitivity that determines exposure to
changes in interest rates by measuring the percentage change in net interest income due to changes
in interest rates over a two-year time horizon. Management measures its exposure to changes in
interest rates using many different interest rate scenarios. One interest rate scenario utilized
is to measure the percentage change in net interest income assuming an instantaneous permanent
parallel shift in the yield curve of 100 and 200 basis points, both upward and downward. Utilizing
this measurement concept, the interest rate risk of the Company, expressed as a percentage change
in net interest income over a two-year time horizon due to changes in interest rates, at December
31, 2007 and December 31, 2006, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+ 200 |
|
+ 100 |
|
- 100 |
|
- 200 |
|
|
Basis |
|
Basis |
|
Basis |
|
Basis |
|
|
Points |
|
Points |
|
Points |
|
Points |
|
|
|
Percentage change in net interest
income due to an immediate 200 basis point shift in the yield curve: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
9.5 |
% |
|
|
6.4 |
% |
|
|
(1.4 |
)% |
|
|
(9.9 |
)% |
December 31, 2006 |
|
|
4.6 |
% |
|
|
1.7 |
% |
|
|
(2.0 |
)% |
|
|
(7.2 |
)% |
|
These results are based solely on an instantaneous permanent parallel shift in the yield curve
and do not reflect the net interest income sensitivity that may arise from other factors, such as
changes in the shape of the yield curve or changes in the spread between key market rates. The
above results are conservative estimates due to the fact that no management actions to mitigate
potential changes in net interest income are included in this simulation process. These management
actions could include, but would not be limited to, delaying a change in deposit rates, extending
the maturities of liabilities, the use of derivative financial instruments, changing the pricing
characteristics of loans or modifying the growth rate of certain types of assets or liabilities.
Liquidity and Capital Resources
The Company and the Banks are subject to various regulatory capital requirements established by the
federal banking agencies that take into account risk attributable to balance sheet and off-balance
sheet activities. Failure to meet minimum capital requirements can initiate certain mandatory
and possibly discretionary actions by regulators, that if undertaken could have a direct
material effect on the Companys financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and the Banks must meet specific
capital guidelines that involve quantitative measures of the Companys assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting practices. The Federal
Reserves capital guidelines require bank holding companies 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
Reserves rating system). For all other bank holding companies, the minimum ratio of Tier 1
Capital to total assets is 4.0%. In addition the Federal Reserve continues to consider the Tier 1
leverage ratio in evaluating proposals for expansion or new activities. The following table
summarizes the capital guidelines for bank holding companies, as well as the Companys capital
ratios as of December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wintrusts |
|
Wintrusts |
|
Wintrusts |
|
|
|
|
|
|
Well |
|
Ratios at |
|
Ratios at |
|
Ratios at |
|
|
Minimum |
|
Capitalized |
|
Year-end |
|
Year-end |
|
Year-end |
|
|
Ratios |
|
Ratios |
|
2007 |
|
2006 |
|
2005 |
|
|
|
Tier 1 Leverage Ratio |
|
|
4.0 |
% |
|
|
5.0 |
% |
|
|
7.7 |
% |
|
|
8.2 |
% |
|
|
8.3 |
% |
Tier 1 Capital
to Risk-Weighted Assets |
|
|
4.0 |
% |
|
|
6.0 |
% |
|
|
8.7 |
% |
|
|
9.8 |
% |
|
|
10.3 |
% |
Total Capital
to Risk-Weighted Assets |
|
|
8.0 |
% |
|
|
10.0 |
% |
|
|
10.2 |
% |
|
|
11.3 |
% |
|
|
11.9 |
% |
Total average equity to total
average assets |
|
|
N/A |
|
|
|
N/A |
|
|
|
7.7 |
% |
|
|
7.9 |
% |
|
|
8.0 |
% |
|
As reflected in the table, each of the Companys capital ratios at December 31, 2007, exceeded the
well-capitalized ratios established by the Federal Reserve. Refer to Note 19 of the Consolidated
Financial Statements for further information on the capital positions of the Banks.
The Companys principal sources of funds at the holding company level are dividends from its
subsidiaries, borrowings under its loan agreement with an unaffiliated bank and proceeds from the
issuances of subordinated debt, junior subordinated debentures and additional equity. Refer to
Notes 11, 13, 15 and 23 of the Consolidated Financial Statements for further information on the
Companys notes payable, subordinated note, junior subordinated debentures and shareholders
equity, respectively. Management is committed to maintaining the Companys capital levels above the
Well Capitalized levels established by the Federal Reserve for bank holding companies.
On March 30, 2005, Wintrust consummated the partial settlement of the forward sale agreement the
Company entered into on December 14, 2004 with Royal Bank of Canada, an affiliate of RBC Capital
Markets Corporation, relating to the forward sale by Wintrust of 1.2 million shares of Wintrusts
common stock. Pursuant to and in partial settlement of the forward sale agreement, Wintrust issued
1.0 million shares of its common stock, and received net proceeds of $55.8 million from Royal Bank
of Canada. Additionally, on December 14, 2005, Wintrust amended certain terms of the forward sale
agreement for the purpose of extending the maturity date for the remaining 200,000 shares from
December 17, 2005 to December 17,
|
|
|
|
|
54
|
|
|
|
Wintrust
Financial Corporation |
2006. In conjunction with the completion of the acquisition of HBI in May 2006, the forward sale
agreement was fully settled with Wintrust issuing 200,000 shares of its common stock and receiving
net proceeds of $11.6 million. The Company issued 1,120,033 shares of common stock in May 2006 in
connection with the acquisition of HBI.
Banking laws impose restrictions upon the amount of dividends that can be paid to the holding
company by the Banks. Based on these laws, the Banks could, subject to minimum capital
requirements, declare dividends to the Company without obtaining regulatory approval in an amount
not exceeding (a) undivided profits, and (b) the amount of net income reduced by dividends paid for
the current and prior two years. In addition, the payment of dividends may be restricted under
certain financial covenants in the Companys revolving credit line agreement. At January 1, 2008,
subject to minimum capital requirements at the Banks, approximately $28.5 million was available as
dividends from the Banks without prior regulatory approval. However, since the Banks are required
to maintain their capital at the well-capitalized level (due to the Company being approved as a
financial holding company), funds otherwise available as dividends from the Banks are limited to
the amount that would not reduce any of the Banks capital ratios below the well-capitalized level.
At January 1, 2008, approximately $17.0 million was available as dividends from the Banks without
compromising the Banks well-capitalized positions. During 2007, 2006 and 2005 the subsidiaries
paid dividends to Wintrust totaling $105.9 million, $183.6 million and $45.1 million, respectively.
The Company declared its first semi-annual cash dividend on its common stock in 2000 and has
increased the dividend each year thereafter. The dividend payout ratio was 14.3% in 2007, 10.9% in
2006 and 8.7% in 2005. The Company continues to target an earnings retention ratio of
approximately 85% to 90% to support continued growth. The $0.32 cash dividend per share paid in
2007 represented a 14% increase over the $0.28 cash dividend per share paid in 2006. Along those
same lines, the semi-annual dividend of $0.18 per share in January 2008 represents (on an
annualized basis) $0.36 per share, or a 13% increase over 2007.
In July 2006, the Companys Board of Directors authorized the repurchase of up to 2.0 million
shares of the Companys outstanding common stock over 18 months. Through April 2007, the Company
repurchased a total of approximately 1.8 million shares at an average price of $45.74 per share
under the July 2006 share repurchase plan. In April 2007, the Companys Board of Directors
terminated the July 2006 authorization and authorized the repurchase of up to an additional 1.0
million shares of the Companys outstanding common stock over 12 months. The Company began to
repurchase shares under the this authorization in July 2007 and repurchased all 1.0 million shares
at an average price of $37.57 per share during the third
and fourth quarters of 2007. In January 2008, the Companys Board of Directors authorized the
repurchase of up to an additional 1.0 million shares of the Companys outstanding common stock over
the next 12 months.
Liquidity management at the Banks involves planning to meet anticipated funding needs at a
reasonable cost. Liquidity management is guided by policies, formulated and monitored by the
Companys senior management and each Banks asset/liability committee, which take into account the
marketability of assets, the sources and stability of funding and the level of unfunded
commitments. The Banks principal sources of funds are deposits, short-term borrowings and capital
contributions from the holding company. In addition, the Banks are eligible to borrow under
Federal Home Loan Bank advances and certain Banks are eligible to borrow at the Federal Reserve
Bank Discount Window, another source of liquidity.
Core deposits are the most stable source of liquidity for community banks due to the nature of
long-term relationships generally established with depositors and the security of deposit insurance
provided by the FDIC. Core deposits are generally defined in the industry as total deposits less
time deposits with balances greater than $100,000. Approximately 55% of the Companys total assets
were funded by core deposits at the end of 2007 and 2006. The remaining assets were funded by
other funding sources such as time deposits with balances in excess of $100,000, borrowed funds and
equity capital. Due to the affluent nature of many of the communities that the Company serves,
management believes that many of its time deposits with balances in excess of $100,000 are also a
stable source of funds.
Liquid assets refer to money market assets such as Federal funds sold and interest bearing deposits
with banks, as well as available-for-sale debt securities. Net liquid assets represent the sum of
the liquid asset categories less the amount of assets pledged to secure public funds. At December
31, 2007, net liquid assets totaled approximately $191.4 million, compared to approximately $346.7 million at December
31, 2006.
The Banks routinely accept deposits from a variety of municipal entities. Typically, these
municipal entities require that banks pledge marketable securities to collateralize these public
deposits. At December 31, 2007 and 2006, the Banks had approximately $780.8 million and $910.1
million, respectively, of securities collateralizing such public deposits and other short-term
borrowings. Deposits requiring pledged assets are not considered to be core deposits, and the
assets that are pledged as collateral for these deposits are not deemed to be liquid assets.
The Company is not aware of any known trends, commitments, events, regulatory recommendations or
uncertainties that would have any adverse effect on the Companys capital resources, operations or
liquidity.
CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET ARRANGEMENTS
The Company has various financial obligations, including contractual obligations and commitments,
that may require future cash payments.
Contractual Obligations. The following table presents, as of December 31, 2007, significant fixed
and determinable contractual obligations to third parties by payment date. Further discussion of
the nature of each obligation is included in the referenced note to the Consolidated Financial
Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due In |
|
|
Note |
|
One Year |
|
1 - 3 |
|
3 - 5 |
|
Over |
|
|
|
|
Reference |
|
or Less |
|
Years |
|
Years |
|
5 Years |
|
Total |
|
|
|
|
|
(in thousands) |
Deposits(1) |
|
|
10 |
|
|
$ |
6,743,086 |
|
|
|
519,731 |
|
|
|
208,424 |
|
|
|
296 |
|
|
|
7,471,537 |
|
Notes payable |
|
|
11 |
|
|
|
59,700 |
|
|
|
|
|
|
|
|
|
|
|
1,000 |
|
|
|
60,700 |
|
FHLB advances(1) (2) |
|
|
12 |
|
|
|
15,698 |
|
|
|
20,500 |
|
|
|
159,000 |
|
|
|
220,000 |
|
|
|
415,198 |
|
Subordinated notes |
|
|
13 |
|
|
|
5,000 |
|
|
|
20,000 |
|
|
|
30,000 |
|
|
|
20,000 |
|
|
|
75,000 |
|
Other borrowings |
|
|
14 |
|
|
|
200,057 |
|
|
|
21,877 |
|
|
|
32,500 |
|
|
|
|
|
|
|
254,434 |
|
Junior subordinated debentures(1) |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249,493 |
|
|
|
249,493 |
|
Operating leases |
|
|
16 |
|
|
|
3,059 |
|
|
|
6,768 |
|
|
|
4,991 |
|
|
|
16,777 |
|
|
|
31,595 |
|
Purchase obligations(3) |
|
|
|
|
|
|
20,425 |
|
|
|
19,921 |
|
|
|
753 |
|
|
|
496 |
|
|
|
41,595 |
|
|
Total |
|
|
|
|
|
$ |
7,047,025 |
|
|
|
608,797 |
|
|
|
435,668 |
|
|
|
508,062 |
|
|
|
8,599,552 |
|
|
|
|
|
(1) |
|
Excludes basis adjustment for purchase accounting valuations. |
|
(2) |
|
Certain advances provide the FHLB with call dates which are not reflected in the above
table. |
|
(3) |
|
Purchase obligations presented above primarily relate to certain contractual obligations for
services related to the construction of facilities, data processing and the outsourcing of certain
operational activities. |
The Company also enters into derivative contracts under which the Company is required to either
receive cash from or pay cash to counterparties depending on changes in interest rates.
Derivative contracts are carried at fair value representing the net present value of expected
future cash receipts or payments based on market rates as of the balance sheet date. Because the
derivative liabilities recorded on the balance sheet at December 31, 2007 do not represent the
amounts that may ultimately be paid under these contracts, these liabilities are not included in
the table of contractual obligations presented above.
Commitments. The following table presents a summary of the amounts and expected maturities of
significant commitments as of December 31, 2007. Further information on these commitments is
included in Note 20 of the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year |
|
1 - 3 |
|
3 - 5 |
|
Over |
|
|
|
|
or Less |
|
Years |
|
Years |
|
5 Years |
|
Total |
|
|
|
|
|
(in thousands) |
Commitment type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, commercial real estate and construction |
|
$ |
1,201,230 |
|
|
|
334,497 |
|
|
|
171,812 |
|
|
|
144,699 |
|
|
|
1,852,238 |
|
Residential real estate |
|
|
113,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,640 |
|
Revolving home equity lines of credit |
|
|
878,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878,102 |
|
Letters of credit |
|
|
104,103 |
|
|
|
65,434 |
|
|
|
3,643 |
|
|
|
39 |
|
|
|
173,219 |
|
Commitments to sell mortgage loans |
|
|
218,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,913 |
|
|
|
|
|
|
|
56 |
|
|
|
Wintrust
Financial Corporation |
Contingent Liabilities. In connection with the sale of
premium finance receivables, the Company continues to
service the receivables and maintains a recourse
obligation to the purchasers should the underlying
borrowers default on their obligations. The estimated
recourse obligation is taken into account in recording the sale, effectively
reducing the gain recognized. As of December 31, 2007,
outstanding premium finance receivables sold to and
serviced for third parties for which the Company has a
recourse obligation were $219.9 million and the
estimated recourse obligation was $179,000 and included
in other liabilities on the balance sheet. Please
refer to the Consolidated Results of Operations section
of this report for further discussion of these loan
sales.
The Company enters into residential mortgage loan sale
agreements with investors in the normal course of
business. These agreements usually require certain
representations concerning credit information, loan documentation, collateral and
insurability. On occasion, investors have requested
the Company to indemnify them against losses on certain
loans or to repurchase loans which the investors
believe do not comply with applicable representations.
Upon completion of its own investigation, the Company
generally repurchases or provides indemnification on
certain loans. Indemnification requests are generally
received within two years subsequent to sale.
Management maintains a liability for estimated losses
on loans expected to be repurchased or on which
indemnification is expected to be provided and
regularly evaluates the adequacy of this recourse
liability based on trends in repurchase and
indemnification requests, actual loss experience, known
and inherent risks in the loans, and current economic
conditions. At December 31, 2007 the liability for
estimated losses on repurchase and indemnification was
$1.9 million and was included in other liabilities on
the balance sheet.
Consolidated Financial Statements
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2006 |
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
170,190 |
|
|
|
169,071 |
|
Federal funds sold and securities purchased under resale
agreements |
|
|
90,964 |
|
|
|
136,221 |
|
Interest bearing deposits with
banks |
|
|
10,410 |
|
|
|
19,259 |
|
Available-for-sale securities,
at fair value |
|
|
1,303,837 |
|
|
|
1,839,716 |
|
Trading account securities |
|
|
1,571 |
|
|
|
2,324 |
|
Brokerage customer receivables |
|
|
24,206 |
|
|
|
24,040 |
|
Mortgage loans held-for-sale |
|
|
109,552 |
|
|
|
148,331 |
|
Loans, net of unearned income |
|
|
6,801,602 |
|
|
|
6,496,480 |
|
Less: Allowance for loan
losses |
|
|
50,389 |
|
|
|
46,055 |
|
|
Net loans |
|
|
6,751,213 |
|
|
|
6,450,425 |
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
339,297 |
|
|
|
311,041 |
|
Accrued interest receivable and
other assets |
|
|
273,678 |
|
|
|
180,889 |
|
Goodwill |
|
|
276,204 |
|
|
|
268,936 |
|
Other intangible assets |
|
|
17,737 |
|
|
|
21,599 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,368,859 |
|
|
|
9,571,852 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Non-interest bearing |
|
$ |
664,264 |
|
|
|
699,203 |
|
Interest bearing |
|
|
6,807,177 |
|
|
|
7,170,037 |
|
|
Total deposits |
|
|
7,471,441 |
|
|
|
7,869,240 |
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
|
60,700 |
|
|
|
12,750 |
|
Federal Home Loan Bank advances |
|
|
415,183 |
|
|
|
325,531 |
|
Other borrowings |
|
|
254,434 |
|
|
|
162,072 |
|
Subordinated notes |
|
|
75,000 |
|
|
|
75,000 |
|
Junior subordinated debentures |
|
|
249,662 |
|
|
|
249,828 |
|
Accrued interest payable and
other liabilities |
|
|
102,884 |
|
|
|
104,085 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
8,629,304 |
|
|
|
8,798,506 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, no par value; 20,000,000 shares
authorized, no
shares issued and
outstanding |
|
|
|
|
|
|
|
|
Common stock, no par value; $1.00 stated value;
60,000,000
shares
authorized; 26,281,296 and 25,802,024
shares issued at December 31, 2007 and 2006, respectively |
|
|
26,281 |
|
|
|
25,802 |
|
Surplus |
|
|
539,127 |
|
|
|
519,233 |
|
Treasury stock, at cost, 2,850,806 and 344,089 shares at
December 31, 2007
and 2006, respectively |
|
|
(122,196 |
) |
|
|
(16,343 |
) |
Common stock warrants |
|
|
459 |
|
|
|
681 |
|
Retained earnings |
|
|
309,556 |
|
|
|
261,734 |
|
Accumulated other
comprehensive loss |
|
|
(13,672 |
) |
|
|
(17,761 |
) |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
739,555 |
|
|
|
773,346 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
9,368,859 |
|
|
|
9,571,852 |
|
|
See accompanying Notes to Consolidated Financial Statements
|
|
|
|
|
58
|
|
|
|
Wintrust
Financial Corporation |
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
525,610 |
|
|
|
456,384 |
|
|
|
335,391 |
|
Interest bearing deposits with banks |
|
|
841 |
|
|
|
651 |
|
|
|
279 |
|
Federal funds sold and securities purchased under resale agreements |
|
|
3,774 |
|
|
|
5,393 |
|
|
|
3,485 |
|
Securities |
|
|
79,402 |
|
|
|
93,398 |
|
|
|
66,555 |
|
Trading account securities |
|
|
55 |
|
|
|
51 |
|
|
|
68 |
|
Brokerage customer receivables |
|
|
1,875 |
|
|
|
2,068 |
|
|
|
1,258 |
|
|
Total interest income |
|
|
611,557 |
|
|
|
557,945 |
|
|
|
407,036 |
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
294,914 |
|
|
|
265,729 |
|
|
|
156,252 |
|
Interest on Federal Home Loan Bank advances |
|
|
17,558 |
|
|
|
14,675 |
|
|
|
11,912 |
|
Interest on notes payable and other borrowings |
|
|
13,794 |
|
|
|
5,638 |
|
|
|
4,178 |
|
Interest on subordinated notes |
|
|
5,181 |
|
|
|
4,695 |
|
|
|
2,829 |
|
Interest on junior subordinated debentures |
|
|
18,560 |
|
|
|
18,322 |
|
|
|
15,106 |
|
|
Total interest expense |
|
|
350,007 |
|
|
|
309,059 |
|
|
|
190,277 |
|
|
Net interest income |
|
|
261,550 |
|
|
|
248,886 |
|
|
|
216,759 |
|
Provision for credit losses |
|
|
14,879 |
|
|
|
7,057 |
|
|
|
6,676 |
|
|
Net interest income after provision for credit losses |
|
|
246,671 |
|
|
|
241,829 |
|
|
|
210,083 |
|
|
Non-interest income |
|
|
|
|
|
|
|
|
|
|
|
|
Wealth management |
|
|
31,341 |
|
|
|
31,720 |
|
|
|
30,008 |
|
Mortgage banking |
|
|
14,888 |
|
|
|
22,341 |
|
|
|
25,913 |
|
Service charges on deposit accounts |
|
|
8,386 |
|
|
|
7,146 |
|
|
|
5,983 |
|
Gain on sales of premium finance receivables |
|
|
2,040 |
|
|
|
2,883 |
|
|
|
6,499 |
|
Administrative services |
|
|
4,006 |
|
|
|
4,598 |
|
|
|
4,539 |
|
Fees from covered call options |
|
|
2,628 |
|
|
|
3,157 |
|
|
|
11,434 |
|
Gains on available-for-sale securities, net |
|
|
2,997 |
|
|
|
17 |
|
|
|
1,063 |
|
Other |
|
|
13,802 |
|
|
|
19,370 |
|
|
|
8,118 |
|
|
Total non-interest income |
|
|
80,088 |
|
|
|
91,232 |
|
|
|
93,557 |
|
|
Non-interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
141,816 |
|
|
|
137,008 |
|
|
|
118,071 |
|
Equipment |
|
|
15,363 |
|
|
|
13,529 |
|
|
|
11,779 |
|
Occupancy, net |
|
|
21,987 |
|
|
|
19,807 |
|
|
|
16,176 |
|
Data processing |
|
|
10,420 |
|
|
|
8,493 |
|
|
|
7,129 |
|
Advertising and marketing |
|
|
5,318 |
|
|
|
5,074 |
|
|
|
4,970 |
|
Professional fees |
|
|
7,090 |
|
|
|
6,172 |
|
|
|
5,609 |
|
Amortization of other intangible assets |
|
|
3,861 |
|
|
|
3,938 |
|
|
|
3,394 |
|
Other |
|
|
37,080 |
|
|
|
34,799 |
|
|
|
31,562 |
|
|
Total non-interest expense |
|
|
242,935 |
|
|
|
228,820 |
|
|
|
198,690 |
|
|
Income before income taxes |
|
|
83,824 |
|
|
|
104,241 |
|
|
|
104,950 |
|
Income tax expense |
|
|
28,171 |
|
|
|
37,748 |
|
|
|
37,934 |
|
|
Net income |
|
$ |
55,653 |
|
|
|
66,493 |
|
|
|
67,016 |
|
|
Net income per common share Basic |
|
$ |
2.31 |
|
|
|
2.66 |
|
|
|
2.89 |
|
|
Net income per common share Diluted |
|
$ |
2.24 |
|
|
|
2.56 |
|
|
|
2.75 |
|
|
See accompanying Notes to Consolidated Financial Statements
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compre- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
hensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
other |
|
|
Total |
|
|
|
income |
|
|
Common |
|
|
|
|
|
|
Treasury |
|
|
stock |
|
|
Retained |
|
|
comprehensive |
|
|
shareholders |
|
|
|
(loss) |
|
|
stock |
|
|
Surplus |
|
|
stock |
|
|
warrants |
|
|
earnings |
|
|
income (loss) |
|
|
equity |
|
|
Balance at December
31, 2004 |
|
|
|
|
|
$ |
21,729 |
|
|
|
319,147 |
|
|
|
|
|
|
|
828 |
|
|
|
139,566 |
|
|
|
(7,358 |
) |
|
|
473,912 |
|
Comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
67,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,016 |
|
|
|
|
|
|
|
67,016 |
|
Other
comprehensive
loss, net of
tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses on
securities,
net of
reclassification
adjustment |
|
|
(11,081 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,081 |
) |
|
|
(11,081 |
) |
Unrealized
gains on
derivative
instruments |
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income |
|
|
56,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
declared on common
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,449 |
) |
|
|
|
|
|
|
(5,449 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New issuance,
net of costs |
|
|
|
|
|
|
1,000 |
|
|
|
54,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,845 |
|
Business
combinations |
|
|
|
|
|
|
601 |
|
|
|
29,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,587 |
|
Exercise of
stock options |
|
|
|
|
|
|
461 |
|
|
|
12,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,153 |
|
Restricted stock
awards |
|
|
|
|
|
|
19 |
|
|
|
832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
851 |
|
Employee stock
purchase plan |
|
|
|
|
|
|
35 |
|
|
|
1,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,714 |
|
Exercise of
common stock
warrants |
|
|
|
|
|
|
89 |
|
|
|
935 |
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
940 |
|
Director
compensation
plan |
|
|
|
|
|
|
7 |
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
317 |
|
|
Balance at December
31, 2005 |
|
|
|
|
|
$ |
23,941 |
|
|
|
420,426 |
|
|
|
|
|
|
|
744 |
|
|
|
201,133 |
|
|
|
(18,333 |
) |
|
|
627,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
66,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,493 |
|
|
|
|
|
|
|
66,493 |
|
Other
comprehensive
income, net of
tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on
securities,
net of
reclassification
adjustment |
|
|
2,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,051 |
|
|
|
2,051 |
|
Unrealized
losses on
derivative
instruments |
|
|
(1,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,479 |
) |
|
|
(1,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income |
|
|
67,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
declared on common
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,961 |
) |
|
|
|
|
|
|
(6,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
repurchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,343 |
) |
Cumulative effect
of change in
accounting
for
mortgage
servicing
rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,069 |
|
|
|
|
|
|
|
1,069 |
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
17,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,282 |
|
Common stock issued
for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New issuance,
net of costs |
|
|
|
|
|
|
200 |
|
|
|
11,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,584 |
|
Business
combinations |
|
|
|
|
|
|
1,123 |
|
|
|
55,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,088 |
|
Exercise of
stock options |
|
|
|
|
|
|
401 |
|
|
|
11,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,718 |
|
Restricted stock
awards |
|
|
|
|
|
|
73 |
|
|
|
(135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
Employee stock
purchase plan |
|
|
|
|
|
|
37 |
|
|
|
1,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,986 |
|
Exercise of
common stock
warrants |
|
|
|
|
|
|
14 |
|
|
|
476 |
|
|
|
|
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
427 |
|
Director
compensation
plan |
|
|
|
|
|
|
13 |
|
|
|
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
582 |
|
|
Balance at December
31, 2006 |
|
|
|
|
|
$ |
25,802 |
|
|
|
519,233 |
|
|
|
(16,343 |
) |
|
|
681 |
|
|
|
261,734 |
|
|
|
(17,761 |
) |
|
|
773,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
55,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,653 |
|
|
|
|
|
|
|
55,653 |
|
Other
comprehensive
income, net of
tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on
securities,
net of
reclassification
adjustment |
|
|
8,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,185 |
|
|
|
8,185 |
|
Unrealized
losses on
derivative
instruments |
|
|
(4,096 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,096 |
) |
|
|
(4,096 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income |
|
$ |
59,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
declared on common
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,831 |
) |
|
|
|
|
|
|
(7,831 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
repurchases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105,853 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
10,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,846 |
|
Common stock issued
for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of
stock options |
|
|
|
|
|
|
298 |
|
|
|
6,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,816 |
|
Restricted stock
awards |
|
|
|
|
|
|
112 |
|
|
|
(472 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(360 |
) |
Employee stock
purchase plan |
|
|
|
|
|
|
39 |
|
|
|
1,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,691 |
|
Exercise of
common stock
warrants |
|
|
|
|
|
|
14 |
|
|
|
634 |
|
|
|
|
|
|
|
(222 |
) |
|
|
|
|
|
|
|
|
|
|
426 |
|
Director
compensation
plan |
|
|
|
|
|
|
16 |
|
|
|
716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
732 |
|
|
Balance at December
31, 2007 |
|
|
|
|
|
$ |
26,281 |
|
|
|
539,127 |
|
|
|
(122,196 |
) |
|
|
459 |
|
|
|
309,556 |
|
|
|
(13,672 |
) |
|
|
739,555 |
|
|
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
60
|
|
|
|
Wintrust
Financial Corporation |
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
55,653 |
|
|
|
66,493 |
|
|
|
67,016 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
14,879 |
|
|
|
7,057 |
|
|
|
6,676 |
|
Depreciation and amortization |
|
|
20,010 |
|
|
|
17,622 |
|
|
|
14,113 |
|
Deferred income tax (benefit) expense |
|
|
(4,837 |
) |
|
|
(1,207 |
) |
|
|
345 |
|
Stock-based compensation |
|
|
10,845 |
|
|
|
12,159 |
|
|
|
4,450 |
|
Tax benefit from stock-based compensation arrangements |
|
|
2,024 |
|
|
|
5,281 |
|
|
|
7,038 |
|
Excess tax benefits from stock-based compensation
arrangements |
|
|
(2,623 |
) |
|
|
(4,565 |
) |
|
|
|
|
Net amortization (accretion) of premium on securities |
|
|
618 |
|
|
|
(1,136 |
) |
|
|
2,638 |
|
Fair market value change of interest rate swaps |
|
|
|
|
|
|
(1,809 |
) |
|
|
1,809 |
|
Mortgage servicing rights fair value change and
amortization, net |
|
|
1,030 |
|
|
|
905 |
|
|
|
1,423 |
|
Originations and purchases of mortgage loans
held-for-sale |
|
|
(1,949,742 |
) |
|
|
(1,971,894 |
) |
|
|
(2,196,638 |
) |
Proceeds from sales of mortgage loans held-for-sale |
|
|
1,997,445 |
|
|
|
1,922,284 |
|
|
|
2,227,636 |
|
Bank owned life insurance, net of claims |
|
|
(3,521 |
) |
|
|
(2,948 |
) |
|
|
(2,431 |
) |
Gain on sales of premium finance receivables |
|
|
(2,040 |
) |
|
|
(2,883 |
) |
|
|
(6,499 |
) |
Decrease (increase) in trading securities, net |
|
|
753 |
|
|
|
(714 |
) |
|
|
1,989 |
|
Net (increase) decrease in brokerage customer receivables |
|
|
(166 |
) |
|
|
3,860 |
|
|
|
3,947 |
|
Gain on mortgage loans sold |
|
|
(12,341 |
) |
|
|
(12,736 |
) |
|
|
(10,054 |
) |
Gain on available-for-sale securities, net |
|
|
(2,997 |
) |
|
|
(17 |
) |
|
|
(1,063 |
) |
(Gain) loss on sales of premises and equipment, net |
|
|
(2,529 |
) |
|
|
(14 |
) |
|
|
40 |
|
Increase in accrued interest receivable and other
assets, net |
|
|
(1,589 |
) |
|
|
(7,867 |
) |
|
|
(5,140 |
) |
(Decrease) increase in accrued interest payable and
other liabilities, net |
|
|
(5,496 |
) |
|
|
13,521 |
|
|
|
(389 |
) |
|
Net Cash Provided by Operating Activities |
|
|
115,376 |
|
|
|
41,392 |
|
|
|
116,906 |
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of available-for-sale securities |
|
|
801,547 |
|
|
|
857,199 |
|
|
|
384,840 |
|
Proceeds from sales of available-for-sale securities |
|
|
252,706 |
|
|
|
372,613 |
|
|
|
1,068,470 |
|
Purchases of available-for-sale securities |
|
|
(586,817 |
) |
|
|
(1,069,596 |
) |
|
|
(1,827,642 |
) |
Proceeds from sales of premium finance receivables |
|
|
229,994 |
|
|
|
302,882 |
|
|
|
561,802 |
|
Net cash paid for acquisitions |
|
|
(11,594 |
) |
|
|
(51,070 |
) |
|
|
(79,222 |
) |
Net decrease (increase) in interest bearing deposits
with banks |
|
|
8,849 |
|
|
|
(6,819 |
) |
|
|
(7,191 |
) |
Net increase in loans |
|
|
(487,676 |
) |
|
|
(1,211,300 |
) |
|
|
(1,007,090 |
) |
Redemptions of Bank Owned Life Insurance |
|
|
1,306 |
|
|
|
|
|
|
|
|
|
Purchases of premises and equipment, net |
|
|
(42,829 |
) |
|
|
(64,824 |
) |
|
|
(47,006 |
) |
|
Net Cash Provided by (Used for) Investing Activities |
|
|
165,486 |
|
|
|
(870,915 |
) |
|
|
(953,039 |
) |
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in deposit accounts |
|
|
(397,938 |
) |
|
|
717,044 |
|
|
|
1,038,247 |
|
Increase (decrease) in other borrowings, net |
|
|
39,801 |
|
|
|
63,476 |
|
|
|
(133,755 |
) |
Increase (decrease) in notes payable, net |
|
|
47,950 |
|
|
|
11,750 |
|
|
|
(5,000 |
) |
Increase (decrease) in Federal Home Loan Bank advances,
net |
|
|
89,698 |
|
|
|
(36,080 |
) |
|
|
22,815 |
|
Net proceeds from issuance of junior subordinated
debentures |
|
|
|
|
|
|
50,000 |
|
|
|
40,000 |
|
Redemption of junior subordinated debentures, net |
|
|
|
|
|
|
(31,050 |
) |
|
|
(20,000 |
) |
Proceeds from issuance of subordinated note |
|
|
|
|
|
|
25,000 |
|
|
|
|
|
Repayment of subordinated note |
|
|
|
|
|
|
(8,000 |
) |
|
|
|
|
Excess tax benefits from stock-based compensation
arrangements |
|
|
2,623 |
|
|
|
4,565 |
|
|
|
|
|
Issuance of common stock, net of issuance costs |
|
|
|
|
|
|
11,584 |
|
|
|
55,845 |
|
Issuance of common stock resulting from exercise of
stock options, employee
stock purchase plan and conversion of common stock
warrants |
|
|
6,550 |
|
|
|
8,465 |
|
|
|
8,769 |
|
Treasury stock purchases |
|
|
(105,853 |
) |
|
|
(16,343 |
) |
|
|
|
|
Dividends paid |
|
|
(7,831 |
) |
|
|
(6,961 |
) |
|
|
(5,449 |
) |
|
Net Cash (Used for) Provided by Financing Activities |
|
|
(325,000 |
) |
|
|
793,450 |
|
|
|
1,001,472 |
|
|
Net
(Decrease) Increase in Cash and Cash Equivalents |
|
|
(44,138 |
) |
|
|
(36,073 |
) |
|
|
165,339 |
|
Cash and Cash Equivalents at Beginning of Year |
|
|
305,292 |
|
|
|
341,365 |
|
|
|
176,026 |
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
261,154 |
|
|
|
305,292 |
|
|
|
341,365 |
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
351,795 |
|
|
|
304,088 |
|
|
|
183,804 |
|
Income taxes, net |
|
|
30,992 |
|
|
|
33,281 |
|
|
|
28,618 |
|
Acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired, including cash and
cash equivalents |
|
|
59,683 |
|
|
|
483,723 |
|
|
|
707,406 |
|
Value ascribed to goodwill and other intangible
assets |
|
|
7,221 |
|
|
|
79,832 |
|
|
|
92,597 |
|
Fair value of liabilities assumed |
|
|
53,095 |
|
|
|
448,409 |
|
|
|
660,452 |
|
Non-cash activities |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for acquisitions |
|
|
|
|
|
|
57,088 |
|
|
|
30,587 |
|
Transfer to other real estate owned from loans |
|
|
5,427 |
|
|
|
2,439 |
|
|
|
1,456 |
|
Loans transferred from held-for-sale to
portfolio |
|
|
3,419 |
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
Description of the Business
Wintrust Financial Corporation (Wintrust or the
Company) is a financial holding company currently
engaged in the business of providing traditional
community banking services to cus-tomers in the Chicago
metropolitan area and southern Wisconsin.
Additionally, the Company operates various non-bank
subsidiaries.
Wintrust has 15 wholly-owned bank subsidiaries
(collectively, the Banks), nine of which the Company
started as de novo institutions, including Lake Forest
Bank & Trust Company (Lake Forest Bank), Hinsdale
Bank & Trust Company (Hinsdale Bank), North Shore
Community Bank & Trust Company (North Shore Bank),
Libertyville Bank & Trust Company (Libertyville
Bank), Barrington Bank & Trust Company, N.A.
(Barrington Bank), Crystal Lake Bank & Trust Company,
N.A. (Crystal Lake Bank), Northbrook Bank & Trust
Company (Northbrook Bank), Beverly Bank & Trust
Company, N.A. (Beverly Bank) and Old Plank Trail
Community Bank, N.A. (Old Plank Trail Bank). The
Company acquired Advantage National Bank (Advantage
Bank) in October 2003, Village Bank & Trust (Village
Bank) in December 2003, Northview Bank & Trust
(Northview Bank) in September 2004, Town Bank in
October 2004, State Bank of The Lakes in January 2005,
First Northwest Bank in March 2005 and Hinsbrook Bank
and Trust (Hinsbrook Bank) in May 2006. In December
2004, Northview Banks Wheaton branch became its main
office, it was renamed Wheaton Bank & Trust (Wheaton
Bank) and its two Northfield locations became branches
of Northbrook Bank and its Mundelein location became a
branch of Libertyville Bank. In May 2005, First
Northwest Bank was merged into Village Bank. In
November 2006, Hinsbrook Banks Geneva branch was
renamed St. Charles Bank & Trust (St. Charles Bank),
its Willowbrook, Downers Grove and Darien locations
became branches of Hinsdale Bank and its Glen Ellyn
location became a branch of Wheaton Bank.
The Company provides, on a national basis, loans to
businesses to finance insurance premiums on their
commercial insurance policies (premium finance
receivables) through First Insurance Funding
Corporation (FIFC). FIFC is a wholly-owned
sub-sidiary of Crabtree Capital Corporation
(Crabtree) which is a wholly-owned subsidiary of Lake
Forest Bank.
In November 2007, the Company acquired Broadway Premium
Funding Corporation (Broadway). Broadway also
provides loans to businesses to finance insurance premiums, mainly through insurance agents and
brokers in the northeastern portion of the United
States and California. Broadway is a wholly-owned
subsidiary of FIFC.
Wintrust, through Tricom, Inc. of Milwaukee (Tricom),
provides high-yielding short-term accounts receivable
financing (Tricom finance receivables) and
value-added out-sourced administrative services, such
as data processing of payrolls, billing and cash
management services, to the temporary staffing
industry, with clients located throughout the United
States. Tricom is a wholly-owned subsidiary of
Hinsdale Bank.
The Company provides a full range of wealth management
services through its trust, asset management and
broker-dealer subsidiaries. Trust and investment
services are provided at the Banks through the
Companys wholly-owned subsidiary, Wayne Hummer Trust
Company, N.A. (WHTC), a de novo company started in
1998. Wayne Hummer Investments, LLC (WHI) is a
broker-dealer providing a full range of private client
and securities brokerage services to clients located
primarily in the Midwest. WHI has office locations
staffed by one or more registered financial advisors in
a majority of the Companys Banks. WHI also provides a
full range of investment services to individuals
through a network of relationships with community-based
financial institutions primarily in Illinois. WHI is a
wholly-owned subsidiary of North Shore Bank. Focused
Investments LLC was a wholly-owned subsidiary of WHI
and was merged into WHI in December 2006. Wayne Hummer
Asset Management Company (WHAMC) provides money
management services and advisory services to
individuals, institutions and municipal and tax-exempt
organizations, in addition to portfolio management and
financial supervision for a wide range of pension and
profit-sharing plans. WHAMC is a wholly-owned
subsidiary of Wintrust. WHI, WHAMC and Focused were
acquired in 2002, and are collectively referred to as
the Wayne Hummer Companies. In February 2003, the
Company acquired Lake Forest Capital Management
(LFCM), a registered investment advisor, which was
merged into WHAMC.
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
document preparation and other loan closing services to
WestAmerica and a network of mortgage brokers.
WestAmerica maintains principal origination offices in
nine states, including Illinois, and originates loans
in other states through wholesale and correspondent
offices. WestAmerica and
Guardian are wholly-owned subsidiaries of Barrington
Bank.
Wintrust Information Technology Services Company
(WITS) provides information technology support, item
capture, imaging and statement preparation services to
the Wintrust subsidiaries and is a wholly-owned
subsidiary of Wintrust.
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Wintrust
Financial Corporation |
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Wintrust and
its subsidiaries conform to generally accepted
accounting principles (GAAP) in the United States and
prevailing practices of the banking industry. In the
preparation of the consolidated financial statements,
management is required to make certain estimates and
assumptions that affect the reported amounts contained
in the consolidated financial statements. Management
believes that the estimates made are reasonable;
however, changes in estimates may be required if
economic or other conditions change beyond managements
expectations. Reclassifications of certain prior year
amounts have been made to conform to the current year
presentation. The following is a summary of the
Companys more significant accounting policies.
Principles of Consolidation
The consolidated financial statements of Wintrust
include the accounts of the Company and its
subsidiaries. All significant intercompany accounts
and transactions have been eliminated in the
consolidated financial statements.
Earnings per Share
Basic earnings per share is computed by dividing income
available to common shareholders by the
weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects
the potential dilution that would occur if securities
or other contracts to issue common stock were exercised
or converted into common stock or resulted in the
issuance of common stock that then shared in the
earnings of the Company.
Business Combinations
Business combinations are accounted for by the purchase
method of accounting. Under the purchase method,
assets and liabilities of the business acquired are
recorded at their estimated fair values as of the date
of acquisition with any excess of the cost of the
acquisition over the fair value of the net tangible and
intangible assets acquired recorded as goodwill.
Results of operations of the acquired business are
included in the income statement from the effective
date of acquisition.
Cash Equivalents
For purposes of the consolidated statements of cash
flows, Win-trust considers cash on hand, cash items in
the process of collection, non-interest bearing amounts
due from correspondent banks, federal funds sold and
securities purchased under resale agreements with
original maturities of three months or less, to be cash
equivalents.
Securities
The Company classifies securities upon purchase in one
of three categories: trading, held-to-maturity, or
available-for-sale. Trading securities are bought
principally for the purpose of selling them in the near
term. Held-to-maturity securities are those debt
securities in which the Company has the ability and
positive intent to hold until maturity. All other
securities are currently classified as
available-for-sale as they may be sold prior to
maturity.
Held-to-maturity securities are stated at amortized
cost, which represents actual cost adjusted for premium
amortization and discount accretion using methods that
approximate the effective interest method.
Available-for-sale securities are stated at fair value.
Unrealized gains and losses on available-for-sale
securities, net of related taxes, are included as
accumulated other comprehensive income and reported as
a separate component of shareholders equity.
Trading account securities are stated at fair value.
Realized and unrealized gains and losses from sales and
fair value adjustments are included in other
non-interest income.
A decline in the market value of any available-for-sale
or held-to-maturity security below cost that is deemed
other than temporary is charged to earnings, resulting
in the establishment of a new cost basis for the
security. Interest and dividends, including
amortization of premiums and accretion of discounts,
are recognized as interest income when earned.
Realized gains and losses for securities classified as
available-for-sale are included in non-interest income
and are derived using the specific identification
method for determining the cost of securities sold.
Securities Purchased Under Resale Agreements and
Securities Sold Under Repurchase Agreements
Securities purchased under resale agreements and
securities sold under repurchase agreements are
generally treated as collateralized financing
transactions and are recorded at the amount at which
the securities were acquired or sold plus accrued
interest. Securities, generally U.S. government and
Federal agency securities, pledged as collateral under
these financing arrangements cannot be sold by the
secured party. The fair value of collateral either
received from or provided to a third party is monitored
and additional collateral is obtained or requested to
be returned as deemed appropriate.
Brokerage Customer Receivables
The Company, under an agreement with an out-sourced
securities clearing firm, extends credit to its
brokerage customers to finance their purchases of
securities on margin. The Company receives income from
interest charged on such extensions of credit.
Brokerage customer receivables represent amounts due on
margin balances. Securities owned by customers are
held as collateral for these receivables.
Mortgage Loans Held-for-Sale
Mortgage loans are classified as held-for-sale when
originated or acquired with the intent to sell the loan
into the secondary market. Market conditions or other
developments may change managements intent with
respect to the disposition of these loans and loans
previously classified as mortgage loans held-for-sale
may be reclassified to the loan portfolio. Loans that
are transferred between mortgage loans held-for-sale
and the loan portfolio are recorded at the lower of
cost or market at the date of transfer.
Mortgage loans held-for-sale are carried at the lower
of cost or market applied on an aggregate basis by loan
type. Fair value is based on either quoted prices for
the same or similar loans or values obtained from third
parties. Charges related to adjustments to record the
loans at fair value are recognized in mortgage banking
revenue. When these loans are sold, the loans are
removed from the balance sheet and a gain or loss is
recognized in mortgage banking revenue.
Loans, Allowance for Loan Losses and Allowance for
Losses on Lending-Related Commitments
Loans, which include premium finance receivables,
Tricom finance receivables and lease financing, are
generally reported at the principal amount outstanding,
net of unearned income. Interest income is recognized
when earned. Loan origination fees and certain direct
origination costs are deferred and amortized over the
expected life of the loan as an adjustment to the yield
using methods that approximate the effective interest
method. Finance charges on premium finance receivables
are earned over the term of the loan based on actual
funds outstanding, beginning with the funding date,
using a method which approximates the effective yield
method.
Interest income is not accrued on loans where
management has determined that the borrowers may be
unable to meet contractual principal and/or interest
obligations, or where interest or principal is 90 days
or more past due, unless the loans are adequately
secured and in the process of collection. Cash
receipts on non-accrual loans are generally applied to
the principal balance until the remaining balance is
considered collectible, at which time interest income
may be recognized when received.
The Company allocates the allowance for loan losses to
specific loan portfolio groups and maintains its
allowance for loan losses at a level believed adequate
by management to absorb probable losses inherent in the
loan portfolio. The allowance for loan losses is based
on the size and current risk characteristics of the
loan portfolio, an assessment of Problem Loan Report
loans and actual loss experience, changes in the
composition of the loan portfolio, historical loss
experience, changes in lending policies and procedures,
including underwriting standards and collections,
charge-off and recovery practices, changes in the
experience, ability and depth of lending management and
staff, changes in national and local economic and
business conditions and developments, including the
condition of various market segments and changes in the
volume and severity of past due and classified loans
and trends in the volume of non-accrual loans, troubled
debt restructurings and other loan modifications. 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 Company reviews Problem Loan Report
loans on a case-by-case basis to allocate a specific
dollar amount of allowance, whereas all other loans are
reserved for based on assigned allowance percentages
evaluated by loan groupings. The loan groupings
utilized by the Company are commercial and commercial
real estate, residential real estate, home equity,
premium finance receivables, indirect consumer, Tricom
finance receivables and consumer. 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.
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 managements 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.
In accordance with the American Institute of Certified
Public Accountants Statement of Position (SOP) 03-3,
Accounting for Certain Loans or Debt Securities
Acquired in a Transfer, loans acquired after January
1, 2005, including debt securities, are recorded at the
amount of the Companys initial investment and no
valuation allowance is carried over from the seller for
individually-evaluated loans that have evidence of
deterioration in credit quality since origination, and
for which it is probable all contractual cash flows on
the loan will be unable to be collected. Also, the
excess of all undiscounted cash flows expected to be
collected at acquisition over the purchasers initial
investment are recognized as interest income on a
level-yield basis over the life of the loan.
Subsequent increases in cash flows expected to be
collected are recognized prospectively through an
adjustment of the loans yield over its remaining life,
while subsequent decreases are recognized as
impairment. Loans carried at fair value, mortgage
loans held-for-sale, and loans to borrowers in good
standing under revolving credit agreements are excluded
from the scope of SOP 03-3.
In estimating expected losses, the Company evaluates
loans for impairment in accordance with Statement of
Financial Accounting Standard (SFAS) 114, Accounting
by Creditors for Impairment of a Loan. A loan is
considered impaired when, based on current information
and events, it is probable that a
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64
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Wintrust
Financial Corporation |
creditor will be unable to collect all amounts due
pursuant to the contractual terms of the loan.
Impaired loans are generally considered by the Company
to be commercial and commercial real estate loans that
are non-accrual loans, restructured loans or loans with
principal and/or interest at risk, even if the loan is
current with all payments of principal and interest.
Impairment is measured by estimating the fair value of
the loan based on the present value of expected cash
flows, the market price of the loan, or the fair value
of the underlying collateral less costs to sell. If
the estimated fair value of the loan is less than the
recorded book value, a valuation allowance is
established as a component of the allowance for loan
losses.
The Company also maintains an allowance for
lending-related commitments, specifically unfunded loan
commitments and letters of credit, to provide for the
risk of loss inherent in these arrangements. The
allowance is computed using a methodology similar to
that used to determine the allowance for loan losses.
This allowance is included in other liabilities on the
statement of condition while the corresponding
provision for these losses is recorded as a component
of the provision for credit losses.
Mortgage Servicing Rights
The Company originates mortgage loans for sale to the
secondary market, the majority of which are sold
without retaining servicing rights. There are certain
loans, however, that are originated and sold to
governmental agencies, with servicing rights retained.
Mortgage servicing rights (MSR) associated with loans
originated and sold, where servicing is retained, are
capitalized at the time of sale at fair value based on
the future net cash flows expected to be realized for
performing the servicing activities, and included in
other assets in the consolidated statements of
condition. The change in MSR fair value is recorded as
a component of
mortgage banking revenue in non-interest income in the
consolidated statements of income. For purposes of
measuring fair value, a third party valuation is
obtained. This valuation stratifies the servicing
rights into pools based on product type and interest
rate. The fair value of each servicing rights pool is
calculated based on the present value of estimated
future cash flows using a discount rate commensurate
with the risk associated with that pool, given current
market conditions. Estimates of fair value include
assumptions about prepayment speeds, interest rates and
other factors which are subject to change over time.
Changes in these underlying assumptions could cause the
fair value of mortgage servicing rights to change
significantly in the future. Prior to the adoption of
SFAS 156, Accounting for the Servicing of Financial
Assets An Amendment of FASB Statement No. 140
(SFAS 156) on January 1, 2006, the capitalized value
of mortgage servicing rights was carried at the lower
of the initial carrying value, adjusted for
amortization, or estimated fair value.
Premises and Equipment
Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation
and amortization are computed using the straight-line
method over the estimated useful lives of the related
assets. Useful lives range from two to ten years for
furniture, fixtures and equipment, two to five years
for software and computer-related equipment and seven
to 39 years for buildings and improvements. Land
improvements are amortized over a period of 15 years
and leasehold improvements are amortized over the
shorter of the useful life of the improvement or the
term of the respective lease. Land and antique
furnishings and artwork are not subject to
depreciation. Expenditures for major additions and
improvements are capitalized, and maintenance and
repairs are charged to expense as incurred. Internal
costs related to the configuration and installation of
new software and the modification of existing software
that provides additional functionality are capitalized.
Long-lived depreciable assets are evaluated
periodically for impairment when events or changes in
circumstances indicate the carrying amount may not be
recoverable. Impairment exists when the expected
undiscounted future cash flows of a long-lived asset
are less than its carrying value. In that event, a
loss is recognized for the difference between the
carrying value and the estimated fair value of the
asset based on a quoted market price, if applicable, or
a discounted cash flow analysis. Impairment losses are
recognized in other non-interest expense.
Other Real Estate Owned
Other real estate owned is comprised of real estate
acquired in partial or full satisfaction of loans and
is included in other assets. Other real estate owned is
recorded at its estimated fair value less estimated
selling costs at the date of transfer, with any excess
of the related loan balance over the fair value less
expected selling costs charged to the allowance for
loan losses. Subsequent changes in value are reported
as adjustments to the carrying amount and are recorded
in other non-interest expense. Gains and losses upon
sale, if any, are also charged to other non-interest
income or expense, as appropriate. At December 31,
2007 and 2006, other real estate owned totaled $3.9
million and $572,000, respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an
acquisition over the fair value of net assets acquired.
Other intangible assets represent purchased assets
that also lack physical substance but can be
distinguished from goodwill because of contractual or
other legal rights or because the asset is capable of
being sold or exchanged either on its own or in
combination with a related contract, asset or
liability. In accordance with SFAS 142,
Goodwill and Other Intangible Assets, goodwill is
not amortized, but rather is tested for impairment on
an annual basis or more frequently when events warrant.
Intangible assets which have finite lives are
amortized over their estimated useful lives and also
are subject to impairment testing. All of the
Companys other intangible assets have finite lives and
are amortized over varying periods not exceeding ten
years.
Bank-Owned Life Insurance
The Company owns bank-owned life insurance (BOLI) on
certain executives. BOLI balances are recorded at
their cash surrender values and are included in other
assets. Changes in the cash surrender values are
included in non-interest income. At December 31, 2007
and 2006, BOLI totaled $84.7 million and $82.1 million,
respectively.
Derivative Instruments
The Company enters into derivative transactions
principally to protect against the risk of adverse
price or interest rate movements on the future cash
flows or the value of certain assets and liabilities.
The Company is also required to recognize certain
contracts and commitments, including certain
commitments to fund mortgage loans held-for-sale, as
derivatives when the characteristics of those contracts
and commitments meet the definition of a derivative.
The Company accounts for derivatives in accordance with
SFAS 133, Accounting for Derivative Instruments and
Hedging Activities, which requires that all derivative
instruments be
recorded in the statement of condition at fair value.
The accounting for changes in the fair value of a
derivative instrument depends on whether it has been
designated and qualifies as part of a hedging
relationship and further, on the type of hedging
relationship.
Derivative instruments designated in a hedge
relationship to mitigate exposure to changes in the
fair value of an asset or liability attributable to a
particular risk, such as interest rate risk, are
considered fair value hedges. Derivative instruments
designated in a hedge relationship to mitigate exposure
to variability in expected future cash flows, or other
types of forecasted transactions, are considered cash
flow hedges. Formal documentation of the relationship
between a derivative instrument and a hedged asset or
liability, as well as the risk-management objective
and strategy for undertaking each hedge transaction and
an assessment of effectiveness is required at inception
to apply hedge accounting. In addition, formal
documentation of ongoing effectiveness testing is
required to maintain hedge accounting.
Fair value hedges are accounted for by recording the
fair value of the derivative instrument and the fair
value related to the risk being hedged of the hedged
asset or liability on the statement of condition with
corresponding offsets recorded in the income statement.
The adjustment to the hedged asset or liability is
included in the basis of the hedged item, while the
fair value of
the derivative is recorded as a freestanding asset or
liability. Actual cash receipts or payments and related
amounts accrued during the period on derivatives
included in a fair value hedge relationship are
recorded as adjustments to the interest income or
expense recorded on the hedged asset or liability.
Cash flow hedges are accounted for by recording the
fair value of the derivative instrument on the
statement of condition as either a freestanding asset
or liability, with a corresponding offset recorded in
other comprehensive income within shareholders equity,
net of deferred taxes. Amounts are reclassified from
other comprehensive income to interest expense in the
period or periods the hedged forecasted transaction
affects earnings.
Under both the fair value and cash flow hedge
scenarios, changes in the fair value of derivatives not
considered to be highly effective in hedging the change
in fair value or the expected cash flows of the hedged
item are recognized in earnings as non-interest income
during the period of the change.
Derivative instruments that do not qualify as hedges
pursuant to SFAS 133 are reported on the statement of
condition at fair value and the changes in fair value
are recognized in earnings as non-interest income
during the period of the change.
Commitments to fund mortgage loans (interest rate
locks) to be sold into the secondary market and forward
commitments for the future delivery of these mortgage
loans are accounted for as derivatives not qualifying
for hedge accounting. Fair values of these mortgage
derivatives are estimated based on changes in mortgage
rates from the date of the commitments. Changes in the
fair values of these derivatives are included in
mortgage banking revenue.
Periodically, the Company sells options to an unrelated
bank or dealer for the right to purchase certain
securities held within the Banks investment
portfolios. These option transactions are designed
primarily to increase the total return associated with
holding these securities as earning assets. These
transactions do not qualify as hedges pursuant to SFAS
133 and, accordingly, changes in fair values of these
contracts, are reported in other non-interest income.
There were no covered call option contracts outstanding
as of December 31, 2007 or 2006.
Junior Subordinated Debentures Offering Costs
In connection with the Companys currently outstanding
junior subordinated debentures, approximately $726,000
of offering costs were incurred, including underwriting
fees, legal and professional fees, and other costs.
These costs are included in other assets and are being
amortized as an adjustment to interest expense using a
method that approximates the effective interest method.
As of December 31, 2007, the unamortized balance of
these costs was approximately $384,000. See Note 15
for further information about the junior subordinated
debentures.
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66
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Wintrust
Financial Corporation |
Trust Assets, Assets Under Management and
Brokerage Assets
Assets held in fiduciary or agency capacity for
customers are not included in the consolidated
financial statements as they are not assets of Wintrust
or its subsidiaries. Fee income is recognized on an
accrual basis and is included as a component of
non-interest income.
Administrative Services Revenue
Administrative services revenue is recognized as
services are performed, in accordance with the accrual
method of accounting. These services include providing
data processing of payrolls, billing and cash
management services to Tricoms clients in the
temporary staffing services industry.
Income Taxes
Wintrust and its subsidiaries file a consolidated
Federal income tax return. Income tax expense is based
upon income in the consolidated financial statements
rather than amounts reported on the income tax return.
Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to
differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and
liabilities are measured using currently enacted tax
rates expected to apply to taxable income in the years
in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized
as an income tax benefit or income tax expense in the
period that includes the enactment date.
Positions taken in the Companys tax returns may be
subject to challenge by the taxing authorities upon
examination. In accordance with FIN 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109, Accounting for Income Taxes, which
the Company adopted effective January 1, 2007,
uncertain tax positions are initially recognized in the
financial statements when it is more likely than not
the positions will be sustained upon examination by the
tax authorities. Such tax positions are both initially
and subsequently measured as the largest amount of tax
benefit that is greater than 50% likely being realized
upon settlement with the tax authority, assuming full
knowledge of the position and all relevant facts.
Interest and penalties on income tax uncertainties are
classified within income tax expense in the income
statement.
Stock-Based Compensation Plans
On January 1, 2006, the Company adopted provisions of
FASB Statement No. 123(R), Share-Based Payment (SFAS
123R), using the modified prospective transition
method. Under this transition method, compensation cost
is recognized in the financial statements beginning
January 1, 2006, based on the requirements of SFAS 123R
for all share-based payments granted after that date
and based on the grant date fair value estimated in
accordance with the original provisions of SFAS 123,
Accounting for Stock-Based Compensation for all
share-based payments granted prior to, but not yet
vested as of December 31, 2005. Results for prior
periods have not been restated.
Prior to 2006, the Company accounted for stock-based
compensation using the intrinsic value method set forth
in APB 25, as permitted by SFAS 123. The intrinsic
value method provides that compensation expense for
employee stock options is generally not recognized if
the exercise price of the option equals or exceeds the
fair value of the stock on the date of grant. As a
result, for periods prior to 2006, compensation expense
was generally not recognized in the Consolidated
Statements of Income for stock options.
Compensation expense has always been recognized for
restricted share awards. On January 1, 2006, the
Company reclassified $5.2 million of liabilities
related to previously recognized compensation cost for
restricted share awards that had not been vested as of
that date to surplus as these awards represented equity
awards as defined in SFAS 123R.
Compensation cost is measured as the fair value of the
awards on their date of grant. A Black-Scholes model
is utilized to estimate the fair value of stock options
and the market price of the Companys stock at the date
of grant is used to estimate the fair value of
restricted stock awards. Compensation cost is
recognized over the required service period, generally
defined as the vesting period. For awards with graded
vesting, compensation cost is recognized on a
straight-line basis over the requisite service period
for the entire award.
SFAS 123R requires the recognition of stock based
compensation for the number of awards that are
ultimately expected to vest. As a result, recognized
stock compensation expense is reduced for estimated
forfeitures prior to vesting primarily based on
historical forfeiture data. Estimated forfeitures are
reassessed in subsequent periods and may change based
on new facts and circumstances. Prior to January 1,
2006, actual forfeitures were accounted for as they
occurred for purposes of required pro forma stock
compensation disclosures.
The Company issues new shares to satisfy option exercises and vesting of restricted shares.
The following table reflects the Companys pro forma net income and earnings per share as if
compensation expense for the Companys stock options, determined based on the fair value at the
date of grant consistent with the method of SFAS 123, had been included in the determination of the
Companys net income for the year ended December 31, 2005 (in thousands, except per share data):
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Year Ended |
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December 31, |
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2005 |
|
Net income: |
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|
As reported |
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$ |
67,016 |
|
Compensation cost of stock options based
on fair value, net of related tax effect |
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(3,313 |
) |
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Pro forma |
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$ |
63,703 |
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|
Earnings per share Basic: |
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|
|
|
As reported |
|
$ |
2.89 |
|
Compensation cost of stock options based
on fair value, net of related tax effect |
|
|
(0.14 |
) |
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|
Pro forma |
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$ |
2.75 |
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|
|
|
Earnings per share Diluted: |
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|
|
As reported |
|
$ |
2.75 |
|
Compensation cost of stock options based
on fair value, net of related tax effect |
|
|
(0.13 |
) |
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|
Pro forma |
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$ |
2.62 |
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|
Advertising Costs
Advertising costs are expensed in the period in which they are incurred.
Start-up Costs
Start-up and organizational costs are expensed in the period in which they are incurred.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other comprehensive
income includes unrealized gains and losses on securities available-for-sale, net of deferred
taxes, and adjustments related to cash flow hedges, net of deferred taxes.
Stock Repurchases
The Company periodically repurchases shares of its outstanding common stock through open market
purchases or other methods. Repurchased shares are recorded as treasury shares on the trade date
using the treasury stock method, and the cash paid is recorded as treasury stock.
Sales of Premium Finance Receivables
Sales of premium finance receivables to an unrelated third party are recognized in accordance with
SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. The Company recognizes as a gain or loss the difference between the proceeds
received and the allocated cost basis of the loans. The allocated cost basis of the loans is
determined by allocating the Companys initial investment in the loan between the loan and the
Companys retained interests, based on their relative fair values. The retained interests include
assets for the servicing rights and interest only strip and a liability for the Companys guarantee
obligation pursuant to the terms of the sale agreement. The servicing assets and interest only
strips are included in other assets and the liability for the guarantee obligation is included in
other liabilities. If actual cash flows are less than estimated, the servicing assets and interest
only strips would be impaired and charged to earnings. Loans sold in these transactions have terms
of less than twelve months, resulting in minimal prepayment risk. The Company typically makes a
clean-up call by repurchasing the remaining loans in the pools sold after approximately 10 months
from the sale date. Upon repurchase, the loans are recorded in the Companys premium finance
receivables portfolio and any remaining balance of the Companys retained interest is recorded as an adjustment to the gain on
sale of premium finance receivables.
Variable Interest Entities
In accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46), which addresses the consolidation rules
to be applied to entities defined in FIN 46 as variable interest entities, the Company does not
consolidate its interests in subsidiary trusts formed for purposes of issuing trust preferred
securities. Management believes that FIN 46 is not applicable to its various other investments or
interests.
|
|
|
|
|
68
|
|
|
|
Wintrust
Financial Corporation |
(2) Recent Accounting Pronouncements
Accounting for Uncertainty in Income Taxes
In June 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes, effective
for the Company beginning on January 1, 2007. FIN 48 clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification of interest and penalties, accounting in interim periods, disclosure
and transition. The adoption of FIN 48 did not have a material impact on the Company.
Accounting for Split-Dollar Life Insurance Arrangements
In September 2006, the FASB ratified the Emerging Issues Task Force (EITF) consensus on EITF
Issue 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements (EITF 06-4). The EITF is limited to the recognition of
a liability and related compensation costs for endorsement split-dollar insurance arrangements that
provide a benefit to an employee that extends to postretirement periods. Therefore, the provisions
of EITF 06-4 would not apply to a split-dollar insurance arrangement that provides a specified
benefit to an employee that is limited to the employees active service period with an employer.
EITF is effective for fiscal years beginning after December 15, 2007. The effect of initially
applying the guidance would be accounted for as a cumulative-effect adjustment to beginning
retained earnings with the option of retrospective application. The adoption of EITF 06-4 did not
materially impact the consolidated financial statements.
Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting Standards 157, Fair Value
Measurements (SFAS 157). SFAS 157 establishes a framework for measuring fair value and requires
expanded disclosure about the information used to measure fair value. The statement applies
whenever other statements require, or permit, assets or liabilities to be measured at fair value.
The statement does not expand the use of fair value in any
new circumstances and is effective January 1, 2008. The adoption of SFAS 157 did not materially
impact the consolidated financial statements.
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued Statement of Financial Accounting Standards 159, The Fair Value
Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS No. 159 provides entities with an option to report selected financial
assets and liabilities at fair value. SFAS No. 159 is effective January 1, 2008. The adoption of
SFAS 159 did not materially impact the consolidated financial statements.
Business Combinations
In December 2007, the FASB issued Statement of Financial Accounting Standards 141(R), Business
Combinations (SFAS 141R). SFAS 141R requires the acquiring entity in a business combination to
recognize the full fair value of the assets acquired and liabilities assumed in a transaction at
the acquisition date; the immediate expense recognition of transaction costs; and accounting for
restructuring plans separately from the business combination. SFAS 141R is effective for financial
statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited.
Accounting for Written Loan Commitments at Fair Value Through Earnings
In November 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
No. 109 (SAB 109), Written Loan Commitments Recorded at Fair Value through Earnings. SAB 109
states that the expected cash flows related to servicing the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value. Prior to SAB
109, this component of value was not incorporated into the fair value of the loan commitment. SAB
109 is effective for financial statements issued for fiscal years December 15, 2007. The Company
does not expect SAB 109 to have a material impact to its financial statements.
(3) Available-for-Sale Securities
A summary of the available-for-sale securities portfolio presenting carrying amounts and gross
unrealized gains and losses as of December 31, 2007 and 2006 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
December 31, 2006 |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Fair |
|
|
Amortized |
|
|
unrealized |
|
|
unrealized |
|
|
Fair |
|
|
|
cost |
|
|
gains |
|
|
losses |
|
|
Value |
|
|
cost |
|
|
gains |
|
|
losses |
|
|
Value |
|
|
|
|
U.S. Treasury |
|
$ |
33,161 |
|
|
|
73 |
|
|
|
(125 |
) |
|
|
33,109 |
|
|
|
35,990 |
|
|
|
8 |
|
|
|
(1,926 |
) |
|
|
34,072 |
|
U.S. Government agencies |
|
|
321,548 |
|
|
|
783 |
|
|
|
(288 |
) |
|
|
322,043 |
|
|
|
696,946 |
|
|
|
396 |
|
|
|
(6,768 |
) |
|
|
690,574 |
|
Municipal |
|
|
49,376 |
|
|
|
246 |
|
|
|
(495 |
) |
|
|
49,127 |
|
|
|
49,602 |
|
|
|
206 |
|
|
|
(599 |
) |
|
|
49,209 |
|
Corporate notes and other debt |
|
|
45,920 |
|
|
|
12 |
|
|
|
(3,130 |
) |
|
|
42,802 |
|
|
|
61,246 |
|
|
|
391 |
|
|
|
(1,557 |
) |
|
|
60,080 |
|
Mortgage-backed |
|
|
699,166 |
|
|
|
282 |
|
|
|
(10,602 |
) |
|
|
688,846 |
|
|
|
884,130 |
|
|
|
405 |
|
|
|
(18,247 |
) |
|
|
866,288 |
|
Federal Reserve/FHLB stock and
other equity securities |
|
|
167,591 |
|
|
|
319 |
|
|
|
|
|
|
|
167,910 |
|
|
|
138,283 |
|
|
|
1,210 |
|
|
|
|
|
|
|
139,493 |
|
|
|
|
Total available-for-sale securities |
|
$ |
1,316,762 |
|
|
|
1,715 |
|
|
|
(14,640 |
) |
|
|
1,303,837 |
|
|
|
1,866,197 |
|
|
|
2,616 |
|
|
|
(29,097 |
) |
|
|
1,839,716 |
|
|
The decrease in U.S. Government agencies as of December 31, 2007 compared to December 31, 2006 is
primarily related to the maturity of Federal Home Loan Bank (FHLB) bonds partially offset by new
purchases.
The following table presents the portion of the Companys available-for-sale securities portfolio
which has gross unrealized losses, reflecting the length of time that individual securities have
been in a continuous unrealized loss position at December 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuous unrealized |
|
|
Continuous unrealized |
|
|
|
|
|
|
losses existing for |
|
|
losses existing for |
|
|
|
|
|
|
less than 12 months |
|
|
greater than 12 months |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
value |
|
|
losses |
|
|
value |
|
|
losses |
|
|
value |
|
|
losses |
|
|
|
|
U.S. Treasury |
|
$ |
|
|
|
|
|
|
|
|
10,076 |
|
|
|
(125 |
) |
|
|
10,076 |
|
|
|
(125 |
) |
U.S. Government agencies |
|
|
86,993 |
|
|
|
(99 |
) |
|
|
36,099 |
|
|
|
(189 |
) |
|
|
123,092 |
|
|
|
(288 |
) |
Municipal |
|
|
9,601 |
|
|
|
(224 |
) |
|
|
16,617 |
|
|
|
(271 |
) |
|
|
26,218 |
|
|
|
(495 |
) |
Corporate notes and other debt |
|
|
18,943 |
|
|
|
(1,515 |
) |
|
|
19,234 |
|
|
|
(1,615 |
) |
|
|
38,177 |
|
|
|
(3,130 |
) |
Mortgage-backed |
|
|
1,371 |
|
|
|
(1 |
) |
|
|
667,570 |
|
|
|
(10,601 |
) |
|
|
668,941 |
|
|
|
(10,602 |
) |
|
|
|
Total |
|
$ |
116,908 |
|
|
|
(1,839 |
) |
|
|
749,596 |
|
|
|
(12,801 |
) |
|
|
866,504 |
|
|
|
(14,640 |
) |
|
Management does not believe any individual unrealized loss as of December 31, 2007 represents an
other-than-temporary impairment. All mortgage-backed securities are of
investment grade quality and issued by government-backed agencies. The fair value of available-for-sale securities includes
investments totaling approximately $749.6 million with unrealized losses of $12.8 million, which
have been in an unrealized loss position for greater than 12 months. U.S. Treasury, U.S. Government
agencies and Mortgage-backed securities totaling $713.7 million with unrealized losses of $10.9
million are primarily fixed-rate investments with temporary impairment resulting from increases in
interest rates since the purchase of the investments. The Company has the intent and ability to
hold these investments until such time as the values recover or until maturity.
|
|
|
|
|
70
|
|
|
|
Wintrust
Financial Corporation |
The amortized cost and fair value of securities as of December 31, 2007 and 2006, by contractual
maturity, are shown in the following table. Contractual maturities may differ from actual
maturities as borrowers may have the right to call or repay obligations with or without call or
prepayment penalties. Mortgage-backed securities are not included in the maturity categories in
the following maturity summary as actual maturities may differ from contractual maturities because
the underlying mortgages may be called or prepaid without penalties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
December 31, 2006 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
|
|
Due in one year or less |
|
$ |
184,645 |
|
|
|
184,739 |
|
|
|
459,736 |
|
|
|
458,858 |
|
Due in one to five years |
|
|
48,381 |
|
|
|
47,392 |
|
|
|
58,404 |
|
|
|
57,814 |
|
Due in five to ten years |
|
|
92,708 |
|
|
|
90,998 |
|
|
|
295,613 |
|
|
|
287,258 |
|
Due after ten years |
|
|
124,271 |
|
|
|
123,952 |
|
|
|
30,031 |
|
|
|
30,005 |
|
Mortgage-backed |
|
|
699,166 |
|
|
|
688,846 |
|
|
|
884,130 |
|
|
|
866,288 |
|
Federal Reserve/FHLB Stock
and other equity |
|
|
167,591 |
|
|
|
167,910 |
|
|
|
138,283 |
|
|
|
139,493 |
|
|
|
|
Total available-for-sale securities |
|
$ |
1,316,762 |
|
|
|
1,303,837 |
|
|
|
1,866,197 |
|
|
|
1,839,716 |
|
|
In 2007, 2006 and 2005, the Company had gross realized gains on sales of available-for-sale
securities of $3.6 million, $510,000 and $1.1 million, respectively. During 2007, 2006 and 2005,
gross realized losses on sales of available-for-sale securities
totaled $628,000, $493,000 and
$40,000, respectively. Proceeds from sales of available-for-sale securities during 2007, 2006 and
2005, were $253 million, $373 million and $1.1 billion, respectively. At December 31, 2007 and
2006, securities having a carrying value of $780.8 million and $910.1 million, respectively, were pledged
as collateral for public deposits, trust deposits, FHLB advances and securities sold under
repurchase agreements. At December 31, 2007, there were no securities of a
single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of
shareholders equity.
(4) Loans
A summary of the loan portfolio at December 31, 2007 and 2006 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
Commercial and commercial real estate |
|
$ |
4,408,661 |
|
|
|
4,068,437 |
|
Home equity |
|
|
678,298 |
|
|
|
666,471 |
|
Residential real estate |
|
|
226,686 |
|
|
|
207,059 |
|
Premium finance receivables |
|
|
1,078,185 |
|
|
|
1,165,846 |
|
Indirect consumer loans |
|
|
241,393 |
|
|
|
249,534 |
|
Tricom finance receivables |
|
|
27,719 |
|
|
|
43,975 |
|
Consumer and other loans |
|
|
140,660 |
|
|
|
95,158 |
|
|
|
|
Total loans |
|
$ |
6,801,602 |
|
|
|
6,496,480 |
|
|
At December 31, 2007 and 2006, premium finance receivables were recorded net of unearned income of
$23.3 million and $27.9 million, respectively. Total loans include net deferred loan fees and
costs and fair value purchase accounting adjustments totaling $6.6 million at December 31, 2007 and
$2.0 million at December 31, 2006.
Certain real estate loans, including mortgage loans held-for-sale, and home equity loans with
balances totaling approximately $663.9 million and $607.1 million, at December 31, 2007 and 2006,
respectively, were pledged as collateral to secure the availability of borrowings from certain
Federal agency banks. At December 31, 2007, approximately $461.9 million of these pledged loans
are included in a blanket pledge of qualifying
loans to the Federal Home Loan Bank (FHLB). The remaining $202.0 million of pledged loans was
used to secure potential borrowings at the Federal Reserve Bank discount window. At December 31,
2007 and 2006, the Banks borrowed $415.2 million and $325.5 million, respectively, from the FHLB in
connection with these collateral arrangements. See Note 12 for a summary of these borrowings.
The Companys loan portfolio is generally comprised of loans to consumers and small to medium-sized
businesses located within the geographic market areas that the Banks serve. The premium finance
receivables and Tricom finance receivables portfolios are made to customers on a national basis and
the majority of the indirect consumer loans are generated through a network of local automobile
dealers. As a result, the Company strives to maintain a loan portfolio that is diverse in terms of
loan type, industry, borrower and geographic concentrations. Such diversification reduces the
exposure to economic downturns that may occur in different segments of the economy or in different
industries.
It is the policy of the Company to review each prospective credit in order to determine the
appropriateness and, when required, the adequacy of security or collateral necessary to obtain when
making a loan. The type of collateral, when required, will vary from liquid assets to real estate.
The Company seeks to assure access to collateral, in the event of default, through adherence to
state lending laws and the Companys credit monitoring procedures.
(5) Allowance for Loan Losses and Allowance for
Losses on Lending-Related Commitments
A summary of the activity in the allowance for loan
losses for the years ended December 31, 2007, 2006, and
2005 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
Allowance at beginning of year |
|
$ |
46,055 |
|
|
|
40,283 |
|
|
|
34,227 |
|
Provision for credit losses |
|
|
14,879 |
|
|
|
7,057 |
|
|
|
6,676 |
|
Allowance acquired in
business combinations |
|
|
362 |
|
|
|
3,852 |
|
|
|
4,792 |
|
Reclassification from/(to)
allowance for losses on
lending-related commitments |
|
|
(36 |
) |
|
|
92 |
|
|
|
(491 |
) |
Charge-offs |
|
|
(13,537 |
) |
|
|
(8,477 |
) |
|
|
(6,523 |
) |
Recoveries |
|
|
2,666 |
|
|
|
3,248 |
|
|
|
1,602 |
|
|
|
|
Allowance at end of year |
|
$ |
50,389 |
|
|
|
46,055 |
|
|
|
40,283 |
|
|
The Company also maintains an allowance for
lending-related commitments, specifically unfunded loan
commitments and letters of credit. The balance of the
allowance for lending-related commitments was $493,000
and $457,000 at December 31, 2007 and 2006,
respectively.
A summary of non-accrual and impaired loans and their
impact on interest income as well as loans past due
greater than 90 days and still accruing interest are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
Total non-accrual loans
(as of year-end) |
|
$ |
47,841 |
|
|
|
23,509 |
|
|
|
18,693 |
|
Reduction of interest income
from non-accrual loans |
|
|
1,790 |
|
|
|
1,126 |
|
|
|
1,258 |
|
Average balance of impaired loans |
|
|
15,359 |
|
|
|
10,230 |
|
|
|
9,331 |
|
Interest income recognized
on impaired loans |
|
|
361 |
|
|
|
140 |
|
|
|
581 |
|
Loans past due greater than
90 days and still accruing |
|
|
24,013 |
|
|
|
13,365 |
|
|
|
7,496 |
|
|
Management evaluates the value of the impaired loans
primarily by using the fair value of the collateral. A
summary of impaired loan information at December 31,
2007 and 2006 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Impaired loans |
|
$ |
28,759 |
|
|
|
11,191 |
|
Impaired loans that had allocated
specific allowance for loan losses |
|
|
22,515 |
|
|
|
6,165 |
|
Allocated allowance for loan losses |
|
|
2,308 |
|
|
|
1,400 |
|
|
(6) Mortgage Servicing Rights
Effective January 1, 2006, the Company adopted the
provisions of SFAS 156 and elected the fair value
measurement method for mortgage servicing rights
(MSRs). Upon adoption, the carrying value of the
MSRs was increased to fair value by recognizing a
cumulative effect adjustment of $1.7 million pre-tax,
or $1.1 million after tax. Following is a summary of
the changes in the carrying value of MSRs, accounted
for at fair value, for the years ending December 31,
2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Balance at beginning of year |
|
$ |
5,031 |
|
|
|
3,630 |
|
Cumulative effect of change in accounting |
|
|
|
|
|
|
1,727 |
|
Additions from loans sold with
servicing retained |
|
|
729 |
|
|
|
579 |
|
Changes in fair value due to: |
|
|
|
|
|
|
|
|
Payoffs and paydowns |
|
|
(773 |
) |
|
|
(802 |
) |
Changes in valuation inputs
or assumptions |
|
|
(257 |
) |
|
|
(103 |
) |
|
|
|
Fair value at end of year |
|
$ |
4,730 |
|
|
|
5,031 |
|
|
|
|
Unpaid principal balance of mortgage
loans serviced for others |
|
$ |
487,660 |
|
|
|
494,695 |
|
|
Prior to January 1, 2006, MSRs were accounted for at
the lower of their initial carrying value, net of
accumulated amortization, or fair value. MSRs were
periodically evaluated for impairment and a valuation
allowance was established through a charge to income
when the carrying value exceeded the fair value and was
believed to be temporary. Changes in the carrying value
of MSRs, accounted for using the amortization method,
for the year ended December 31, 2005 follow (in
thousands):
|
|
|
|
|
|
|
|
2005 |
Balance at beginning of year |
|
$ |
2,179 |
|
Balance acquired in business combinations |
|
|
2,064 |
|
Additions from loans sold with servicing retained |
|
|
810 |
|
Amortization |
|
|
(1,423 |
) |
|
|
|
Balance at
end of year |
|
|
3,630 |
|
|
|
|
Fair value
at end of year |
|
$ |
5,357 |
|
|
|
|
Unpaid principal balance of mortgage
loans serviced for others |
|
$ |
521,520 |
|
|
There was no valuation allowance at December 31, 2005.
The Company recognizes MSR assets on residential real
estate loans sold upon the sale of the loans when it
retains the obligation to service the loans and the
servicing fee is more than adequate compensation. The recognition of MSR
assets and subsequent change in fair value are
recognized in mortgage banking revenue. MSRs are
subject to decline in value from actual and expected
prepayment of the underlying loans. The Company does
not specifically hedge the value of its MSRs.
|
|
|
|
|
72
|
|
|
|
Wintrust
Financial Corporation |
Fair values are provided by a third party which uses a
discounted cash flow model that incorporates the
objective characteristics of the portfolio as well as
subjective valuation parameters that purchasers of
servicing would apply to such portfolios sold into the
secondary market. The subjective factors include loan
prepayment speeds, interest rates, servicing costs and
other economic factors.
(7) Business Combinations
The Company completed one business combination in 2007.
The acquisition was accounted for under the purchase
method of accounting; thus, the results of operations
prior to the effective date of acquisition were not
included in the accompanying consolidated financial
statements. Goodwill and other purchase accounting
adjustments were recorded upon the completion of the
acquisition, which did not have a material impact on
the consolidated financial statements.
On November 1, 2007, the Company completed the
acquisition of 100% of the ownership interests of
Broadway Premium Funding Corporation (Broadway).
Broadway was founded in 1999 and had approximately $60
million of premium finance receivables outstanding at
the date of acquisition. Broadway provides financing
for commercial property and casualty insurance
premiums, mainly through insurance agents and brokers
in the northeastern portion of the United States and
California. Broadway is a subsidiary of FIFC.
(8) Goodwill and Other Intangible Assets
A summary of goodwill by business segment is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan 1, |
|
|
Goodwill |
|
|
Impairment |
|
|
Dec 31, |
|
|
|
2007 |
|
|
Acquired |
|
|
Losses |
|
|
2007 |
|
|
|
|
Banking |
|
$ |
245,805 |
|
|
|
(109 |
) |
|
|
|
|
|
|
245,696 |
|
Premium Finance |
|
|
|
|
|
|
7,221 |
|
|
|
|
|
|
|
7,221 |
|
Tricom |
|
|
8,958 |
|
|
|
|
|
|
|
|
|
|
|
8,958 |
|
Wealth management |
|
|
14,173 |
|
|
|
156 |
|
|
|
|
|
|
|
14,329 |
|
|
|
|
Total |
|
$ |
268,936 |
|
|
|
7,268 |
|
|
|
|
|
|
|
276,204 |
|
|
Approximately $24.9 million of the December 31, 2007
book balance of goodwill is deductible for tax purposes.
The decrease in the Banking segments goodwill
primarily relates to adjustments of prior estimates of
fair values associated with the acquisition of
Hinsbrook Bank partially offset by additional
contingent consideration earned by former owners of
Guardian as a result of attaining certain performance measures.
Wintrust could pay additional consideration pursuant to
the West America and Guardian transaction through June
2009. Any payments would be reflected in the Banking
segments goodwill.
The increase in goodwill in the wealth management
segment represents additional contingent consideration
earned by the former owners of LFCM as a result of
attaining certain performance measures pursuant to the
terms of the LFCM purchase agreement. Wintrust is no
longer required to pay additional consideration
pursuant to this transaction. LFCM was merged into
WHAMC in February 2003.
A summary of finite-lived intangible assets as of
December 31, 2007 and 2006 and the expected
amortization as of December 31, 2007 is follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2006 |
|
|
|
Wealth management segment: |
|
|
|
|
|
|
|
|
Customer list intangibles
Gross carrying amount |
|
$ |
3,252 |
|
|
|
3,252 |
|
Accumulated amortization |
|
|
(2,800 |
) |
|
|
(2,463 |
) |
|
|
|
Net carrying amount |
|
|
452 |
|
|
|
789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking segment: |
|
|
|
|
|
|
|
|
Core deposit intangibles
Gross carrying amount |
|
|
27,918 |
|
|
|
27,918 |
|
Accumulated amortization |
|
|
(10,633 |
) |
|
|
(7,108 |
) |
|
|
|
Net carrying amount |
|
|
17,285 |
|
|
|
20,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net |
|
$ |
17,737 |
|
|
|
21,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization |
|
|
|
|
|
2008 |
|
$ |
3,862 |
|
|
|
|
|
2009 |
|
|
2,717 |
|
|
|
|
|
2010 |
|
|
2,381 |
|
|
|
|
|
2011 |
|
|
2,253 |
|
|
|
|
|
2012 |
|
|
2,251 |
|
|
|
|
|
|
The customer list intangibles recognized in connection
with the acquisitions of LFCM in 2003 and WHAMC in
2002, are being amortized over seven-year periods on an
accelerated basis. The core deposit intangibles
recognized in connection with the Companys seven bank
acquisitions in the last five years are being amortized over ten-year periods on an accelerated
basis. Total amortization expense
associated with finite-lived intangibles in 2007, 2006 and 2005 was
$3.9 million, $3.9 million and $3.4 million, respectively.
(9) Premises and Equipment, Net
A summary of premises and equipment at December 31,
2007 and 2006 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
Land |
|
$ |
77,868 |
|
|
|
81,458 |
|
Buildings and leasehold improvements |
|
|
253,000 |
|
|
|
204,249 |
|
Furniture, equipment and
computer software |
|
|
82,705 |
|
|
|
71,616 |
|
Construction in progress |
|
|
8,003 |
|
|
|
21,545 |
|
|
|
|
|
|
|
421,576 |
|
|
|
378,868 |
|
Less: Accumulated depreciation
and amortization |
|
|
82,279 |
|
|
|
67,827 |
|
|
|
|
Total premises and equipment, net |
|
$ |
339,297 |
|
|
|
311,041 |
|
|
Depreciation and amortization expense related to
premises and equipment, totaled $17.1 million in 2007,
$13.5 million in 2006 and $12.1 million in 2005.
(10) Deposits
The following is a summary of deposits at December 31,
2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
Non-interest bearing accounts |
|
$ |
664,264 |
|
|
|
699,203 |
|
NOW accounts |
|
|
1,014,780 |
|
|
|
844,875 |
|
Wealth Management deposits |
|
|
599,426 |
|
|
|
529,730 |
|
Money market accounts |
|
|
701,972 |
|
|
|
690,938 |
|
Savings accounts |
|
|
297,586 |
|
|
|
304,362 |
|
Time certificates of deposit |
|
|
4,193,413 |
|
|
|
4,800,132 |
|
|
|
|
Total deposits |
|
$ |
7,471,441 |
|
|
|
7,869,240 |
|
|
The scheduled maturities of time certificates of
deposit at December 31, 2007 and 2006 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
Due in one year |
|
$ |
3,464,962 |
|
|
|
3,704,507 |
|
Due in one to two years |
|
|
386,937 |
|
|
|
643,252 |
|
Due in two to three years |
|
|
132,794 |
|
|
|
185,803 |
|
Due in three to four years |
|
|
141,148 |
|
|
|
106,111 |
|
Due in four to five years |
|
|
67,276 |
|
|
|
157,783 |
|
Due after five years |
|
|
296 |
|
|
|
2,676 |
|
|
|
|
Total time certificates of deposit |
|
$ |
4,193,413 |
|
|
|
4,800,132 |
|
|
The following table sets forth the scheduled maturities
of time deposits in denominations of $100,000 or more
at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Maturing within 3 months |
|
$ |
708,559 |
|
|
|
613,214 |
|
After 3 but within 6 months |
|
|
493,223 |
|
|
|
560,578 |
|
After 6 but within 12 months |
|
|
645,061 |
|
|
|
794,749 |
|
After 12 months |
|
|
482,818 |
|
|
|
669,957 |
|
|
|
|
Total |
|
$ |
2,329,661 |
|
|
|
2,638,498 |
|
|
|
|
(11) Notes Payable
The notes payable balance was $60.7 million and $12.8
million at December 31, 2007 and 2006, respectively.
These balances represent the outstanding balances on a
$101.0 million loan agreement (Agreement) with an
unaffiliated bank. The Agreement consists of a $100.0
million revolving note, which matures on June 1, 2008
and a $1.0 million note that matures on June 1, 2015.
At December 31, 2007, the notes payable balance
includes the $1.0 million note and a $59.7 million
outstanding balance on the $100.0 million revolving
note. Effective January 1, 2007, interest is
calculated, at the Companys option, at a floating rate
equal to either: (1) LIBOR plus 115 basis points or
(2) the greater of the lenders prime rate or the
Federal Funds Rate plus 50 basis points. At December
31, 2007 and 2006, the interest rates were 6.27% and
6.77%, respectively.
The Agreement is secured by the stock of some of the
Banks and contains several restrictive covenants,
including the maintenance of various capital adequacy
levels, asset quality and profitability ratios, and
certain restrictions on dividends and other
indebtedness. At December 31, 2007, the Company is in
compliance with all debt covenants. The Agreement may
be utilized, as needed, to provide capital to fund
continued growth at the Companys Banks and to serve as
an interim source of funds for acquisitions, common
stock repurchases or other general corporate purposes.
|
|
|
|
|
74
|
|
|
|
Wintrust
Financial Corporation |
(12) Federal Home Loan Bank Advances
A summary of the outstanding FHLB advances at
December 31, 2007 and 2006, is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
2.77% advance due February 2007 |
|
$ |
|
|
|
|
25,000 |
|
4.89% advance due November 2007 |
|
|
|
|
|
|
3,034 |
|
Variable-rate advance due January 2008 |
|
|
3,698 |
|
|
|
|
|
5.37% advance due February 2008 |
|
|
2,502 |
|
|
|
2,518 |
|
3.32% advance due March 2008 |
|
|
2,501 |
|
|
|
2,505 |
|
4.36% advance due March 2008 |
|
|
2,000 |
|
|
|
2,000 |
|
2.72% advance due May 2008 |
|
|
1,996 |
|
|
|
1,986 |
|
4.78% advance due October 2008 |
|
|
3,000 |
|
|
|
3,000 |
|
4.40% advance due July 2009 |
|
|
2,026 |
|
|
|
2,044 |
|
4.85% advance due November 2009 |
|
|
3,000 |
|
|
|
3,000 |
|
4.58% advance due March 2010 |
|
|
5,018 |
|
|
|
5,026 |
|
4.61% advance due March 2010 |
|
|
2,500 |
|
|
|
2,500 |
|
4.50% advance due September 2010 |
|
|
4,942 |
|
|
|
4,918 |
|
4.88% advance due November 2010 |
|
|
3,000 |
|
|
|
3,000 |
|
4.60% advance due July 2011 |
|
|
30,000 |
|
|
|
30,000 |
|
3.30% advance due November 2011 |
|
|
25,000 |
|
|
|
25,000 |
|
4.61% advance due January 2012 |
|
|
53,000 |
|
|
|
|
|
4.68% advance due January 2012 |
|
|
16,000 |
|
|
|
|
|
4.44% advance due April 2012 |
|
|
5,000 |
|
|
|
|
|
4.78% advance due June 2012 |
|
|
25,000 |
|
|
|
|
|
4.79% advance due June 2012 |
|
|
|
|
|
|
25,000 |
|
3.99% advance due September 2012 |
|
|
5,000 |
|
|
|
|
|
3.78% advance due February 2015 |
|
|
25,000 |
|
|
|
25,000 |
|
4.12% advance due February 2015 |
|
|
25,000 |
|
|
|
25,000 |
|
3.70% advance due June 2015 |
|
|
40,000 |
|
|
|
40,000 |
|
4.55% advance due February 2016 |
|
|
45,000 |
|
|
|
45,000 |
|
4.83% advance due May 2016 |
|
|
50,000 |
|
|
|
50,000 |
|
3.47% advance due November 2017 |
|
|
10,000 |
|
|
|
|
|
4.18% advance due February 2022 |
|
|
25,000 |
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances |
|
$ |
415,183 |
|
|
|
325,531 |
|
|
At December 31, 2007 all but one of the FHLB advances
were fixed-rate term obligations. The Company entered
into a $3.7 million, 30-day variable-rate advance in
December 2007. The rate on the variable advance
adjusts daily and was 3.77% at December 31, 2007. All
of the advances due after 2011 have varying call dates
ranging from January 2008 to February 2011. FHLB
advances are stated at par value of the debt adjusted
for unamortized fair value adjustments recorded in
connection with advances acquired through acquisitions.
At December 31, 2007, the weighted average contractual
interest rate on FHLB advances was 4.31%, which is also
the same as the weighted average effective interest
rate, which reflects amortization of fair value
adjustments associated with FHLB advances acquired
through acquisitions.
FHLB advances are collateralized by qualifying residential real estate loans and certain securities.
The Banks have arrangements with the FHLB whereby, based on available collateral, they could have borrowed an additional $85.2 million at
December 31, 2007.
(13) Subordinated Notes
A summary of the subordinated notes at December 31,
2007 and 2006 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Subordinated note, due October 29, 2012 |
|
$ |
25,000 |
|
|
|
25,000 |
|
Subordinated note, due May 1, 2013 |
|
|
25,000 |
|
|
|
25,000 |
|
Subordinated note, due May 29, 2015 |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
Total subordinated notes |
|
$ |
75,000 |
|
|
|
75,000 |
|
|
The subordinated notes were issued in 2002, 2003 and
2005. Each subordinated note has a term of ten years
and may be redeemed by the Company at any time prior to
maturity. The subordinated note issued in 2005 was
signed by the Company on October 25, 2005, but was not
funded until May 2006. The proceeds from the issuance
were used to fund the acquisition of Hinsbrook Bank. Each note
requires annual principal payments of $5.0 million
beginning in the sixth year of the note. The interest
rate on each subordinated note is calculated at a rate
equal to LIBOR plus 1.30%. In 2006, the interest rate
on each subordinated note was calculated at a rate
equal to LIBOR plus 1.60%. At December 31, 2007 and
2006, the weighted average contractual interest rate on
the subordinated notes was 6.38% and 6.97%,
respectively. In connection with the issuances of the
subordinated notes in 2002 and 2003, the Company
incurred costs totaling $1.0 million. These costs are
included in other assets and are being amortized to
interest expense using a method that approximates the
effective interest method. At December 31, 2007 and
2006, the unamortized balance of these costs were
$380,000 and $508,000, respectively. No issuance costs
were incurred in connection with the subordinated note
issued in 2005. The subordinated notes qualify as Tier
II capital under the regulatory capital requirements.
(14) Other Borrowings
The following is a summary of other borrowings at
December 31, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Federal funds purchased |
|
$ |
4,223 |
|
|
|
|
|
Securities sold under repurchase agreements |
|
|
248,334 |
|
|
|
159,883 |
|
Other |
|
|
1,877 |
|
|
|
2,189 |
|
|
|
|
Total other borrowings |
|
$ |
254,434 |
|
|
|
162,072 |
|
|
At
December 31, 2007 securities sold under repurchase agreements represent
$165.5 million of customer sweep accounts in connection
with master repurchase agreements at the Banks as well
as $82.8 million of short-term borrowings from banks
and brokers. Securities
pledged for these borrowings are maintained under the
Companys control and consist of U.S. Government
agency, mortgage-backed and corporate securities.
These securities are included in the available-for-sale
securities portfolio as reflected on the Companys
Consolidated Statements of Condition.
Other includes a 6.17% fixed-rate mortgage (which
matures May 1, 2010) related to the Companys
Northfield banking office.
(15) Junior Subordinated Debentures
As of December 31, 2007 the Company owned 100% of the
Common Securities of nine trusts, Wintrust Capital
Trust III, Wintrust Statutory Trust IV, Wintrust
Statutory Trust V, Wintrust Capital Trust VII,
Wintrust Capital Trust VIII, Wintrust Capital Trust IX,
Northview Capital Trust I, Town Bankshares Capital
Trust I and First Northwest Capital Trust I (the
Trusts) set up to provide long-term financing. The
Northview, Town and First Northwest capital trusts were
acquired as part of the acquisitions of Northview
Financial Corporation, Town Bank-shares, Ltd. and First
Northwest Bancorp, Inc., respectively. The Trusts were
formed for purposes of issuing Trust Preferred
Securities to third-party investors and investing the
proceeds from the issuances of the Trust Preferred
Securities and the Common Securities solely in Junior
Subordinated Debentures (Debentures) issued by the
Company, with the same maturities and interest rates as
the Trust Preferred Securities. The Debentures are the
sole assets of the Trusts. In each Trust the Common
Securities represent approximately 3% of the Debentures
and the Trust Preferred Securities represent
approximately 97% of the Debentures.
The Trusts are reported in the Companys financial
statements as unconsolidated subsidiaries; the
Debentures are reflected as Junior subordinated
debentures and the Common Securities are included in
Available-for-sale Securities.
A summary of the Companys junior subordinated
debentures, which represents the par value of the
obligations and basis adjustments for the unamortized
fair value adjustments recognized at the acquisition dates for the
Northview, Town and First Northwest obligations at December 31, 2007 and 2006, is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Variable rate (LIBOR + 3.25%)
Debentures owed to
Wintrust Capital Trust III,
due April 7, 2033 |
|
$ |
25,774 |
|
|
|
25,774 |
|
Variable rate (LIBOR + 2.80%)
Debentures owed to
Wintrust Statutory Trust IV,
due December 8, 2033 |
|
|
20,619 |
|
|
|
20,619 |
|
Variable rate (LIBOR + 2.60%)
Debentures owed to
Wintrust Statutory Trust V,
due May 11, 2034 |
|
|
41,238 |
|
|
|
41,238 |
|
Variable rate (LIBOR + 1.95%)
Debentures owed to
Wintrust Capital Trust VII,
due March 15, 2035 |
|
|
51,550 |
|
|
|
51,550 |
|
Variable rate (LIBOR + 1.45%)
Debentures owed to
Wintrust Capital Trust VIII
due September 30, 2035 |
|
|
41,238 |
|
|
|
41,238 |
|
Fixed rate (6.84%)
Debentures owed to
Wintrust Capital Trust IX,
due September 15, 2036 |
|
|
51,547 |
|
|
|
51,547 |
|
Fixed rate (6.35%)
Debentures owed to
Northview Capital Trust I,
due November 8, 2033 |
|
|
6,228 |
|
|
|
6,279 |
|
Variable rate (LIBOR + 3.00%)
Debentures owed to
Town Bankshares Capital Trust I,
due November 8, 2033 |
|
|
6,239 |
|
|
|
6,301 |
|
Variable rate (LIBOR + 3.00%)
Debentures owed to
First Northwest Capital Trust I,
due May 31, 2034 |
|
|
5,229 |
|
|
|
5,282 |
|
|
|
|
Total junior subordinated debentures |
|
$ |
249,662 |
|
|
|
249,828 |
|
|
The interest rates associated with the variable rate
Debentures are based on the three-month LIBOR rate and
were 8.49%, 7.63%, 7.43%, 6.94%, 6.28%, 7.91%, and
7.83%, for Wintrust Capital Trust III, Wintrust
Statutory Trust IV, Wintrust Statutory Trust V,
Wintrust Capital Trust VII, Wintrust Capital Trust
VIII, Town Bankshares Capital Trust I and First
Northwest Capital Trust I, respectively, at December
31, 2007. The interest rate on the Debentures of
Wintrust Capital Trust IX, currently fixed at 6.84%,
changes to a variable rate equal to three-month LIBOR plus
1.63% effective September 15, 2011, and the interest
rate on
|
|
|
|
|
76
|
|
|
|
Wintrust
Financial Corporation |
the
Debentures of Northview Capital Trust I, fixed at 6.35% at December
31, 2007, changed to a variable rate equal to
three-month LIBOR plus 3.00% effective February 8,
2008. At December 31, 2007, the weighted average
contractual interest rate on the Debentures was 7.14%.
In August 2006, the Company entered into $175 million
of interest rate swaps, which are designated in hedge
relationships, to hedge the variable cash flows of
certain Debentures. On a hedge-adjusted basis, the
weighted average interest rate on the Debentures was
7.38% at December 31, 2007. Distributions on the
common and preferred securities issued by the Trusts are
payable quarterly at a rate per annum equal to the
interest rate being earned by the Trusts on the
Debentures held by the Trusts. Interest expense on the
Debentures is deductible for income
tax purposes.
On September 1, 2006, the Company issued $51.5 million
of Debentures to Wintrust Capital Trust IX with an
initial fixed rate of 6.84%, and on September 5, 2006,
the Company used proceeds from this issuance to redeem,
at par value, $32.0 million of the Debentures of
Wintrust Capital Trust I with a fixed interest rate of
9.00%. In connection with the redemption of the
Debentures of Wintrust Capital Trust I, the Company
expensed $304,000 of unamortized issuance costs.
The Company has guaranteed the payment of distributions
and payments upon liquidation or redemption of the trust preferred securities
in each case to the extent of funds held by the Trusts. The Company and
the Trusts believe that, taken together, the
obligations of the Company under the guarantees, the
Debentures, and other related agreements provide, in
the aggregate, a full, irrevocable and unconditional
guarantee, on a subordinated basis, of all of the
obligations of the Trusts under the trust preferred securities. Subject to certain limitations, the
Company has the right to defer payment of interest on
the Debentures at any time, or from time to time, for a
period not to exceed 20 consecutive quarters. The
trust preferred securities are subject to mandatory
redemption, in whole or in part, upon repayment of the
Debentures at maturity or their earlier redemption.
The Debentures are redeemable in whole or in part prior
to maturity, at the discretion of the Company if
certain conditions are met, and only after the Company
has obtained Federal Reserve approval, if then required
under applicable guidelines or regulations. The
Debentures held by the Trusts are first redeemable, in
whole or in part, by the Company as follows:
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Wintrust Capital Trust III
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April 7, 2008 |
Wintrust Statutory Trust IV
|
|
December 31, 2008 |
Wintrust Statutory Trust V
|
|
June 30, 2009 |
Wintrust Capital Trust VII
|
|
March 15, 2010 |
Wintrust Capital Trust VIII
|
|
September 30, 2010 |
Wintrust Capital Trust IX
|
|
September 15, 2011 |
Northview Capital Trust I
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|
August 8, 2008 |
Town Bankshares Capital Trust I
|
|
August 8, 2008 |
First Northwest Capital Trust I
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May 31, 2009 |
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The junior subordinated debentures, subject to certain
limitations, qualify as Tier 1 capital of the Company
for regulatory purposes. On February 28, 2005, the
Federal Reserve issued a final rule that retains Tier I
capital treatment for these instruments but
with stricter limits. Under the rule, which is
effective March 31, 2009, and has a transition period
until then, the aggregate amount of junior subordinated
debentures and certain other capital elements is
limited to 25% of Tier I capital elements (including
junior subordinated debentures), net of goodwill less any
associated deferred tax liability. The amount of
junior subordinated debentures and certain other
capital elements in excess of the limit could be
included in Tier 2 capital, subject to restrictions.
Applying the final rule at December 31, 2007, the
Company would still be considered well-capitalized
under regulatory capital guidelines.
(16) Minimum Le