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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
|
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the fiscal year ended December 31, 2006 | ||
o
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| For the Transition Period from ____________ to ____________ |
Commission File Number 0-21923
Wintrust Financial Corporation
(Exact name of registrant as specified in its charter)
| Illinois | 36-3873352 | |
| (State of incorporation or organization) | (I.R.S. Employer Identification No.) |
727 North Bank Lane
Lake Forest, Illinois 60045
(Address of principal executive offices)
Lake Forest, Illinois 60045
(Address of principal executive offices)
Registrant’s telephone number, including area code: (847) 615-4096
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |
| Common Stock, no par value | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
þ Yes o No
þ Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
o Yes þ No
o Yes þ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer þ | Accelerated Filer o | Non-Accelerated Filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). o
Yes þ No
The aggregate market value of the voting stock held by non-affiliates of the registrant on June
30, 2006 (the last business day of the registrant’s most recently completed second quarter),
determined using the closing price of the common stock on that day of $50.85, as reported by the
Nasdaq National Market, was $1,248,267,326.
As of
February 26, 2007, the registrant had 25,009,364 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31, 2006, which is
included as Exhibit 13.1 to this Form 10-K, are incorporated by reference into Parts I and II
hereof and portions of the Proxy Statement for the Company’s Annual Meeting of Shareholders to be
held on May 24, 2007 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
Wintrust Financial Corporation, an Illinois corporation (“Wintrust” or “the Company”), which was
incorporated in 1992, is a financial holding company based in Lake Forest, Illinois, with total
assets of approximately $9.6 billion at December 31, 2006. The Company engages in the business of
providing traditional community banking services, wealth management services, commercial insurance
premium financing, short-term accounts receivable financing, and certain administrative services,
such as data processing of payrolls, billing and cash management services.
The Company provides community-oriented, personal and commercial banking services to customers
located in the greater Chicago, Illinois and southern Wisconsin metropolitan areas through its
fifteen wholly-owned banking subsidiaries (collectively, the “Banks”). The Company controls nine
Illinois-chartered banks, Lake Forest Bank and Trust Company (“Lake Forest Bank”), Hinsdale Bank
and Trust Company (“Hinsdale Bank”), North Shore Community Bank and Trust Company (“North Shore
Bank”), Libertyville Bank and Trust Company (“Libertyville Bank”), Northbrook Bank & Trust Company
(“Northbrook Bank”), Village Bank & Trust (“Village Bank”), Wheaton Bank & Trust Company (“Wheaton
Bank”), State Bank of The Lakes and St. Charles Bank & Trust Company (“St. Charles Bank”). In
addition, the Company has one Wisconsin-chartered bank, Town Bank, and five nationally chartered
banks, Barrington Bank and Trust Company, N.A. (“Barrington Bank”), Crystal Lake Bank & Trust
Company, N.A. (“Crystal Lake Bank”), Advantage National Bank (“Advantage Bank”), Beverly Bank &
Trust Company, N.A. (“Beverly Bank”) and Old Plank Trail Community Bank, N.A. (“Old Plank Trail
Bank”).
The Company provides a full range of wealth management services through three separate
subsidiaries, including Wayne Hummer Trust Company, N.A. (“WHTC”), Wayne Hummer Investments, LLC
(“WHI”), a broker-dealer and subsidiary of North Shore Bank and Wayne Hummer Asset Management
Company (“WHAMC”), a registered investment adviser. Focused Investments, LLC (“Focused”), which was
a broker-dealer and subsidiary of WHI, was merged into WHI in 2006. The Company acquired WHI,
Focused and WHAMC in February 2002 and these companies are referred to collectively as the Wayne
Hummer Companies.
The Company provides financing for the payment of commercial insurance premiums (“premium finance
receivables”), on a national basis, through First Insurance Funding Corporation (“FIFC”), a
wholly-owned subsidiary of Crabtree Capital Corporation (“Crabtree”) which is a wholly-owned
subsidiary of Lake Forest Bank. In addition, the Company provides short-term accounts receivable
financing (“Tricom finance receivables”) and out-sourced administrative services, such as data
processing of payrolls, billing and cash management services, to clients in the temporary staffing
industry located throughout the United States, through Tricom, Inc. of Milwaukee (“Tricom”), a
wholly-owned subsidiary of Hinsdale Bank.
In May 2004, the Company acquired SGB Corporation d/b/a WestAmerica Mortgage Company
(“WestAmerica”) and its affiliate Guardian Real Estate Services, Inc. (“Guardian”). WestAmerica
engages primarily in the origination and purchase of residential mortgages for sale into the
secondary market, and Guardian provides the document preparation and other loan closing services to
WestAmerica and its network of mortgage brokers. WestAmerica and Guardian are wholly-owned
subsidiaries of Barrington Bank. In September 2004, the Company also acquired Northview Mortgage,
LLC, a mortgage broker, in connection with its purchase of Northview Financial Corporation.
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Northview Mortgage, LLC is a direct subsidiary of Wintrust and is currently inactive. Mortgage
banking operations are also performed within each of the Banks.
As a mid-size financial services company, management expects to benefit from greater access to
financial and managerial resources while maintaining its commitment to local decision-making and to
its community banking philosophy. Management also believes the Company is positioned to compete
more effectively with other larger and more diversified banks, bank holding companies and other
financial services companies as it continues to execute its growth strategy through additional
branch openings and de novo bank formations, expansion of its wealth management and premium finance
business, development of additional specialized earning asset niches and potential acquisitions of
other community-oriented banks or specialty finance companies.
Additional information regarding the Company’s business and strategies is included in the
“Management’s Discussion and Analysis of Financial condition and Results of Operations” section of
the 2006 Annual Report to Shareholders, which is filed as Exhibit 13.1 to this Form 10-K and is
incorporated herein by reference and constitutes a part of this report.
Community Banking
The Company provides banking and financial services primarily to individuals, small to mid-sized
businesses, local governmental units and institutional clients residing primarily in the Banks’
local service areas. These services include traditional deposit products such as demand, NOW,
money market, savings and time deposit accounts, as well as a number of unique deposit products
targeted to specific market segments. The Banks also offer home equity, home mortgage, consumer,
real estate and commercial loans, safe deposit facilities, ATMs, internet banking and other
innovative and traditional services specially tailored to meet the needs of customers in their
market areas.
Wintrust developed its banking franchise through the de novo organization of nine banks and the
purchase of seven banks, one of which was merged into an existing Wintrust bank. The
organizational efforts began in 1991, when a group of experienced bankers and local business people
identified an unfilled niche in the Chicago metropolitan area retail banking market. As large
banks acquired smaller ones and personal service was subjected to consolidation strategies, the
opportunity increased in affluent suburbs for locally owned and operated, highly personal
service-oriented banks. As a result, Lake Forest Bank was founded in December 1991 to service the
Lake Forest and Lake Bluff communities. Following the same business plan, the Company started
Hinsdale Bank in 1993 to service the communities of Hinsdale and Burr Ridge, North Shore Bank in
1994 to service the communities of Wilmette and Kenilworth, Libertyville Bank in 1995 to service
the communities of Libertyville, Vernon Hills and Mundelein, Barrington Bank in 1996 to service the
greater Barrington/Inverness areas, Crystal Lake Bank in 1997 to service the communities of Crystal
Lake and Cary, Northbrook Bank in 2000 to service the communities of Northbrook, Glenview and
Deerfield, Beverly Bank in 2004 to service the communities of Beverly Hills and Morgan Park on the
southwest side of Chicago and Old Plank Trail Bank in 2006 to serve the communities of New Lenox,
Mokena and Frankfurt. Since the initial openings of these nine banks, each has opened additional
branches in adjacent and nearby communities to expand their franchise.
Wintrust completed its first bank acquisitions in the fourth quarter of 2003, with the acquisitions
of Advantage Bank in October 2003 and Village Bank in December 2003. In September 2004, Wintrust
acquired Northview Financial Corporation and its wholly-owned subsidiary, Northview Bank & Trust
Company, with banking locations in Northfield, Mundelein and Wheaton, Illinois, and in December
2004, Wintrust relocated the bank’s charter to its Wheaton branch, renamed the bank Wheaton Bank &
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Trust Company and transferred its Mundelein branch to Libertyville Bank and its Northfield branches
to Northbrook Bank. In October 2004, Wintrust acquired Town Bankshares, Ltd. and its wholly-owned
subsidiary, Town Bank, with locations in Delafield and Madison, Wisconsin. Town Bank represents the
Company’s first banking operation outside of Illinois. In January 2005, the Company completed its
acquisition of Antioch Holding Company and its wholly-owned subsidiary, State Bank of The Lakes,
and on March 31, 2005 the Company acquired First Northwest Bancorp, Inc. and its wholly-owned
subsidiary First Northwest Bank. First Northwest Bank was merged into Village Bank in May 2005 as
both banks were located in and served the same market area. In May 2006, the Company completed its
acquisition of Hinsbrook Bancshares, Inc. and its wholly-owned subsidiary, Hinsbrook Bank & Trust,
with five banking locations in the western suburbs of Chicago, including Willowbrook, Downers
Grove, Darien, Glen Ellyn and Geneva. In December 2005, Wintrust relocated the bank’s charter to
its Geneva branch, renamed the bank St. Charles Bank & Trust Company, and transferred the
Willowbrook, Downers Grove and Darien branches to Hinsdale Bank and the Glen Ellyn branch to
Wheaton Bank. These branch transactions were done to align the Banks’ branches within the same
market area under one bank charter. As of December 31, 2006, the Company had 73 banking locations.
All of the banks acquired by Wintrust share the same commitment to community banking and customer
service as the banks the Company organized. Each of the acquired banks, with the exception of
Hinsbrook Bank and State Bank of The Lakes, began operations within the same time frame in which
Wintrust organized its Banks. The charters of Hinsbrook Bank and State Bank of The Lakes, however,
date back to 1987 and 1894, respectively.
The deposits of each of the Banks are insured by the FDIC up to the applicable limits. Currently
the standard maximum deposit insurance amount is $100,000 per non-retirement account capacity,
subject to possible cost-of-living adjustments after 2010, and up to $250,000 for certain
retirement accounts. In addition, each Bank is subject to regulation, supervision and regular
examination by: (1) the Secretary of the Illinois Department of Financial and Professional
Regulation (“Illinois Secretary”) and the Board of Governors of the Federal Reserve System
(“Federal Reserve”) for Illinois-chartered banks; (2) the Office of the Comptroller of the Currency
(“OCC”) for nationally-chartered banks or (3) the Wisconsin Department of Financial Institutions
(“Wisconsin Department”) and the Federal Reserve for Town Bank.
Wealth Management Activities
The Company currently offers a full range of wealth management services through three separate
subsidiaries, including trust and investment services, asset management and securities brokerage
services, marketed primarily under the Wayne Hummer name. Wintrust acquired the Wayne Hummer
Companies, headquartered in Chicago, in February 2002. To further expand the Company’s wealth
management business, in February 2003, the Company acquired Lake Forest Capital Management Company,
a registered investment advisor with approximately $300 million of assets under management upon
acquisition. Lake Forest Capital Management Company was merged into WHAMC.
WHTC, the Company’s trust subsidiary, offers trust and investment management services to clients
through offices located in downtown Chicago and at various banking offices of the Company’s fifteen
banks. Assets under administration and/or management by WHTC as of December 31, 2006 were
approximately $824 million. WHTC is subject to regulation, supervision and regular examination by
the OCC.
WHI, the Company’s registered broker/dealer subsidiary, has been in operations since 1931. Through
WHI, the Company provides a full range of private client and securities brokerage services to
clients
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located primarily in the Midwest. WHI client assets were approximately $5.4 billion at December 31,
2006. WHI is headquartered in downtown Chicago, operates an office in Appleton, Wisconsin, and as
of December 31, 2006, established branch locations in offices at a majority of the Company’s banks.
WHI also provides a full range of investment services to clients through a network of
relationships with community-based financial institutions primarily located in Illinois.
WHAMC, a registered investment adviser, provides money management services and advisory services to
individuals and institutional municipal and tax-exempt organizations. In addition, WHAMC also
provides portfolio management and financial supervision for a wide range of pension and
profit-sharing plans. WHAMC had approximately $561 million of assets under management at December
31, 2006.
Specialty Lending
The Company conducts its specialty lending business through indirect non-bank subsidiaries and
divisions of its Banks.
FIFC, headquartered in Northbrook, Illinois, is the Company’s most significant specialized lending
niche. FIFC makes loans to businesses to finance the insurance premiums they pay on their
commercial insurance policies. The loans are originated by FIFC working through independent medium
and large insurance agents and brokers located throughout the United States. The insurance
premiums financed are primarily for commercial customers’ purchases of liability, property and
casualty and other commercial insurance. This lending involves relatively rapid turnover of the
loan portfolio and high volume of loan originations. Due to the indirect nature of this lending
and because the borrowers are located nationwide, this segment may be more susceptible to third
party fraud. The majority of the loans originated by FIFC have been purchased by the Banks in order
to more fully utilize their lending capacity. These loans generally provide the Banks with higher
yields than alternative investments. During 2006, FIFC originated approximately $3.0 billion of
premium finance receivables and sold approximately $303 million, or 10%, of the premium finance
receivables generated during the year to an unrelated third party, with servicing retained. The
Company has been selling these loans to a third party since 1999. Doing so allowed the Company to
originate loans without compromising the liquidity position of the Banks. However, due to capacity
at the Banks, the Company did not sell any premium finance loans to a third party in the second
half of 2006. FIFC is licensed or otherwise qualified to do business as an insurance premium
finance company in all 50 states and the District of Columbia.
Tricom was acquired by Hinsdale Bank in October 1999 as part of the Company’s strategy to pursue
specialty lending niches and is an operating subsidiary of Hinsdale Bank. It is located in
Milwaukee, Wisconsin and has been in business since 1989. Through Tricom, the Company provides
high-yielding, short-term accounts receivable financing and value-added, outsourced administrative
services, such as data processing of payrolls, billing and cash management services to the
temporary staffing industry. Tricom’s clients, located throughout the United States, provide
staffing services to businesses in diversified industries. During 2006, Tricom processed payrolls
with associated client billings of approximately $531 million and contributed approximately $8.5
million of revenue, net of interest expense, to the Company.
The Company also engages in several other specialty lending areas through divisions of the Banks.
Hinsdale Bank operates an indirect auto lending program which originates new and used automobile
loans that are purchased by all of the Banks. The loans are generated through a network of
automobile dealers located in the Chicago area with which Hinsdale Bank has established
relationships. The indirect automobile loans are secured by new and used vehicles and are
diversified among many individual borrowers. Like other consumer loans, the indirect auto loans
are subject to the Banks’ established
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credit standards. Management regards substantially all of these loans as prime quality loans and
continually monitors the dealer relationships to deter third party fraud. The Banks are not
dependent on any one dealer as a source of such loans. At December 31, 2006, indirect auto loans
totaled $232 million and comprised approximately 3.6% of the Company’s loan portfolio. Other
specialty lending conducted through the Banks include Barrington Bank’s Community Advantage program
which provides lending, deposit and cash management services to condominium, homeowner and
community associations, Hinsdale Bank’s mortgage warehouse lending program which provides loan and
deposit services to mortgage brokerage companies located predominantly in the Chicago metropolitan
area, and Crystal Lake Bank’s North American Aviation Financing division which provides small
aircraft lending. These specialty loans (including the indirect auto loans) generated through
divisions of the Banks comprised approximately 6.0% of the Company’s loan and lease portfolio at
December 31, 2006.
WestAmerica and Guardian were acquired by Barrington Bank in May 2004 to enhance and diversify the
Company’s revenue sources and earning asset base. WestAmerica engages primarily in the origination
and purchase of residential mortgages for sale into the secondary market, and Guardian provides the
document preparation and other loan closing services to WestAmerica and its network of mortgage
brokers. WestAmerica sells its loans servicing released and does not currently engage in mortgage
loan servicing. WestAmerica maintains principal origination offices in 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 the Banks to better utilize existing operational
capacity and improve the product offering for the Banks’ customers. WestAmerica’s production of
adjustable rate mortgage loan products may be purchased by the Banks for their loan portfolios
resulting in additional earning assets to the combined organization.
Competition
The Company competes in the commercial banking industry through the Banks in the communities each
serves. The commercial banking industry is highly competitive, and the Banks face strong direct
competition for deposits, loans, and other financial-related services. The Banks compete with
other commercial banks, thrifts, credit unions, stockbrokers, and the finance divisions of
automobile companies. Some of these competitors are local, while others are statewide or
nationwide. The Banks have a community banking and marketing strategy. In keeping with this
strategy, the Banks provide highly personalized and responsive service, a characteristic of
locally-owned and managed institutions. As such, the Banks compete for deposits principally by
offering depositors a variety of deposit programs, convenient office locations, hours and other
services, and for loan originations primarily through the interest rates and loan fees they charge,
the efficiency and quality of services they provide to borrowers and the variety of their loan and
cash management products. Some of the financial institutions and financial services organizations
with which the Banks compete are not subject to the same degree of regulation as imposed on
financial holding companies, Illinois or Wisconsin state banks and national banking associations.
In addition, the larger banking organizations have significantly greater resources than those
available to the Banks. As a result, such competitors have advantages over the Banks in providing
certain non-deposit services.
FIFC encounters intense competition from numerous other firms, including a number of national
commercial premium finance companies, companies affiliated with insurance carriers, independent
insurance brokers who offer premium finance services, banks and other lending institutions. Some
of FIFC’s competitors are larger and have greater financial and other resources and are better
known than FIFC. FIFC competes with these entities by emphasizing a high level of knowledge of the
insurance
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industry, flexibility in structuring financing transactions, and the timely purchase of qualifying
contracts. FIFC believes that its commitment to service also distinguishes it from its
competitors.
The Company’s wealth management companies (WHTC, WHI and WHAMC) compete with more established
wealth management subsidiaries of other larger bank holding companies as well as with other trust
companies, brokerage and other financial service companies, stockbrokers and financial advisors.
The Company believes it can successfully compete for trust, asset management and brokerage business
by offering personalized attention and customer service to small to mid-size businesses and
affluent individuals. The Company continues to recruit and hire experienced professionals from the
more established Chicago area wealth management companies, which is expected to help in attracting
new customer relationships.
WestAmerica and Guardian, as well as the mortgage banking functions within the Banks, compete with
large mortgage brokers as well as other banking organizations. The mortgage banking business is
very competitive and significantly impacted by changes in mortgage interest rates. The Company
believes that mortgage banking revenue will be a continuous source of revenue, but the level of
revenue will be impacted by changes in mortgage interest rates.
Tricom competes with numerous other firms, including a small number of similar niche finance
companies and payroll processing firms, as well as various finance companies, banks and other
lending institutions. Tricom’s management believes that its commitment to service distinguishes
itself from competitors. To the extent that other finance companies, financial institutions and
payroll processing firms add greater programs and services to their existing businesses, Tricom’s
operations could be adversely affected.
Employees
At December 31, 2006, the Company and its subsidiaries employed a total of 1,897
full-time-equivalent employees. The Company provides its employees with comprehensive medical and
dental benefit plans, life insurance plans, 401(k) plans and an employee stock purchase plan. The
Company considers its relationship with its employees to be good.
Available Information
The Company’s internet address is www.wintrust.com. The Company makes available at this address,
free of charge, its annual report on Form 10-K, its annual reports to shareholders, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable
after such material is electronically filed with, or furnished to, the SEC.
Forward-looking Statements
This document contains forward-looking statements within the meaning of federal securities laws.
Forward-looking information in this document can be identified through the use of words such as
“may,” “will,” “intend,” “plan,” “project,” “expect,” “anticipate,” “should,” “would,” “believe,”
“estimate,” “contemplate,” “possible,” and “point.” The forward-looking information is premised on
many factors, some of which are outlined below. The Company intends such forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking
these safe harbor provisions. Such forward-looking statements may be deemed to include, among other
things, statements relating to the Company’s projected growth, anticipated improvements in
earnings, earnings
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per share and other financial performance measures, and management’s long-term performance goals,
as well as statements relating to the anticipated effects on financial results of condition from
expected developments or events, the Company’s business and growth strategies, including
anticipated internal growth, plans to form additional de novo banks and to open new branch offices,
and to pursue additional potential development or acquisitions of banks, wealth management entities
or specialty finance businesses. Actual results could differ materially from those addressed in the
forward-looking statements as a result of numerous factors, including the following:
| • | Competitive pressures in the financial services business which may affect the pricing of the Company’s 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 Company’s 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 Company’s 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 SEC and in
its press releases.
Supervision and Regulation
Bank holding companies, banks and investment firms are extensively regulated under federal and
state law. References under this heading to applicable statutes or regulations are brief summaries
or portions thereof which do not purport to be complete and which are qualified in their entirety
by reference to those statutes and regulations. Any change in applicable laws or regulations may
have a material effect on the business of commercial banks and bank holding companies, including
the Company, the Banks,
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FIFC, WHTC, WHI, WHAMC, Tricom, WestAmerica and Guardian. However, management is not aware of any
current recommendations by any regulatory authority which, if implemented, would have or would be
reasonably likely to have a material effect on liquidity, capital resources, or operations of the
Company, the Banks, FIFC, WHTC, WHI, WHAMC, Tricom, WestAmerica or Guardian. The supervision,
regulation and examination of banks and bank holding companies by bank regulatory agencies are
intended primarily for the protection of depositors rather than stockholders of banks and bank
holding companies.
Bank Holding Company Regulation
The Company has elected to be treated by the Federal Reserve as a financial holding company for
purposes of the Bank Holding Company Act of 1956, as amended, including regulations promulgated by
the Federal Reserve (the “BHC Act”), as augmented by the provisions of the Gramm-Leach-Bliley Act
(the “GLB Act”), which established a comprehensive framework to permit affiliations among
commercial banks, insurance companies and securities firms. Bank holding companies that elect to
be treated as financial holding companies may engage in an expanded range of activities, including
the businesses conducted by the Wayne Hummer Companies. Financial holding companies, unlike
traditional bank holding companies, can engage in certain activities without prior Federal Reserve
approval, subject to certain post-commencement notice procedures. Banking subsidiaries of
financial holding companies are required to be “well capitalized” and “well managed” as defined in
the applicable regulatory standards. If these conditions are not maintained, and the financial
holding company fails to correct any deficiency within 180 days, the Federal Reserve may require
the Company to either divest control of its banking subsidiaries or, at the election of the
Company, cease to engage in any activities not permissible for a bank holding company that is not a
financial holding company. Moreover, during the period of noncompliance, the Federal Reserve can
place any limitations on the financial holding company that it believes to be appropriate.
Furthermore, if the Federal Reserve determines that a financial holding company has not maintained
at least a satisfactory rating under the Community Reinvestment Act at all of its controlled
banking subsidiaries, the Company will not be able to commence any new financial activities or
acquire a company that engages in such activities, although the Company will still be allowed to
engage in activities closely related to banking and make investments in the ordinary course of
conducting merchant banking activities. The Company became a financial holding company in 2002 and
currently satisfies the requirements to maintain its status as a financial holding company.
The Company continues to be subject to supervision and regulation by the Federal Reserve under the
BHC Act. The Company is required to file with the Federal Reserve periodic reports and such
additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal
Reserve examines the Company and may examine the Banks and the Company’s other subsidiaries.
The BHC Act requires prior Federal Reserve approval for, among other things, the acquisition by a
bank holding company of direct or indirect ownership or control of more than 5% of the voting
shares or substantially all the assets of any bank, or for a merger or consolidation of a bank
holding company with another bank holding company. With certain exceptions for financial holding
companies, the BHC Act prohibits a bank holding company from acquiring direct or indirect ownership
or control of voting shares of any company which is not a business that is financial in nature or
incidental thereto, and from engaging directly or indirectly in any activity that is not financial
in nature or incidental thereto. Also, as discussed below, the Federal Reserve expects bank
holding companies to maintain strong capital positions while experiencing growth. The Federal
Reserve, as a matter of policy, may require a bank holding company to be well-capitalized at the
time of filing an acquisition application and upon consummation of the acquisition.
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Under the BHC Act and Federal Reserve regulations, the Banks are prohibited from engaging in
certain tying arrangements in connection with an extension of credit, lease, sale of property, or
furnishing of services. That means that, except with respect to traditional banking products
(loans, deposits or trust services), the Banks may not condition a customer’s purchase of services
on the purchase of other services from any of the Banks or other subsidiaries of the Company.
It is the policy of the Federal Reserve that the Company is expected to act as a source of
financial strength to its subsidiaries, and to commit resources to support the subsidiaries. The
Federal Reserve takes the position that in implementing this policy, it may require the Company to
provide such support even when the Company otherwise would not consider itself able to do so.
The Federal Reserve has adopted risk-based capital requirements for assessing capital adequacy of
all bank holding companies, including financial holding companies. These standards define
regulatory capital and establish minimum capital ratios in relation to assets, both on an aggregate
basis and as adjusted for credit risks and off-balance sheet exposures. Under the Federal
Reserve’s risk-based guidelines, capital is classified into two categories. For bank holding
companies, Tier 1 capital, or “core” capital, consists of common stockholders’ equity, qualifying
noncumulative perpetual preferred stock (including related surplus), qualifying cumulative
perpetual preferred stock (including related surplus) (subject to certain limitations), minority
interests in the common equity accounts of consolidated subsidiaries and qualifying trust preferred
securities, and is reduced by goodwill, specified intangible assets and certain other items (“Tier
1 Capital”). Tier 2 capital, or “supplementary” capital, consists of the following items, all of
which are subject to certain conditions and limitations: the allowance for credit losses; perpetual
preferred stock and related surplus; hybrid capital instruments; unrealized holding gains on
marketable equity securities; perpetual debt and mandatory convertible debt securities; term
subordinated debt and intermediate-term preferred stock.
Under the Federal Reserve’s capital guidelines, bank holding companies are required to maintain a
minimum ratio of qualifying total capital to risk-weighted assets of 8.0%, of which at least 4.0%
must be in the form of Tier 1 Capital. The Federal Reserve also requires a minimum leverage ratio
of Tier 1 Capital to total assets of 3.0% for strong bank holding companies (those rated a
composite “1” under the Federal Reserve’s rating system). For all other bank holding companies,
the minimum ratio of Tier 1 Capital to total assets is 4%. In addition, the Federal Reserve
continues to consider the Tier 1 leverage ratio (Tier 1 capital to average quarterly assets) in
evaluating proposals for expansion or new activities.
In its capital adequacy guidelines, the Federal Reserve emphasizes that the foregoing standards are
supervisory minimums and that banking organizations generally are expected to operate well above
the minimum ratios. These guidelines also provide that banking organizations experiencing growth,
whether internally or through acquisition, are expected to maintain strong capital positions
substantially above the minimum levels. Recent regulations proposed by the federal banking
regulators referred to as the Basel II and Basel IA proposals could alter the capital adequacy
frameworks for banking organizations.
As of December 31, 2006, the Company’s total capital to risk-weighted assets ratio was 11.3%, its
Tier 1 Capital to risk-weighted asset ratio was 9.8% and its leverage ratio was 8.2%.
Since the Company’s bank subsidiaries include Illinois-chartered Banks and a Wisconsin-chartered
Bank, the Company is also subject to regular examination by the Illinois Secretary and supervision
by the Wisconsin Department.
Under the Illinois Banking Act, any person who acquires 25% or more of the Company’s stock may be
required to obtain the prior approval of the Illinois Secretary. Similarly, under the Change in
Bank
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Control Act, a person may be required to obtain the prior regulatory consent of the Federal Reserve
before acquiring control of 10% or more of any class of the Company’s outstanding stock.
Generally, an acquisition of more than 10% of the Company’s stock by a corporate entity, including
a corporation, partnership or trust, would require prior Federal Reserve approval under the BHC
Act.
Dividend Limitations. Because the Company’s consolidated net income consists largely of net income
of the Banks and its non-bank subsidiaries, the Company’s ability to pay dividends depends upon its
receipt of dividends from these entities. Federal and state statutes and regulations impose
restrictions on the payment of dividends by the Company, the Banks and its non-bank subsidiaries.
(See Financial Institution Regulation Generally — Dividends for further discussion of dividend
limitations.)
Federal Reserve policy provides that a bank holding company should not pay dividends unless (i) the
bank holding company’s net income over the prior year is sufficient to fully fund the dividends and
(ii) the prospective rate of earnings retention appears consistent with the capital needs, asset
quality and overall financial condition of the bank holding company and its subsidiaries.
Additionally, the Federal Reserve possesses enforcement powers over bank holding companies and
their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices
or violations of applicable statutes and regulations. Among these powers is the ability to
prohibit or limit the payment of dividends by bank holding companies.
Illinois law also places certain limitations on the ability of the Company to pay dividends. For
example, the Company may not pay dividends to its shareholders if, after giving effect to the
dividend, the Company would not be able to pay its debts as they become due. Since a major
potential source of the parent company’s revenue is dividends it expects to receive from the Banks,
the Company’s ability to pay dividends is likely to be dependent on the amount of dividends paid by
the Banks. No assurance can be given that the Banks will, in any circumstances, pay dividends to
the Company.
Bank Regulation
Lake Forest Bank, Hinsdale Bank, North Shore Bank, Libertyville Bank, Northbrook Bank, Village
Bank, Wheaton Bank, State Bank of The Lakes and St. Charles Bank are Illinois-chartered banks and
as such they and their subsidiaries are subject to supervision and examination by the Illinois
Secretary. Each of these Illinois-chartered Banks, is a member of the Federal Reserve and, as
such, is subject to additional examination by the Federal Reserve as their primary federal
regulator. Barrington Bank, Crystal Lake Bank, Advantage Bank, Beverly Bank, Old Plank Trail Bank
and WHTC are federally-chartered and are subject to supervision and examination by the OCC pursuant
to the National Bank Act and regulations promulgated thereunder. Town Bank is a Wisconsin-chartered
bank and a member of the Federal Reserve, and as such is subject to supervision by the Wisconsin
Department and the Federal Reserve.
The deposits of the Banks are insured by the Deposit Insurance Fund under the provisions of the
Federal Deposit Insurance Act, as amended (the “FDIA”), and the Banks are, therefore, also subject
to supervision and examination by the FDIC. The FDIA requires that the appropriate federal
regulatory authority (the Federal Reserve in the case of Lake Forest Bank, North Shore Bank,
Hinsdale Bank, Libertyville Bank, Northbrook Bank, Village Bank, Wheaton Bank, State Bank of The
Lakes, Town Bank and St. Charles Bank and the OCC in the case of Barrington Bank, Crystal Lake
Bank, Advantage Bank, Beverly Bank and Old Plank Trail Bank) approve any merger and/or
consolidation by or with an insured bank, as well as the establishment or relocation of any bank or
branch office and any change-in-control of an insured bank that is not subject to review by the
Federal Reserve as a holding company regulator. The FDIA also gives the Federal Reserve, the OCC
and the other federal bank regulatory agencies power to issue cease and desist orders against
banks, holding companies or persons regarded as
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“institution affiliated parties.” A cease and desist order can either prohibit such entities from
engaging in certain unsafe and unsound bank activity or can require them to take certain
affirmative action. The FDIC also supervises compliance with the provisions of federal law and
regulations which, in addition to other requirements, place restrictions on loans by FDIC-insured
banks to their directors, executive officers and other controlling persons.
Financial Institution Regulation Generally
Transactions with Affiliates. Transactions between a bank and its holding company or other
affiliates are subject to various restrictions imposed by state and federal regulatory agencies.
Such transactions include loans and other extensions of credit, purchases of securities and other
assets, and payments of fees or other distributions. In general, these restrictions limit the
amount of transactions between an institution and an affiliate of such institution, as well as the
aggregate amount of transactions between an institution and all of its affiliates, and require
transactions with affiliates to be on terms comparable to those for transactions with unaffiliated
entities. Transactions between banking affiliates may be subject to certain exemptions under
applicable federal law.
Capital Requirements. Capital requirements for the Banks generally parallel the capital
requirements previously noted for bank holding companies. Each of the Banks is subject to
applicable capital requirements on a separate company basis. The federal banking regulators must
take prompt corrective action with respect to FDIC-insured depository institutions that do not meet
minimum capital requirements. There are five capital tiers: “well capitalized,” “adequately
capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically
undercapitalized.” As of December 31, 2006, each of the Company’s Banks was categorized as “well
capitalized.” Because the Company is designated as a financial holding company, each of the Banks
is required to maintain capital ratios at or above the “well capitalized” levels.
Prompt Corrective Action. The FDIA requires the federal banking regulators to take prompt
corrective action with respect to depository institutions that fall below minimum capital standards
and prohibits any depository institution from making any capital distribution that would cause it
to be undercapitalized. Institutions that are not adequately capitalized may be subject to a
variety of supervisory actions including, but not limited to, restrictions on growth, investments
activities, capital distributions and management fees and will be required to submit a capital
restoration plan which, to be accepted by the regulators, must be guaranteed in part by any company
having control of the institution (such as the Company). In other respects, the FDIA provides for
enhanced supervisory authority, including greater authority for the appointment of a conservator or
receiver for undercapitalized institutions. The capital-based prompt corrective action provisions
of the FDIA and their implementing regulations generally apply to all FDIC-insured depository
institutions. However, federal banking agencies have indicated that, in regulating bank holding
companies, the agencies may take appropriate action at the holding company level based on their
assessment of the effectiveness of supervisory actions imposed upon subsidiary insured depository
institutions pursuant to the prompt corrective action provisions of the FDIA.
Dividends. As Illinois state-chartered banks, Lake Forest Bank, North Shore Bank, Hinsdale Bank,
Libertyville Bank, Northbrook Bank, Village Bank, Wheaton Bank, State Bank of The Lakes and St.
Charles Bank, may not pay dividends in an amount greater than their current net profits after
deducting losses and bad debts out of undivided profits provided that its surplus equals or exceeds
its capital. For the purpose of determining the amount of dividends that an Illinois bank may pay,
bad debts are defined as debts upon which interest is past due and unpaid for a period of six
months or more unless such debts
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are well-secured and in the process of collection. As a Wisconsin state-chartered bank, Town Bank
may declare dividends out of its undivided profits, after provision for payment of all expenses,
losses, required reserves, taxes, and interest. In addition, if Town Bank’s dividends declared and
paid in either of the prior two years exceeded net income for such year, then the bank may not
declare a dividend that exceeds year-to-date net income. Furthermore, federal regulations also
prohibit any Federal Reserve member bank, including each of the Company’s Illinois-chartered banks
and Town Bank, from declaring dividends in any calendar year in excess of its net income for the
year plus the retained net income for the preceding two years, less any required transfers to the
surplus account. Similarly, as national associations supervised by the OCC, Barrington Bank,
Crystal Lake Bank, Beverly Bank, Advantage Bank, Old Plank Trail Bank and WHTC may not declare
dividends in any year in excess of its net income for the year plus the retained net income for the
preceding two years, less any required transfers to the surplus account, nor may any of them
declare a dividend in excess of undivided profits. Furthermore, the OCC may, after notice and
opportunity for hearing, prohibit the payment of a dividend by a national bank if it determines
that such payment would constitute an unsafe or unsound practice.
In addition to the foregoing, the ability of the Company, the Banks and WHTC to pay dividends may
be affected by the various minimum capital requirements and the capital and non-capital standards
established under the FDIA, as described below. The right of the Company, its shareholders and its
creditors to participate in any distribution of the assets or earnings of its subsidiaries is
further subject to the prior claims of creditors of the respective subsidiaries.
Standards for Safety and Soundness. The FDIA requires the federal bank regulatory agencies to
prescribe standards of safety and soundness, by regulations or guidelines, relating generally to
operations and management, asset growth, asset quality, earnings, stock valuation and compensation.
The federal bank regulatory agencies have adopted a set of guidelines prescribing safety and
soundness standards pursuant to the FDIA. The guidelines establish general standards relating to
internal controls and information systems, informational security, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees
and benefits. In general, the guidelines require, among other things, appropriate systems and
practices to identify and manage the risks and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director or principal shareholder. In
addition, each of the Federal Reserve and the OCC adopted regulations that authorize, but do not
require, the Federal Reserve or the OCC, as the case may be, to order an institution that has been
given notice by the Federal Reserve or the OCC, as the case may be, that it is not satisfying any
of such safety and soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any material respect to
implement an accepted compliance plan, the Federal Reserve or the OCC, as the case may be, must
issue an order directing action to correct the deficiency and may issue an order directing other
actions of the types to which an undercapitalized association is subject under the “prompt
corrective action” provisions of the FDIA. If an institution fails to comply with such an order,
the Federal Reserve or the OCC, as the case may be, may seek to enforce such order in judicial
proceedings and to impose civil money penalties. The Federal Reserve, the OCC and the other
federal bank regulatory agencies also adopted guidelines for asset quality and earnings standards.
A range of other provisions in the FDIA include requirements applicable to: closure of branches;
additional disclosures to depositors with respect to terms and interest rates applicable to deposit
accounts; uniform regulations for extensions of credit secured by real estate; restrictions on
activities of and investments by state-chartered banks; modification of accounting standards to
conform to generally accepted accounting principles including the reporting of off-balance sheet
items and supplemental
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disclosure of estimated fair market value of assets and liabilities in financial statements filed
with the banking regulators; increased penalties in making or failing to file assessment reports
with the FDIC; greater restrictions on extensions of credit to directors, officers and principal
shareholders; and increased reporting requirements on agricultural loans and loans to small
businesses.
In addition, the federal banking agencies adopted a final rule, which modified the risk-based
capital standards, to provide for consideration of interest rate risk when assessing the capital
adequacy of a bank. Under this rule, federal regulators and the FDIC must explicitly include a
bank’s exposure to declines in the economic value of its capital due to changes in interest rates
as a factor in evaluating a bank’s capital adequacy. The federal banking agencies also have
adopted a joint agency policy statement providing guidance to banks for managing interest rate
risk. The policy statement emphasizes the importance of adequate oversight by management and a
sound risk management process. The assessment of interest rate risk management made by the banks’
examiners will be incorporated into the banks’ overall risk management rating and used to determine
the effectiveness of management.
Insurance of Deposit Accounts. Under the FDIA, as an FDIC-insured institution, each of the Banks
is required to pay deposit insurance premiums based on the risk it poses to the Deposit Insurance
Fund (“DIF”). The FDIC has authority to raise or lower assessment rates on insured deposits in
order to achieve statutorily required reserve ratios in the DIF and to impose special additional
assessments. Each institution’s assessment rate depends on the capital category and supervisory
category to which it is assigned. During 2006, the Banks recognized expense for deposit insurance
premiums in the aggregate amount of $911,000.
In November 2006, the FDIC adopted a new risk-based insurance assessment system effective Jan. 1,
2007 designed to tie what banks pay for deposit insurance more closely to the risks they pose. The
FDIC also adopted a new base schedule of rates that the FDIC can adjust up or down, depending on
the needs of the DIF, and set initial premiums for 2007 that range from 5 cents per $100 of
domestic deposits in the lowest risk category to 43 cents per $100 of domestic deposits for banks
in the highest risk category. The new assessment system is expected to result in increased annual
assessments on the deposits of the Company’s bank subsidiaries of 5 to 7 cents per $100 of
deposits. An FDIC credit available to the Company’s bank subsidiaries for prior contributions is
expected to offset some of the assessments for the next two years. Significant increases in the
insurance assessments of the Company’s bank subsidiaries will increase the Company’s costs once the
credit is fully utilized. In addition, the Deposit Insurance Fund Act of 1996 authorizes the
Financing Corporation (“FICO”) to impose assessments on DIF assessable deposits in order to service
the interest on FICO’s bond obligations. The amount assessed is in addition to the amount, if any,
paid for deposit insurance under the FDIC’s risk-related assessment rate schedule. FICO assessment
rates may be adjusted quarterly to reflect a change in assessment base. The FICO annual assessment
rate is approximately 1.25 cents per $100 of deposits.
Deposit insurance may be terminated by the FDIC upon a finding that an institution has engaged in
unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the FDIC. Such
terminations can only occur, if contested, following judicial review through the federal courts.
The management of each of the Banks does not know of any practice, condition or violation that
might lead to termination of deposit insurance.
Under the “cross-guarantee” provision of the FDIA, as augmented by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), insured depository institutions such as
the Banks may be liable to the FDIC with respect to any loss or reasonably anticipated loss
incurred by the FDIC resulting from the default of, or FDIC assistance to, any commonly controlled
insured depository
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institution. The Banks are commonly controlled within the meaning of the FIRREA cross-guarantee
provision.
Federal Reserve System. The Banks are subject to Federal Reserve regulations requiring depository
institutions to maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). For 2006, the first $7.8 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve of each Bank) were exempt from
the reserve requirements. A 3% reserve ratio applied to balances over $7.8 million up to and
including $48.3 million and a 10% reserve ratio applied to balances in excess of $48.3 million.
The Banks were in compliance with the applicable requirements in 2006. For 2007, the first $8.5
million of otherwise reservable balances are exempt, balances over $8.5 million and up to $45.8
million are subject to the 3% reserve ratio, and balances over $45.8 million are subject to the 10%
reserve ratio.
Anti-Money Laundering. On October 26, 2001, the USA PATRIOT Act of 2001 (the “PATRIOT Act”) was
enacted into law, amending in part the Bank Secrecy Act (“BSA”). The BSA and the PATRIOT Act
contain anti-money laundering (“AML”) and financial transparency laws as well as enhanced
information collection tools and enforcement mechanics for the U.S. government, including:
standards for verifying customer identification at account opening; rules to promote cooperation
among financial institutions, regulators, and law enforcement entities in identifying parties that
may be involved in terrorism or money laundering; reports by nonfinancial entities and businesses
filed with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network for
transactions exceeding $10,000; and due diligence requirements for financial institutions that
administer, maintain, or manage private bank accounts or correspondence accounts for non-U.S.
persons. Each Bank is subject to the PATRIOT Act and, therefore, is required to provide its
employees with AML training, designate an AML compliance officer and undergo an annual, independent
audit to assess the effectiveness of its AML Program. The Company has established policies,
procedures and internal controls that are designed to comply with these AML requirements.
Protection of Client Information. Many aspects of the Company’s business are subject to
increasingly comprehensive legal requirements concerning the use and protection of certain client
information including those adopted pursuant to the GLB Act as well as the Fair and Accurate Credit
Transactions Act of 2003 (the “FACT Act”). Provisions of the GLB Act require a financial
institution to disclose its privacy policy to customers and consumers, and require that such
customers or consumers be given a choice (through an opt-out notice) to forbid the sharing of
nonpublic personal information about them with certain nonaffiliated third persons. The Company
and each of the Banks have a written privacy notice that is delivered to each of their customers
when customer relationships begin, and annually thereafter, in compliance with the GLB Act. In
accordance with that privacy notice, the Company and each Bank protect the security of information
about their customers, educate their employees about the importance of protecting customer privacy,
and allow their customers to remove their names from the solicitation lists they use and share with
others. The Company and each Bank require business partners with whom they share such information
to have adequate security safeguards and to abide by the redisclosure and reuse provisions of the
GLB Act. The Company and each Bank have developed and implemented programs to fulfill the
expressed requests of customers and consumers to opt out of information sharing subject to the GLB
Act. The federal banking regulators have interpreted the requirements of the GLB Act to require
banks to take certain actions in the event that certain information about customers is compromised.
If the federal or state regulators of the financial subsidiaries establish further guidelines for
addressing customer privacy issues, the Company and/or each Bank may need to amend their privacy
policies and adapt their internal procedures. The Company and the Banks may also be subject to
additional requirements under state laws.
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Moreover, like other lending institutions, each of the Banks utilizes credit bureau data in their
underwriting activities. Use of such data is regulated under the Fair Credit Report Act (the
“FCRA”), including credit reporting, prescreening, sharing of information between affiliates, and
the use of credit data. The FCRA was amended by the FACT Act in 2003, which imposes a number of new
requirements, many of which are still in the process of being implemented by federal regulators.
The Company and the Banks may also be subject to additional requirements under state laws.
Community Reinvestment. Under the Community Reinvestment Act (“CRA”), a financial institution has
a continuing and affirmative obligation, consistent with the safe and sound operation of such
institution, to help meet the credit needs of its entire community, including low and
moderate-income neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution’s discretion to develop the
types of products and services that it believes are best suited to its particular community,
consistent with the CRA. However, institutions are rated on their performance in meeting the needs
of their communities. Performance is judged in three areas: (a) a lending test, to evaluate the
institution’s record of making loans in its assessment areas; (b) an investment test, to evaluate
the institution’s record of investing in community development projects, affordable housing and
programs benefiting low or moderate income individuals and business; and (c) a service test, to
evaluate the institution’s delivery of services through its branches, ATMs and other offices. The
CRA requires each federal banking agency, in connection with its examination of a financial
institution, to assess and assign one of four ratings to the institution’s record of meeting the
credit needs of its community and to take such record into account in its evaluation of certain
applications by the institution, including applications for charters, branches and other deposit
facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of
liabilities, and savings and loan holding company acquisitions. The CRA also requires that all
institutions make public disclosure of their CRA ratings. Each of the Banks received a
“satisfactory” rating from the Federal Reserve, the OCC or the FDIC on their most recent CRA
performance evaluations. Because the Company is a financial holding company, failure of any of the
Banks to maintain “satisfactory” CRA ratings could restrict further expansion of the Company’s or
the Banks’ activities.
Brokered Deposits. Well capitalized institutions are not subject to limitations on brokered
deposits, while adequately capitalized institutions are able to accept, renew or rollover brokered
deposits only with a waiver from the FDIC and subject to certain restrictions on the rate paid on
such deposits. Undercapitalized institutions are not permitted to accept brokered deposits. An
adequately capitalized institution that receives a waiver is not permitted to offer interest rates
on brokered deposits significantly exceeding the market rates in the institution’s home area or
nationally, and undercapitalized institutions may not solicit any deposits by offering such rates.
Each of the Banks is eligible to accept brokered deposits (as a result of their capital levels) and
may use this funding source from time to time when management deems it appropriate from an
asset/liability management perspective.
Enforcement Actions. Federal and state statutes and regulations provide financial institution
regulatory agencies with great flexibility to undertake enforcement action against an institution
that fails to comply with regulatory requirements, particularly capital requirements. Possible
enforcement actions range from the imposition of a capital plan and capital directive to civil
money penalties, cease and desist orders, receivership, conservatorship or the termination of
deposit insurance.
Compliance with Consumer Protection Laws. The Banks are also subject to many federal consumer
protection statutes and regulations including the Truth in Lending Act, the Truth in Savings Act,
the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Electronic Fund Transfer Act,
the Fair Housing Act, the Real Estate Settlement Procedures Act, the Soldiers’ and Sailors’ Civil
Relief Act and the Home Mortgage Disclosure Act. WestAmerica must also comply with many of these
consumer
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protection statutes and regulations. Violation of these statutes can lead to significant potential
liability, in litigation by consumers as well as enforcement actions by regulators. Among other
things, these acts:
| • | require creditors to disclose credit terms in accordance with legal requirements; | ||
| • | require banks to disclose deposit account terms and electronic fund transfer terms in accordance with legal requirements; | ||
| • | impose requirements and limitations on the users of credit reports and those who provide information to credit reporting agencies; | ||
| • | prohibit discrimination against an applicant in any consumer or business credit transaction; | ||
| • | prohibit discrimination in housing-related lending activities; | ||
| • | require banks to collect and report applicant and borrower data regarding loans for home purchases or improvement projects; | ||
| • | require lenders to provide borrowers with information regarding the nature and cost of real estate settlements; | ||
| • | prohibit certain lending practices and limit escrow amounts with respect to real estate transactions; and | ||
| • | prescribe possible penalties for violations of the requirements of consumer protection statutes and regulations. |
Broker-Dealer and Investment Adviser Regulation
The broker-dealers and investment advisers are subject to extensive regulation under federal and
state securities laws. These firms are required to be registered with the Securities and Exchange
Commission, although much of their regulation and examination has been delegated to self-regulatory
organizations (“SROs”) that the SEC oversees, including the National Association of Securities
Dealers and the national securities exchanges. In addition to SEC rules and regulations, the SROs
adopt rules, subject to approval of the SEC, that govern all aspects of business in the securities
industry and conduct periodic examinations of member firms. These businesses are also subject to
regulation by state securities commissions in states where they conduct business.
As a result of federal and state registrations and SRO memberships, the Wayne Hummer Companies are
subject to over-lapping schemes of regulation which cover all aspects of their securities
businesses. Such regulations cover, among other things, matters including minimum net capital
requirements; uses and safekeeping of clients’ funds; recordkeeping and reporting requirements;
supervisory and organizational procedures intended to assure compliance with securities laws and to
prevent improper trading on material nonpublic information; employee-related matters, including
qualification and licensing of supervisory and sales personnel; limitations on extensions of credit
in securities transactions; clearance and settlement procedures; “suitability” determinations as to
certain customer transactions, limitations on the amounts and types of fees and commissions that
may be charged to customers, and the timing of proprietary trading in relation to customers’
trades; affiliate transactions; and mutual fund management. The principal purpose of regulation
and discipline of investment firms is the protection of customers and the securities markets rather
than the protection of creditors and stockholders of investment firms.
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Monetary Policy and Economic Conditions
The earnings of banks and bank holding companies are affected by general economic conditions and
also by the credit policies of the Federal Reserve. Through open market transactions, variations
in the discount rate and the establishment of reserve requirements, the Federal Reserve exerts
considerable influence over the cost and availability of funds obtainable for lending or investing.
The Federal Reserve’s monetary policies have affected the operating results of all commercial banks
in the past and are expected to do so in the future. The Company and the Banks cannot fully
predict the nature or the extent of any effects which fiscal or monetary policies may have on their
business and earnings.
Supplemental Statistical Data
The following statistical information and the statistical information on pages 3, 78 and 79 of the
2006 Annual Report to Shareholders are provided in accordance with the requirements of The Exchange
Act Industry Guide 3, Statistical Disclosures by Bank Holding Companies, which is part of
Regulation S-K as promulgated by the SEC. This data should be read in conjunction with the
Company’s Consolidated Financial Statements and notes thereto, and Management’s Discussion and
Analysis which are contained in its 2006 Annual Report to Shareholders filed herewith as Exhibit
13.1 and incorporated herein by reference.
Investment Securities Portfolio
The following table presents the carrying value of the Company’s available-for-sale securities
portfolio, by investment category, as of December 31, 2006, 2005 and 2004 (in thousands):
| 2006 | 2005 | 2004 | ||||||||||
U.S. Treasury |
$ | 34,072 | 34,586 | 140,707 | ||||||||
U.S. Government agencies |
690,574 | 714,715 | 545,887 | |||||||||
Municipal |
49,209 | 48,397 | 25,412 | |||||||||
Corporate notes and other debt |
60,080 | 8,358 | 8,329 | |||||||||
Mortgage-backed |
866,288 | 874,067 | 533,726 | |||||||||
Federal Reserve/FHLB Stock
and other equity securities |
139,493 | 119,261 | 89,416 | |||||||||
Total available-for-sale securities |
$ | 1,839,716 | 1,799,384 | 1,343,477 | ||||||||
Tables presenting the carrying amounts and gross unrealized gains and losses for securities
available-for-sale at December 31, 2006 and 2005, are included by reference to Note 3 to the
Consolidated Financial Statements included in the 2006 Annual Report to Shareholders, which is
incorporated herein by reference. All of the Company’s securities, for all periods shown, are
classified as available-for-sale.
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Maturities of available-for-sale securities as of December 31, 2006, by maturity distribution, are
as follows (in thousands):
| Federal | ||||||||||||||||||||||||||||
| Reserve / | ||||||||||||||||||||||||||||
| From 5 | Mortgage- | FHLB stock | ||||||||||||||||||||||||||
| Within | From 1 | to 10 | After | backed | and other | |||||||||||||||||||||||
| 1 year | to 5 years | years | 10 years | securities | equities | Total | ||||||||||||||||||||||
U.S. Treasury |
$ | 1,517 | 4,088 | 28,467 | — | — | — | 34,072 | ||||||||||||||||||||
U.S. Government agencies |
450,807 | 30,942 | 208,825 | — | — | — | 690,574 | |||||||||||||||||||||
Municipal |
5,735 | 16,293 | 13,032 | 14,149 | — | — | 49,209 | |||||||||||||||||||||
Corporate notes and other debt |
799 | 6,491 | 36,934 | 15,856 | — | — | 60,080 | |||||||||||||||||||||
Mortgage-backed (1) |
— | — | — | — | 866,288 | — | 866,288 | |||||||||||||||||||||
Federal Reserve/FHLB stock and other equity securities |
— | — | — | — | — | 139,493 | 139,493 | |||||||||||||||||||||
Total available-for-sale securities |
$ | 458,858 | 57,814 | 287,258 | 30,005 | 866,288 | 139,493 | 1,839,716 | ||||||||||||||||||||
| (1) | The maturities of mortgage-backed securities may differ from contractual maturities since the underlying mortgages may be called or prepaid without penalties. Therefore, these securities are not included within the maturity categories above. |
The weighted average yield for each range of maturities of securities, on a tax-equivalent
basis, is shown below as of December 31, 2006.
| Federal | ||||||||||||||||||||||||||||
| Reserve / | ||||||||||||||||||||||||||||
| From 5 | Mortgage- | FHLB stock | ||||||||||||||||||||||||||
| Within | From 1 | to 10 | After | backed | and other | |||||||||||||||||||||||
| 1 year | to 5 years | years | 10 years | securities | equities | Total | ||||||||||||||||||||||
U.S. Treasury |
1.35 | % | 2.23 | % | 3.43 | % | — | — | — | 3.21 | % | |||||||||||||||||
U.S. Government agencies |
5.07 | % | 4.47 | % | 4.45 | % | — | — | — | 4.85 | % | |||||||||||||||||
Municipal |
4.96 | % | 5.30 | % | 5.67 | % | 7.52 | % | — | — | 5.97 | % | ||||||||||||||||
Corporate notes and other debt |
— | 6.43 | % | — | 6.53 | % | — | — | 6.53 | % | ||||||||||||||||||
Mortgage-backed (1) |
— | — | — | — | 5.06 | % | — | 5.06 | % | |||||||||||||||||||
Federal Reserve/FHLB stock
and other equity securities |
— | — | — | — | — | 4.17 | % | 4.17 | % | |||||||||||||||||||
Total available-for-sale securities |
5.05 | % | 4.76 | % | 4.65 | % | 6.98 | % | 5.06 | % | 4.17 | % | 4.95 | % | ||||||||||||||
| (1) | The maturities of mortgage-backed securities may differ from contractual maturities since the underlying mortgages may be called or prepaid without penalties. Therefore, these securities are not included within the maturity categories above. |
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Loan Portfolio
The following table shows the Company’s loan portfolio by category as of December 31 for each of
the five previous fiscal years (in thousands):
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||
| % of | % of | % of | % of | % of | ||||||||||||||||||||||||||||||||||||
| Amount | Total | Amount | Total | Amount | Total | Amount | Total | Amount | Total | |||||||||||||||||||||||||||||||
Commercial and
commercial real estate |
$ | 4,068,437 | 63 | % | 3,161,734 | 61 | 2,465,852 | 57 | 1,648,022 | 50 | 1,320,598 | 52 | ||||||||||||||||||||||||||||
Home equity |
666,471 | 10 | 624,337 | 12 | 574,668 | 13 | 466,812 | 14 | 365,521 | 14 | ||||||||||||||||||||||||||||||
Residential real estate |
207,059 | 3 | 275,729 | 5 | 248,118 | 5 | 173,625 | 5 | 156,213 | 6 | ||||||||||||||||||||||||||||||
Premium finance receivables |
1,165,846 | 18 | 814,681 | 16 | 770,792 | 18 | 746,895 | 23 | 461,614 | 18 | ||||||||||||||||||||||||||||||
Indirect consumer loans |
249,534 | 4 | 203,002 | 4 | 171,926 | 4 | 174,071 | 5 | 178,234 | 7 | ||||||||||||||||||||||||||||||
Tricom finance receivables |
43,975 | 1 | 49,453 | 1 | 29,730 | 1 | 25,024 | 1 | 21,048 | 1 | ||||||||||||||||||||||||||||||
Consumer and other loans |
95,158 | 1 | 84,935 | 1 | 87,260 | 2 | 63,345 | 2 | 52,858 | 2 | ||||||||||||||||||||||||||||||
Total loans, net of
unearned income |
$ | 6,496,480 | 100 | % | 5,213,871 | 100 | 4,348,346 | 100 | 3,297,794 | 100 | 2,556,086 | 100 | ||||||||||||||||||||||||||||
Commercial and commercial real estate loans. The commercial loan component is comprised
primarily of commercial real estate loans, lines of credit for working capital purposes, and term
loans for the acquisition of equipment. Commercial real estate is predominantly owner occupied and
secured by a first mortgage lien and assignment of rents on the property. Working capital lines
are generally renewable annually and supported by business assets, personal guarantees and,
oftentimes, additional collateral. Equipment loans are generally secured by titles and/or U.C.C.
filings. Also included in this category are loans to condominium and homeowner associations
originated through Barrington Bank’s Community Advantage program and small aircraft financing, an
earning asset niche developed at Crystal Lake Bank. Commercial business lending is generally
considered to involve a higher degree of risk than traditional consumer bank lending. The vast
majority of commercial loans are made within the Banks’ immediate market areas. The increase in
this loan category can be attributed to bank acquisitions, opening of additional banking
facilities, an emphasis on business development calling programs, recruitment of additional
experienced lending officers and superior servicing of existing commercial loan customers which has
increased referrals.
In addition to the home mortgages originated by the Banks, the Company participates in mortgage
warehouse lending by providing interim funding to unaffiliated mortgage brokers to finance
residential mortgages originated by such brokers for sale into the secondary market. The Company’s
loans to the mortgage brokers are secured by the business assets of the mortgage companies as well
as the underlying mortgages, the majority of which are funded by the Company on a loan-by-loan
basis after they have been pre-approved for purchase by third party end lenders who forward payment
directly to the Company upon their acceptance of final loan documentation. In addition, the
Company may also provide interim financing for packages of mortgage loans on a bulk basis in
circumstances where the mortgage brokers desire to competitively bid a number of mortgages for sale
as a package in the secondary market. Typically, the Company will serve as sole funding source for
its mortgage warehouse lending customers under short-term revolving credit agreements. Amounts
advanced with respect to any particular mortgage loan are usually required to be repaid within 21
days. The Company has developed strong relationships with a number of mortgage brokers and is
seeking to expand its customer base in this specialty business.
Home equity loans. The Company’s home equity loan products are generally structured as lines of
credit secured by first or second position mortgage liens on the underlying property with
loan-to-value ratios not exceeding 85%, including prior liens, if any. The Banks’ home equity
loans feature
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competitive rate structures and fee arrangements. In addition, the Banks periodically offer
promotional home equity loan products as part of their marketing strategy often featuring lower
introductory rates.
Residential real estate mortgages. The residential real estate category predominantly includes
one-to-four family adjustable rate mortgages that have repricing terms generally from one to three
years, construction loans to individuals and bridge financing loans for qualifying customers. The
adjustable rate mortgages are often non-agency conforming, may have terms based on differing
indexes, and relate to properties located principally in the Chicago and southern Wisconsin
metropolitan areas or vacation homes owned by local residents. Adjustable-rate mortgage loans
decrease, but do not eliminate, the risks associated with changes in interest rates. Because
periodic and lifetime caps limit the interest rate adjustments, the value of adjustable-rate
mortgage loans fluctuates inversely with changes in interest rates. In addition, as interest rates
increase, the required payments by the borrower increases, thus increasing the potential for
default. The Company does not generally originate loans for its own portfolio with long-term fixed
rates due to interest rate risk considerations. Through the Banks and the Company’s WestAmerica
subsidiary, the Company can accommodate customer requests for fixed rate loans by originating and
selling these loans into the secondary market, in connection with which the Company receives fee
income, or by selectively including certain of these loans within the Banks’ own portfolios. A
portion of the loans sold by the Company into the secondary market were sold to the Federal
National Mortgage Association (“FNMA”) with the servicing of those loans retained. The amount of
loans serviced for FNMA as of December 31, 2006 and 2005 was $492 million and $522 million,
respectively. All other mortgage loans sold into the secondary market were sold without the
retention of servicing rights.
Premium finance receivables. The Company originates premium finance receivables through FIFC.
Most of the receivables originated by FIFC are sold to the Banks and retained within their loan
portfolios. FIFC began selling loans to an unrelated third party in 1999. During 2006, FIFC
originated approximately $3.0 billion of loans and sold approximately $303 million of those loans
to an unrelated financial institution. FIFC recognized gains of $2.9 million related to this
activity. The Company suspended the sale of premium finance receivables to an unrelated financial
institution in the second half of 2006 as the Banks had sufficient capacity to retain all of the
originations during this period. As of December 31, 2006 and 2005, the balance of these
receivables that FIFC services for others totaled approximately $58 million and $261 million,
respectively. All premium finance receivables are subject to the Company’s stringent credit
standards, and substantially all such loans are made to commercial customers. The Company rarely
finances consumer insurance premiums.
FIFC generally offers financing of approximately 80% of an insurance premium primarily to
commercial purchasers of property and casualty and liability insurance who desire to pay insurance
premiums on an installment basis. FIFC markets its financial services primarily by establishing
and maintaining relationships with medium and large insurance agents and brokers and by offering a
high degree of service and innovative products. Senior management is significantly involved in
FIFC’s marketing efforts, currently focused almost exclusively on commercial accounts. Loans are
originated by FIFC’s own sales force working with insurance agents and brokers throughout the
United States. As of December 31, 2006, FIFC had the necessary licensing or other regulatory
approvals to do business in all 50 states and the District of Columbia.
In financing insurance premiums, the Company does not assume the risk of loss normally borne by
insurance carriers. Typically, the insured buys an insurance policy from an independent insurance
agent or broker who offers financing through FIFC. The insured typically makes a down payment of
approximately 15% to 25% of the total premium and signs a premium finance agreement for the balance
due, which amount FIFC disburses directly to the insurance carrier or its agents to satisfy the
unpaid
21
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premium amount. The initial average balance of premium finance loans originated during 2006 was
approximately $29,000 and the average term of the agreements was approximately 10 months. As the
insurer earns the premium ratably over the life of the policy, the unearned portion of the premium
secures payment of the balance due to FIFC by the insured. Under the terms of the Company’s
standard form of financing contract, the Company has the power to cancel the insurance policy if
there is a default in the payment on the finance contract and to collect the unearned portion of
the premium from the insurance carrier. In the event of cancellation of a policy, the cash
returned in payment of the unearned premium by the insurer should be sufficient to cover the loan
balance and generally the interest and other charges due as well. The major risks inherent in this
type of lending are (1) the risk of fraud on the part of an insurance agent whereby the agent
fraudulently fails to forward funds to the insurance carrier or to FIFC, as the case may be; (2)
the risk that the insurance carrier becomes insolvent and is unable to return unearned premiums
related to loans in default; (3) for policies that are subject to an audit by the insurance carrier
(e.g. workers compensation policies where the insurance carrier can audit the insured actual
payroll records), the risk that the initial underwriting of the policy was such that the premium
paid by the insured is not sufficient to cover the entire return premium in the event of default;
and (4) that the borrower is unable to ultimately satisfy the debt in the event the returned
unearned premium is insufficient to retire the loan. FIFC has established underwriting procedures
to reduce the potential of loss associated with the aforementioned risks and has systems in place
to continually monitor conditions that would indicate an increase in risk factors and to act on
situations where the Company’s collateral position is in jeopardy.
Indirect consumer loans. As part of its strategy to pursue specialized earning asset niches to
augment loan generation within the Banks’ target markets, the Company finances fixed rate
automobile loans funded indirectly through unaffiliated automobile dealers and to a lesser extent
boat loans funded through unaffiliated boat dealers, as a result of the State Bank of The Lakes
acquisition in 2005. In 2006, the Company increased its volume of originations of auto loans as
market conditions indicated it was prudent to do so, and expects the portfolio to grow in future
periods depending on market conditions. Indirect automobile loans are secured by new and used
automobiles and are generated by a large network of automobile dealers located in the Chicago area
with which the Company has established relationships. These credits generally have an average
initial balance of approximately $23,000 and have an original maturity of 60 months with the
average actual maturity, as a result of prepayments, estimated to be approximately 35-40 months.
The Company does not currently originate any significant level of sub-prime loans, which are made
to individuals with impaired credit histories at generally higher interest rates, and accordingly,
with higher levels of credit risk. The risk associated with the Company’s portfolios is
diversified among many individual borrowers. Management continually monitors the dealer
relationships and the Banks are not dependent on any one dealer as a source of such loans. Like
other consumer loans, the indirect consumer loans are subject to the Banks’ stringent credit
standards.
Tricom finance receivables. Tricom finance receivables represent high-yielding short-term accounts
receivable financing to clients in the temporary staffing industry located throughout the United
States. The clients’ working capital needs arise primarily from the timing differences between
weekly payroll funding and monthly collections from customers. The primary security for Tricom’s
finance receivables are the accounts receivable of its clients and personal guarantees. Tricom
generally advances 80-95% based on various factors including the client’s financial condition, the
length of client relationship and the nature of the client’s customer business lines. Typically,
Tricom will also provide value-added out-sourced administrative services to many of these clients,
such as data processing of payrolls, billing and cash management services, which generates
additional fee income.
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Consumer and Other. Included in the consumer and other loan category is a wide variety of personal
and consumer loans to individuals. The Banks originate consumer loans in order to provide a wider
range of financial services to their customers. Consumer loans generally have shorter terms and
higher interest rates than mortgage loans but generally involve more credit risk than mortgage
loans due to the type and nature of the collateral.
The Company had no loans to businesses or governments of foreign countries at any time during 2006.
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table classifies the commercial loan portfolios at December 31, 2006 by date at which
the loans mature (in thousands):
| One year | From one | After | ||||||||||||||
| or less | to five years | five years | Total | |||||||||||||
Commercial and commercial real estate loans |
$ | 1,904,047 | 1,946,411 | 217,979 | 4,068,437 | |||||||||||
Premium finance receivables, net of
unearned income |
1,165,846 | — | — | 1,165,846 | ||||||||||||
Tricom finance receivables |
43,975 | — | — | 43,975 | ||||||||||||
Of those loans maturing after one year, approximately $1.66 billion have fixed rates.
Risk Elements in the Loan Portfolio
The following table sets forth the allocation of the allowance for loan losses and the allowance
for losses on lending-related commitments by major loan type and the percentage of loans in each
category to total loans (dollars in thousands):
| 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||||||||||||||||||
Commercial and
commercial real estate |
$ | 32,943 | 70 | % | 28,288 | 70 | 20,016 | 57 | 7,421 | 50 | 6,837 | 52 | ||||||||||||||||||||||||||||
Home equity |
1,985 | 5 | 1,835 | 5 | 1,404 | 13 | 467 | 14 | 563 | 14 | ||||||||||||||||||||||||||||||
Residential real estate |
1,381 | 3 | 1,372 | 3 | 993 | 5 | 417 | 5 | 200 | 6 | ||||||||||||||||||||||||||||||
Consumer and other |
1,757 | 4 | 1,516 | 4 | 1,585 | 2 | 418 | 2 | 358 | 2 | ||||||||||||||||||||||||||||||
Premium finance receivables |
4,838 | 11 | 4,586 | 11 | 7,708 | 18 | 5,495 | 23 | 3,613 | 18 | ||||||||||||||||||||||||||||||
Indirect consumer loans |
3,019 | 6 | 2,538 | 6 | 2,149 | 4 | 915 | 5 | 941 | 7 | ||||||||||||||||||||||||||||||
Tricom finance receivables |
132 | 1 | 148 | 1 | 372 | 1 | 143 | 1 | 120 | 1 | ||||||||||||||||||||||||||||||
Unallocated |
— | — | — | — | — | — | 10,265 | — | 5,758 | — | ||||||||||||||||||||||||||||||
Totals |
$ | 46,055 | 100 | % | 40,283 | 100 | 34,227 | 100 | 25,541 | 100 | 18,390 | 100 | ||||||||||||||||||||||||||||
Allowance for losses on lending-related commitments: |
||||||||||||||||||||||||||||||||||||||||
Commercial and
commercial real estate |
$ | 457 | 100 | % | 491 | 100 | — | — | — | — | — | — | ||||||||||||||||||||||||||||
Management has determined that the allowance for loan losses and the allowance for losses on
lending-related commitments were adequate at December 31, 2006. The Company’s loan rating process
is an integral component of the methodology utilized in determining the adequacy of the allowance
for loan losses. The Company utilizes a loan rating system to assign risk to loans and utilizes
that risk rating system to assist in developing an internal problem loan identification system
(“Problem Loan Report”) as a means of reporting non-performing and potential problem loans. At
each scheduled meeting of the Boards of Directors of the Banks and the Wintrust Risk Management
Committee, a Problem Loan
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Report is presented, showing loans that are non-performing and loans that may warrant additional
monitoring. Accordingly, in addition to those loans disclosed under “Past Due Loans and
Non-performing Assets,” there are certain loans in the portfolio which management has identified,
through its Problem Loan Report, which exhibit a higher than normal credit risk. These Problem Loan
Report credits are reviewed individually by management to determine whether any specific reserve
amount should be allocated for each respective credit. However, these loans are still performing
and, accordingly, are not included in non-performing loans. Management’s philosophy is to be
proactive and conservative in assigning risk ratings to loans and identifying loans to be included
on the Problem Loan Report.
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 2006, the increase in the amount of allowance for loan losses can be
primarily attributed to the acquisition of Hinsbrook Bank and growth in the core loan portfolio,
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 management’s periodic evaluation of the factors previously
mentioned, as well as other pertinent factors. Evaluations are conducted at least quarterly and
more frequently if deemed necessary.
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 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 loan’s effective interest rate, the observable market price of the loan, or the
fair value of the collateral if the
24
Table of Contents
loan is
collateral dependent. Problem Loan Report loans, which include
nonperforming loans, are subject to impairment evaluation. Commercial and commercial real estate loans continue to represent a larger
percentage of the Company’s total loans outstanding. The credit risk of commercial and commercial
real estate loans is largely influenced by the impact on borrowers of general economic conditions,
which can 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.
For analysis and review of the credit loss provision and allowance for loan losses, non-accrual,
past due and restructured loans, other real estate owned, potential problem loans and loan
concentrations, reference is made to the “Credit Risk and Asset Quality” section of the
Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2006
Annual Report to Shareholders filed herewith as Exhibit 13.1, and incorporated herein by reference.
Deposits
The following table sets forth the scheduled maturities of time deposits in denominations of
$100,000 or more at December 31, 2006 (in thousands):
Maturing within 3 months |
$ | 613,214 | ||
After 3 but within 6 months |
560,578 | |||
After 6 but within 12 months |
794,749 | |||
After 12 months |
669,957 | |||
Total |
$ | 2,638,498 | ||
Return on Equity and Assets
The following table presents certain ratios relating to the Company’s equity and assets as of and
for the years ended December 31:
| 2006 | 2005 | 2004 | ||||||||||
Return on average total assets |
0.74 | % | 0.88 | % | 0.94 | % | ||||||
Return on average shareholders’ equity |
9.47 | % | 11.00 | % | 13.12 | % | ||||||
Dividend payout ratio |
10.9 | % | 8.7 | % | 8.5 | % | ||||||
Average equity to average total assets |
7.9 | % | 8.0 | % | 7.2 | % | ||||||
Ending total risk-based capital ratio |
11.3 | % | 11.9 | % | 12.2 | % | ||||||
Leverage ratio |
8.2 | % | 8.3 | % | 8.4 | % | ||||||
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Short-Term Borrowings
The following table presents details regarding Federal funds purchased and securities sold under
repurchase agreements (in thousands):
| 2006 | 2005 | 2004 | ||||||||||
Balance at year end: |
||||||||||||
Federal funds purchased |
$ | — | $ | 235 | $ | 78,576 | ||||||
Securities sold under repurchase agreements |
$ | 159,883 | $ | 93,312 | $ | 118,669 | ||||||
Weighted interest rate for amounts outstanding at year end: |
||||||||||||
Federal funds purchased |
N/A | 4.25 | % | 2.47 | % | |||||||
Securities sold under repurchase agreements |
4.91 | % | 2.61 | % | 2.05 | % | ||||||
Maximum outstanding at any month end: |
||||||||||||
Federal funds purchased |
$ | 99,400 | $ | 129,150 | $ | 78,576 | ||||||
Securities sold under repurchase agreements |
$ | 239,105 | $ | 232,685 | $ | 206,620 | ||||||
Average amount outstanding: |
||||||||||||
Federal funds purchased |
$ | 18,318 | $ | 20,341 | $ | 31,567 | ||||||
Securities sold under repurchase agreements |
$ | 122,650 | $ | 132,233 | $ | 83,264 | ||||||
Weighted daily average interest rate: |
||||||||||||
Federal funds purchased |
5.24 | % | 3.42 | % | 1.82 | % | ||||||
Securities sold under repurchase agreements |
4.13 | % | 2.10 | % | 1.25 | % | ||||||
N/A = not applicable
Federal funds purchased and securities sold under repurchase agreements have maturities of six
months or less. Securities sold under repurchase agreements represent short-term borrowings from
banks and brokers as well as sweep accounts in connection with master repurchase agreements at the
Banks.
Further information regarding short-term borrowings is contained in Note 14 to the Consolidated
Financial Statements and in the “Analysis of Financial Condition — Deposits and Other Funding
Sources” section of the Management’s Discussion and Analysis of Financial Condition and Results of
Operations in the 2006 Annual Report to Shareholders filed herewith as Exhibit 13.1, and
incorporated herein by reference.
ITEM 1A. Risk Factors
An investment in Wintrust’s common stock is subject to risks inherent to Wintrust’s business. The
material risks and uncertainties that management believes affect Wintrust are described below.
Before making an investment decision, you should carefully consider the risks and uncertainties
described below together with all of the other information included or incorporated by reference in
this report. Additional risks and uncertainties that management is not aware of or focused on or
that management currently deems immaterial may also impair Wintrust’s business operations. This
report is qualified in its entirety by these risk factors. If any of the following risks actually
occur, Wintrust’s financial condition and results of operations could be materially and adversely
affected. If this were to happen, the value of Wintrust’s common stock could decline
significantly, and you could lose all or part of your investment.
26
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The financial services industry is very competitive.
We face competition in attracting and retaining deposits, making loans, and providing other
financial services (including wealth management services) throughout our market area. Our
competitors include other community banks, larger banking institutions, and a wide range of other
financial institutions such as credit unions, government-sponsored enterprises, mutual fund
companies, insurance companies and other non-bank businesses. Many of these competitors have
substantially greater resources than us. If we are unable to compete effectively, we will lose
market share and income from deposits, loans, and other products may be reduced. The financial
services industry could become even more competitive as a result of legislative, regulatory and
technological changes and continued consolidation. Banks, securities firms and insurance companies
can merge under the umbrella of a financial holding company, which can offer virtually any type of
financial service, including banking, securities underwriting, insurance (both agency and
underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it
possible for non-banks to offer products and services traditionally provided by banks, such as
automatic transfer and automatic payment systems. Wintrust’s ability to compete successfully
depends on a number of factors, including, among other things:
| • | the ability to develop, maintain and build upon long-term customer relationships based on top quality service and high ethical standards; | |
| • | the scope, relevance and pricing of products and services offered to meet customer needs and demands; | |
| • | the rate at which the Company introduces new products and services relative to its competitors; | |
| • | customer satisfaction with the Company’s level of service; and | |
| • | industry and general economic trends. |
Failure to perform in any of these areas could significantly weaken the Company’s competitive
position, which could adversely affect the Company’s growth and profitability, which, in turn,
could have a material adverse effect on the Company’s financial condition and results of
operations.
Wintrust may be adversely affected by interest rate changes.
Wintrust’s interest income and interest expense are affected by general economic conditions and by
the policies of regulatory authorities, including the monetary policies of the Federal Reserve.
Changes in interest rates may influence the growth rate of loans and deposits, the quality of the
loan portfolio, loan and deposit pricing, the volume of loan originations in Wintrust’s mortgage
banking business and the value that Wintrust can recognize on the sale of mortgage loans in the
secondary market. Wintrust expects the results of its mortgage banking business in selling loans
into the secondary market will be negatively impacted during periods of rising interest rates.
With the relatively low interest rates that prevailed from 2002 through 2005, Wintrust had been
able to augment the total return of its investment securities portfolio by selling call options on
fixed-income securities it owns. However, as a result of rising interest rates, Wintrust’s ability
to engage in such transactions has been greatly limited. During 2006, Wintrust recorded fee income
of approximately $3.2 million from premiums earned on these option transactions, compared to
approximately $11.4 million in 2005. In a rising interest rate environment, particularly if
interest rates continue to increase, the amount of premium income Wintrust earns on these
transactions will likely continue to decline. Wintrust’s opportunities to sell covered call
options may be limited in the future if rates continue to rise. The loss of such premium income or
changes in the growth rate, quality and pricing of Wintrust’s loan and deposit portfolio caused by
changes in interest rates could have a material adverse effect on Wintrust’s financial condition
and results of operations.
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Wintrust is subject to lending risk.
There are inherent risks associated with the Company’s lending activities. Increases in interest
rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay
outstanding loans or the value of the collateral securing these loans. A significant portion of
the Company’s loan portfolio consisted of commercial and commercial real estate loans. These types
of loans are generally viewed as having more risk of default than residential real estate loans or
consumer loans. These types of loans are also typically larger than residential real estate loans
and consumer loans. Because the Company’s loan portfolio contains a significant number of
commercial and commercial real estate loans, the deterioration of these loans could cause a
significant increase in non-performing loans. An increase in non-performing loans could result in
a net loss of earnings from these loans, an increase in the provision for credit losses and an
increase in loan charge-offs, all of which could have a material adverse effect on the Company’s
financial condition and results of operations.
Wintrust’s allowance for loan losses may prove to be insufficient to absorb losses that may occur
in its loan portfolio.
Wintrust’s allowance for loan losses is established in consultation with management of its
operating subsidiaries and is maintained at a level considered adequate by management to absorb
loan losses that are inherent in the portfolios. At December 31, 2006, Wintrust’s allowance for
loan losses was 123.9% of total nonperforming loans and 0.71% of total loans. The amount of future
losses is susceptible to changes in economic, operating and other conditions, including changes in
interest rates, that may be beyond its control, and such losses may exceed current estimates.
Estimating loan loss allowances for Wintrust’s newer banks is more difficult because rapidly
growing and de novo bank loan portfolios are, by their nature, unseasoned. Therefore, the Banks
may be more susceptible to changes in estimates, and to losses exceeding estimates, than banks with
more seasoned loan portfolios. There can be no assurance that the allowance for loan losses will
prove sufficient to cover actual loan or lease losses in the future, which could result in a
material adverse effect on Wintrust’s financial condition and results of operations.
De novo operations and branch openings impact Wintrust’s profitability.
Wintrust’s financial results have been and will continue to be impacted by its strategy of de novo
bank formations and branch openings. Wintrust expects to undertake additional de novo bank
formations or branch openings. Based on Wintrust’s experience, its management believes that it
generally takes from 13 to 24 months for de novo banks to first achieve operational profitability,
depending on the number of banking facilities opened, the impact of organizational and overhead
expenses, the start-up phase of generating deposits and the time lag typically involved in
redeploying deposits into attractively priced loans and other higher yielding earning assets.
However, it may take longer than expected or than the amount of time Wintrust has historically
experienced for new banks and/or banking facilities to reach profitability, and there can be no
guarantee that these new banks or branches will ever be profitable. To the extent Wintrust
undertakes additional de novo bank, branch and business formations, its level of reported net
income, return on average equity and return on average assets will be impacted by start-up costs
associated with such operations, and it is likely to continue to experience the effects of higher
expenses relative to operating income from the new operations. These expenses may be higher than
Wintrust expected or than its experience has shown, which could have a material adverse effect on
Wintrust’s financial condition and results of operations.
Wintrust’s premium finance business involves unique operational risks and could expose it to
significant losses.
Of Wintrust’s total loans at December 31, 2006, 18%, or approximately $1.2 billion, were comprised
of commercial insurance premium finance receivables that it generates through FIFC. These loans
involve a different, and possibly higher, level of risk of delinquency or collection than generally
associated with
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loan portfolios of more traditional community banks because Wintrust conducts lending in this
segment primarily through relationships with a large number of unaffiliated insurance agents and
because the borrowers are located nationwide. FIFC also faces unique operational and internal
control challenges due to the relatively rapid turnover of the premium finance loan portfolio and
high volume of new loan originations. As a result, risk management and general supervisory
oversight may be more difficult than in the Banks. FIFC may also be more susceptible to third
party fraud. Acts of fraud are difficult to detect and deter, and Wintrust cannot assure investors
that its risk management procedures and controls will prevent losses from fraudulent activity. For
example, in the third quarter of 2000, FIFC recorded a non-recurring after-tax charge of $2.6
million in connection with a series of fraudulent loan transactions perpetrated against FIFC by one
independent insurance agency located in Florida. Although Wintrust has since enhanced its internal
controls system at FIFC, it may continue to be exposed to the risk of significant loss in its
premium finance business, which could result in a material adverse effect on Wintrust’s financial
condition and results of operations. Additionally, to the extent that affiliates of insurance
carriers, banks, and other lending institutions add greater service and flexibility to their
financing practices in the future, the Company’s operations could be adversely affected. There can
be no assurance that FIFC will be able to continue to compete successfully in its markets.
Wintrust may not be able to obtain liquidity and income from the sale of premium finance
receivables in the future.
Wintrust has sold some of the loans FIFC originates to an unrelated third party. Wintrust
recognized gains on the sales of these receivables, and the proceeds of such sales have provided
Wintrust with additional liquidity. However, Wintrust did not sell any of these loans in the
second half of 2006 due to capacity to retain such loans with the Banks. Consistent with its
strategy to be asset driven, Wintrust may pursue similar sales of premium finance receivables in
the future; however, it cannot assure you that there will continue to be a market for the sale of
these loans and the extent of Wintrust’s future sales of these loans will depend on the level of
new volume growth in relation to its capacity to maintain the loans within the Banks’ loan
portfolios. Because Wintrust has a recourse obligation to the purchaser of premium finance loans
that it sells, it could incur losses in connection with the loans sold if collections on the
underlying loans prove to be insufficient to repay to the purchaser the principal amount of the
loans sold plus interest at the negotiated buy-rate and if the collection shortfall on the loans
sold exceeds Wintrust’s estimate of losses at the time of sale. An inability to sell premium
finance receivables in the future or the failure of collections on the underlying loans to be
sufficient to repay the principal amount of such loans could result in a material adverse effect on
Wintrust’s financial condition and results of operations.
Wintrust historically has engaged in a large number of acquisitions. Wintrust may not be able to
continue to implement such an acquisition strategy in the future and there are risks associated
with such acquisitions.
In the past several years, Wintrust has completed numerous acquisitions of banks and other
financial service related companies and may continue to make such acquisitions in the future.
Wintrust seeks merger or acquisition partners that are culturally similar and have experienced
management and possess either significant market presence or have potential for improved
profitability through financial management, economies of scale or expanded services. Failure to
successfully identify and complete acquisitions likely will result in Wintrust achieving slower
growth. Acquiring other banks, businesses, or branches involves various risks commonly associated
with acquisitions, including, among other things:
| • | potential exposure to unknown or contingent liabilities or asset quality issues of the target company; | |
| • | difficulty and expense of integrating the operations and personnel of the target company; |
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| • | potential disruption to Wintrust’s business, including diversion of Wintrust’s management’s time and attention; | |
| • | the possible loss of key employees and customers of the target company; | |
| • | difficulty in estimating the value of the target company; and | |
| • | potential changes in banking or tax laws or regulations that may affect the target company. |
Acquisitions typically involve the payment of a premium over book and market values, and,
therefore, some dilution of Wintrust’s tangible book value and net income per common share may
occur in connection with any future transaction. Furthermore, failure to realize the expected
revenue increases, cost savings, increases in geographic or product presence, and/or other
projected benefits from an acquisition could have a material adverse effect on Wintrust’s financial
condition and results of operations.
Wintrust is subject to extensive government regulation and supervision.
The Company and its subsidiaries are subject to extensive federal and state regulation and
supervision. Regulatory authorities have extensive discretion in their supervisory and enforcement
activities, including the imposition of restrictions on our operations, the classification of our
assets and determination of the level of our allowance for loan losses. These regulations affect
the Company’s lending practices, capital structure, investment practices, dividend policy and
growth, among other things. Changes to statutes, regulations or regulatory policies, including
changes in interpretation or implementation of statutes, regulations or policies, could affect
Wintrust in substantial and unpredictable ways. Failure to comply with laws, regulations or
policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation
damage, which could have a material adverse effect on the Company’s business, financial condition
and results of operations. See the section captioned “Supervision and Regulation” in Item 1.
Business for additional information.
Wintrust’s profitability depends significantly on economic conditions in the state of Illinois.
Wintrust’s success depends primarily on the general economic conditions of the State of Illinois
and the specific local markets in which the Company operates. Unlike larger national or other
regional banks that are more geographically diversified, Wintrust provides banking and financial
services to customers primarily in the greater Chicago and southeast Wisconsin metropolitan areas.
The local economic conditions in these areas have a significant impact on the demand for Wintrust’s
products and services as well as the ability of Wintrust’s customers to repay loans, the value of
the collateral securing loans and the stability of Wintrust’s deposit funding sources. A
significant decline in economic conditions, caused by inflation, recession, acts of terrorism,
outbreak of hostilities or other international or domestic occurrences, unemployment, changes in
securities markets or other factors with impact on these local markets could, in turn, have a
material adverse effect on our financial condition and results of operations.
Wintrust relies on dividends from its subsidiaries for most of its revenue.
Wintrust is a separate and distinct legal entity from its subsidiaries. It receives substantially
all of its revenue from dividends from its subsidiaries. These dividends are the principal source
of funds to pay dividends on the Company’s common stock and interest and principal on its debt.
Various federal and state laws and regulations limit the amount of dividends that the Banks and
certain non-bank subsidiaries may pay to Wintrust. In the event that the Banks are unable to pay
dividends to Wintrust, it may not be able to service debt, pay obligations or pay dividends on the
Company’s common stock. The inability to receive dividends from the Banks could have a material
adverse effect on the Company’s business, financial condition and results of operations. See the
section captioned “Supervision and Regulation” in Item 1. — Business for more information.
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Wintrust’s information systems may experience an interruption or breach in security.
Wintrust relies heavily on communications and information systems to conduct its business. Any
failure, interruption, or breach in security of these systems could result in failures or
disruptions in customer relationship management, general ledger, deposit, loan or other systems.
While Wintrust has policies and procedures designed to prevent or limit the effect of such a
failure, interruption, or security breach of its information systems, there can be no assurance
that any such failures, interruptions or security breaches will not occur or, if they do occur,
that they will be adequately addressed. The occurrence of any failures, interruptions or security
breaches of our information systems could damage Wintrust’s reputation, result in a loss of
customer business, subject Wintrust to additional regulatory scrutiny or civil litigation and
possible financial liability, any of which could have a material and adverse effect on Wintrust’s
financial condition and results of operations.
Wintrust may issue additional securities, which could dilute the ownership percentage of holders of
Wintrust’s common stock.
The Company may issue additional securities to raise additional capital or finance acquisitions or
upon the exercise or conversion of outstanding equity awards, and if it does, the ownership
percentage of holders of our common stock could be diluted.
Consumers may decide not to use banks to complete their financial transactions.
Technology and other changes are allowing parties to complete financial transactions that
historically have involved banks through alternative methods. For example, consumers can now
maintain funds that would have historically been held as bank deposits in brokerage accounts or
mutual funds. Consumers can also complete transactions such as paying bills and transferring funds
directly without the assistance of banks. The process of eliminating banks as intermediaries could
result in the loss of fee income, as well as the loss of customer deposits and the related income
generated from those deposits. The loss of these revenue streams and the lower cost deposits as a
source of funds could have a material adverse effect on the Company’s financial condition and
results of operations.
Wintrust’s future success depends, in part, on its ability to attract and retain experienced and
qualified personnel.
Wintrust believes that its future success depends, in part, on its ability to attract and retain
experienced personnel, including its senior management and other key personnel. The loss of any of
its senior managers or other key personnel, or its inability to identify, recruit and retain such
personnel, could materially and adversely affect Wintrust’s business, operating results and
financial condition.
ITEM 1B. Unresolved Staff Comments
None.
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ITEM 2. PROPERTIES
The Company’s executive offices are located in the banking facilities of Lake Forest Bank. Certain
corporate functions are also located at the various Bank subsidiaries.
The Company’s Banks operate through 73 banking facilities, the majority of which are owned. The
Company owns 103 Automatic Teller Machines, the majority of which are housed at banking locations.
The banking facilities are located in communities throughout the Chicago metropolitan area and
Southern Wisconsin. The Banks also own two locations that are used as operations centers. Excess
space in certain properties is leased to third parties.
Wayne Hummer Investments, LLC has two locations, one in downtown Chicago and one in Appleton,
Wisconsin, both of which are leased. WestAmerica Mortgage has 18 locations in 9 states, all of
which are leased. First Insurance Funding Corp, Tricom, Inc. and Wintrust Information Technology
Services, each has one location, all of which are owned. In addition, the Company owns other real
estate acquired for further expansion that, when considered in the aggregate, is not material to
the Company’s financial position.
See Note 9 to the Consolidated Financial Statements contained in the 2006 Annual Report to
Shareholders filed herewith as Exhibit 13.1 and incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries, from time to time, are subject to pending and threatened legal
action and proceedings arising in the ordinary course of business. Any such litigation currently
pending against the Company or its subsidiaries is incidental to the Company’s business and, based
on information currently available to management, management believes the outcome of such actions
or proceedings will not have a material adverse effect on the operations or financial position of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2006.
A Special Meeting of Shareholders was held on January 9, 2007, and the following matter was
submitted to a vote of the shareholders:
| 1. | A proposal to adopt the 2007 Stock Incentive Plan and the issuance of up to 500,000 shares of common stock thereunder. |
| Votes For | Votes Against | Abstentions | ||
18,284,299
|
2,351,057 | 72,403 |
This proposal received the requisite approval of a majority of the shares represented and passed.
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PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
The Company’s common stock is traded on The Nasdaq Stock Market under the symbol WTFC. The
following table sets forth the high and low sales prices reported on Nasdaq for the common stock
during 2006 and 2005.
| 2006 | 2005 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
Fourth quarter |
$ | 50.29 | $ | 45.08 | $ | 59.63 | $ | 48.00 | ||||||||
Third quarter |
$ | 51.90 | $ | 46.14 | $ | 55.50 | $ | 49.01 | ||||||||
Second quarter |
$ | 59.64 | $ | 49.08 | $ | 52.93 | $ | 45.00 | ||||||||
First quarter |
$ | 58.94 | $ | 49.79 | $ | 57.23 | $ | 46.78 | ||||||||
Stock
Performance Graph
The following performance graph compares the percentage change in the Company’s cumulative
shareholder return on common stock compared with the cumulative total return on composites of (1)
all Nasdaq National Market stocks for United States companies (broad market index) and (2) all
Nasdaq National Market bank stocks (peer group index). Cumulative total return is computed by
dividing the sum of the cumulative amount of dividends for the measurement period and the
difference between the Company’s share price at the end and the beginning of the measurement period
by the share price at the beginning of the measurement period. The Nasdaq National Market for
United States companies’ index comprises all domestic common shares traded on the Nasdaq National
Market and the Nasdaq Small-Cap Market. The Nasdaq National Market bank stocks index comprises all
banks traded on the Nasdaq National Market and the Nasdaq Small-Cap Market.
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Approximate Number of Equity Security Holders
As of
February 26, 2007 there were approximately 1,689 shareholders of record of the Company’s
common stock.
Dividends on Common Stock
The Company’s Board of Directors approved the first semi-annual cash dividend on its common stock
in January 2000 and has continued to approve a semi-annual dividend since that time.
Following is a summary of the cash dividends paid in 2005 and 2006.
| Record Date | Payable Date | Dividend per Share | ||||||||||
| February 8, 2005 | February 22, 2005 | $0.12 | ||||||||||
| August 9, 2005 | August 23, 2005 | $0.12 | ||||||||||
| February 9, 2006 | February 23, 2006 | $0.14 | ||||||||||
| August 10, 2006 | August 24, 2006 | $0.14 | ||||||||||
In January 2007, the Company’s Board of Directors approved a 14% increase in its semi-annual
dividend to $0.16 per share. The dividend was paid on February 22, 2007 to shareholders of record
as of February 8, 2007.
The final determination of timing, amount and payment of dividends is at the discretion of the
Company’s Board of Directors and will depend upon the Company’s earnings, financial condition,
capital requirements and other relevant factors. Additionally, the payment of dividends is also
subject to statutory restrictions and restrictions arising under the terms of the Company’s Trust
Preferred Securities offerings and under certain financial covenants in the Company’s revolving
line of credit.
Because the Company’s consolidated net income consists largely of net income of the Banks,
WestAmerica, FIFC, Tricom, WHTC and the Wayne Hummer Companies, the Company’s ability to pay
dividends depends upon its receipt of dividends from these entities. The Banks’ ability to pay
dividends is regulated by banking statutes. See “Financial Institution Regulation Generally — Dividends” on
page 12 of this Form 10-K. During 2006, 2005 and 2004, the Banks paid $76.8 million and $45.1
million and $25.5 million, respectively, in dividends to the Company. De novo banks are prohibited
from paying dividends during their first three years of operations. As of January 1, 2007, Beverly
Bank, which began operations in April 2004, and Old Plank Trail Bank, which began operations in
March 2006, were subject to this additional dividend restriction. The de novo periods for Beverly
Bank and Old Plank Trail Bank will end in April 2007 and March 2009, respectively.
Reference is made to Note 19 to the Consolidated Financial Statements and “Liquidity and Capital
Resources” contained in the 2006 Annual Report to Shareholders, attached hereto as Exhibit 13.1,
which are incorporated herein by reference, for a description of the restrictions on the ability of
certain subsidiaries to transfer funds to the Company in the form of dividends.
Recent Sales of Unregistered Securities
None.
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Issuer Purchases of Equity Securities
On July 31, 2006, the Company’s Board of Directors approved the repurchase of up to 2,000,000
shares of its outstanding common stock over the next 18 months. This repurchase plan replaces the
previous share repurchase plan that was announced in January 2000. The Company began to repurchase
shares in October 2006. Following is a summary of the stock repurchases made during the fourth
quarter of 2006.
| ISSUER PURCHASES OF EQUITY SECURITIES | ||||||||||||||||
| (a) | (b) | (c) | (d) | |||||||||||||
| Maximum | ||||||||||||||||
| Total Number of | Number of Shares | |||||||||||||||
| Total | Shares Purchased | that May Yet Be | ||||||||||||||
| Number of | Average | as Part of Publicly | Purchased Under | |||||||||||||
| Shares | Price Paid | Announced Plans | the Plans or | |||||||||||||
| Period | Purchased | per Share | or Programs | Programs | ||||||||||||
October 1 — October 31 |
111,200 | $ | 47.57 | 111,200 | 1,888,800 | |||||||||||
November 1 — November
30 |
132,889 | $ | 47.64 | 132,889 | 1,755,911 | |||||||||||
December 1 — December
31 |
100,000 | $ | 47.21 | 100,000 | 1,655,911 | |||||||||||
Total |
344,089 | $ | 47.50 | 344,089 | ||||||||||||
All shares repurchased were made in open market trades except for 889 shares which were
repurchased in connection with the issuance of shares pursuant to the Company’s Stock Incentive
Plan.
ITEM 6. SELECTED FINANCIAL DATA
Certain information required in response to this item is contained in the 2006 Annual Report to
Shareholders under the caption “Selected Financial Highlights” and is incorporated herein by
reference.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required in response to this item is contained in the 2006 Annual Report to
Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and
Results of Operations”, which is incorporated herein by reference. This discussion and analysis of
financial condition and results of operations should be read in conjunction with the Consolidated
Financial Statements and notes thereto contained in the 2006 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Certain information required in response to this item is contained in the 2006 Annual Report to
Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Asset-Liability Management,” which is incorporated herein by reference.
That information should be read in conjunction with the complete Consolidated Financial Statements
and notes thereto also included in the 2006 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this item is contained in the 2006 Annual Report to
Shareholders under the caption “Consolidated Financial Statements,” and is incorporated herein by
reference. Also, refer to Item 15 of this Report for the Index to Financial Statements.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company made no changes in or had any disagreements with its independent accountants during the
two most recent fiscal years or any subsequent interim period.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management of the Company, under the
supervision and with the participation of the Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934 (“the Exchange Act”). Based upon, and as of the date of that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures
were effective, in ensuring the information relating to the Company (and its consolidated
subsidiaries) required to be disclosed by the Company in the reports it files or submits under the Exchange Act was
recorded, processed, summarized and reported in a timely manner.
Internal Control Over Financial Reporting
Management’s responsibilities relating to establishing and maintaining effective disclosure
controls and procedures include establishing and maintaining effective internal control over
financial reporting that is designed to produce reliable financial statements in accordance with
accounting principles generally accepted in the United States. As disclosed in the Report on
Management’s Assessment of Internal Control Over Financial Reporting, on page 26 of the Company’s
Annual Report, which is included as
Exhibit 13.1, management assessed the Company’s system of internal control over financial reporting
as of December 31, 2006, in relation to criteria for the effective internal control over financial
reporting as described in “Internal Control — Integrated Framework,” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes
that, as of December 31, 2006, the Company’s system of internal control over financial reporting
met those criteria and is effective.
Management’s assessment of the effectiveness of internal control over financial reporting as of
December 31, 2006, has been audited by Ernst & Young, LLP, an independent registered public
accounting firm, as stated in their report which appears on page 27 of the Company’s Annual Report
which is included herein as Exhibit 13.1.
There were no changes in the Company’s internal control over financial reporting that occurred
during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required in response to this item will be contained in the Company’s Proxy
Statement for its Annual Meeting of Shareholders to be held May 24, 2007 under the captions
“Election of Directors,” “Executive Officers of the Company,” “Board of Directors’ Committees and
Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated
herein by reference.
The Company has adopted a Corporate Code of Ethics which complies with the rules of the SEC and the
listing standards of the Nasdaq National Market. The code applies to all of the Company’s
directors, officers and employees and is included as Exhibit 14.1 and posted on the Company’s website (www.wintrust.com). The
Company will post on its website any amendments to, or waivers from, its Corporate Code of Ethics
as the code applies to its directors or executive officers.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item will be contained in the Company’s Proxy
Statement under the caption “Executive Compensation” and is incorporated herein by reference.
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ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management is
incorporated by reference to the section “Security Ownership of
Certain Beneficial Owners, Directors and
Management” that will be included in the Company’s Proxy Statement.
The following table summarizes information as of December 31, 2006, relating to equity compensation
plans of the Company pursuant to which common stock is authorized for issuance:
Equity Compensation Plan Information
| Number of | Number of securities | |||||||||||
| securities to be | remaining available | |||||||||||
| issued upon | Weighted-average | for future issuance | ||||||||||
| exercise of | exercise price of | under equity compensation | ||||||||||
| outstanding options, | outstanding options, | plans (excluding securities | ||||||||||
| warrants and rights | warrants and rights | reflected in column (a)) | ||||||||||
| Plan category | (a) | (b) | (c) | |||||||||
Equity compensation plans approved by
security holders: |
||||||||||||
• WTFC 1997 Stock Incentive Plan,
as amended |
2,982,309 | $29.65 | 8,761 | |||||||||
• WTFC Employee Stock Purchase Plan |
N/A | N/A | 166,368 | |||||||||
• WTFC Directors Deferred Fee and
Stock Plan |
N/A | N/A | 190,628 | |||||||||
| 2,982,309 | $29.65 | 365,757 | ||||||||||
Equity compensation plans not approved
by security holders
(1) |
||||||||||||
• N/A |
— | — | — | |||||||||
Total (1) |
2,982,309 | $29.65 | 365,757 | |||||||||
| (1) | Excludes 139,659 shares of the Company’s common stock issuable pursuant to the exercise of options previously granted under the plans of Advantage National Bancorp, Inc., Village Bancorp, Inc., Northview Financial Corporation, Town Bankshares, Ltd., First Northwest Bancorp, Inc. and Hinsbrook Bancshares, Inc. The weighted average exercise price of those options is $25.47. No additional awards will be made under these plans. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required in response to this item will be in the Company’s Proxy Statement under
the sub-caption “Related Party Transactions” and is incorporated herein by reference.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required in response to this item will be contained in the Company’s Proxy
Statement under the caption “Audit and Non-Audit Fees Paid” and is incorporated herein by
reference.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) | Documents filed as part of this Report: | |
| 1., 2. Financial Statements and Schedules | ||
| The following financial statements of Wintrust Financial Corporation, incorporated herein by reference to the 2006 Annual Report to Shareholders filed as Exhibit 13.1, are filed as part of this document pursuant to Item 8, Financial Statements and Supplementary Data: | ||
| • Consolidated Statements of Condition as of December 31, 2006 and 2005 | ||
| • Consolidated Statements of Income for the Years Ended December 31, 2006, 2005 and 2004 | ||
| • Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004 | ||
| • Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004 | ||
| • Notes to Consolidated Financial Statements | ||
| • Report of Independent Registered Public Accounting Firm |
| Financial statement schedules have been omitted as they are not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto. | ||
| 3. Exhibits (Exhibits marked with a “*” denote management contracts or compensatory plans or arrangements) |
| 3.1 | Amended and Restated Articles of Incorporation of Wintrust Financial Corporation, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q for the quarter ended June 30, 2006). | ||
| 3.2 | Amended and Restated By-laws of Wintrust Financial Corporation, as amended (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q for the quarter ended June 30, 2006). | ||
| 4.1 | Certain instruments defining the rights of the holders of long-term debt of the Corporation and certain of its subsidiaries, none of which authorize a total amount of indebtedness in excess of 10% of the total assets of the Corporation and its subsidiaries on a consolidated basis, have not been filed as Exhibits. The Corporation hereby agrees to furnish a copy of any of these agreements to the Commission upon request. | ||
| 10.1 | Junior Subordinated Indenture dated as of August 2, 2005, between Wintrust Financial Corporation and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the Securities and Exchange Commission on August 4, 2005). | ||
| 10.2 | Amended and Restated Trust Agreement, dated as of August 2, 2005, among Wintrust Financial Corporation, as depositor, Wilmington Trust Company, as property trustee and Delaware trustee, and the Administrative Trustees listed therein (incorporated by |
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| reference to Exhibit 10.2 of the Company’s Form 8-K filed with the Securities and Exchange Commission on August 4, 2005). | |||
| 10.3 | Guarantee Agreement, dated as of August 2, 2005, between Wintrust Financial Corporation, as Guarantor, and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed with the Securities and Exchange Commission on August 4, 2005) | ||
| 10.4 | Amended and Restated Loan Agreement ($75 million) between Wintrust Financial Corporation and LaSalle Bank National Association, dated October 29, 2002 (incorporated by reference to Exhibit 10.9 of the Company’s Form 10-K for the year ending December 31, 2002). | ||
| 10.5 | Credit Agreement, dated as of November 1, 2005, among Wintrust Financial Corporation, the various financial institutions party thereto and LaSalle Bank National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the Securities and Exchange Commission on December 15, 2005). | ||
| 10.6 | $25 million Subordinated Note between Wintrust Financial Corporation and LaSalle Bank National Association, dated October 29, 2002 (incorporated by reference to Exhibit 10.9 of the Company’s Form 10-K for the year ending December 31, 2002). | ||
| 10.7 | Amendment and Allonge made as of June 7, 2005 to that certain $25 million Subordinated Note dated October 29, 2002 executed by Wintrust Financial Corporation in favor of LaSalle Bank National Association (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2005). | ||
| 10.8 | $25 million Subordinated Note between Wintrust Financial Corporation and LaSalle Bank National Association, dated April 30, 2003 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ending June 30, 2003). | ||
| 10.9 | Amendment and Allonge made as of June 7, 2005 to that certain $25 million Subordinated Note dated April 30, 2003 executed by Wintrust Financial Corporation in favor of LaSalle Bank National Association (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2005). | ||
| 10.10 | $25.0 million Subordinated Note between Wintrust Financial Corporation and LaSalle Bank, National Association, dated October 25, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the Securities and Exchange Commission on October 28, 2005). | ||
| 10.11 | Amended and Restated $1.0 million Note between Wintrust Financial Corporation and LaSalle Bank, National Association, dated as of May 29, 2005, executed August 26, 2005 (incorporated by reference to Exhibit 10.8 of the Company’s Form 10-Q for the quarter ending September 30, 2005). |
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| 10.12 | $50.0 million Revolving Note between Wintrust Financial Corporation and LaSalle Bank, National Association, dated as of July 25, 2005, executed August 26, 2005 (incorporated by reference to Exhibit 10.9 of the Company’s Form 10-Q for the quarter ending September 30, 2005). | ||
| 10.13 | Amended and Restated Pledge and Security Agreement dated as of May 29, 2005, executed August 26, 2005, between Wintrust Financial Corporation and LaSalle Bank, National Association (incorporated by reference to Exhibit 10.10 of the Company’s Form 10-Q for the quarter ending September 30, 2005). | ||
| 10.14 | Amended and Restated Collateral Safekeeping Agreement dated as of May 29, 2005, executed August 26, 2005, among Wintrust Financial Corporation, LaSalle Bank, National Association and Standard Federal Bank, N.A. (incorporated by reference to Exhibit 10.11 of the Company’s Form 10-Q for the quarter ending September 30, 2005). | ||
| 10.15 | Amended and Restated Confirmation, dated as of December 14, 2005, between Wintrust Financial Corporation and RBC Capital Markets Corporation as agent for Royal Bank of Canada (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the Securities and Exchange Commission on December 16, 2005). | ||
| 10.16 | Indenture dated as of September 1, 2006, between Wintrust Financial Corporation and LaSalle Bank National Association, as trustee (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on September 6, 2006). | ||
| 10.17 | Amended and Restated Declaration of Trust, dated as of September 1, 2006, among Wintrust Financial Corporation, as depositor, LaSalle Bank National Association, as institutional trustee, Christiana Bank & Trust Company, as Delaware trustee, and the Administrators listed therein (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on September 6, 2006). | ||
| 10.18 | Guarantee Agreement, dated as of September 1, 2006, between Wintrust Financial Corporation, as Guarantor, and LaSalle Bank National Association, as trustee (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the Commission on September 6, 2006). | ||
| 10.19 | Form of Wintrust Financial Corporation Warrant Agreement (incorporated by reference to Exhibit 10.29 to Amendment No. 1 to Registrant’s Form S 4 Registration Statement (No. 333-4645), filed with the Securities and Exchange Commission on July 22, 1996).* | ||
| 10.20 | Form of Employment Agreement entered into between the Company and Edward J. Wehmer, President and Chief Executive Officer. The Company entered into Employment Agreements with David A. Dykstra, Senior Executive Vice President and Chief Operating Officer and Richard B. Murphy, Executive Vice President and Chief Credit Officer during 2005 in substantially identical form to this exhibit (incorporated by reference to Exhibit of the Company’s Form 10-K for the year ending December 31, 2004).* | ||
| 10.21 | Form of Employment Agreement entered into between the Company and David L. Stoehr, Executive Vice President and Chief Financial Officer. The Company entered into |
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| an Employment Agreement with Robert F. Key, Executive Vice President/Marketing, during 2005 in substantially identical form to this exhibit (incorporated by reference to Exhibit 10.23 of the Company’s Form 10-K for the year ending December 31, 2004).* | |||
| 10.22 | Employment Agreement entered into between the Company and Thomas P. Zidar, dated June 6, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ended June 30, 2006).* | ||
| 10.23 | Employment Agreement entered into between Lake Forest Bank & Trust Company and Randolph M. Hibben, dated March 25, 2005.* | ||
| 10.24 | Wintrust Financial Corporation 1997 Stock Incentive Plan (incorporated by reference to Appendix A of the Proxy Statement relating to the May 22, 1997 Annual Meeting of Shareholders of the Company).* | ||
| 10.25 | First Amendment to Wintrust Financial Corporation 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ended June 30, 2000).* | ||
| 10.26 | Second Amendment to Wintrust Financial Corporation 1997 Stock Incentive Plan adopted by the Board of Directors on January 24, 2002 (incorporated by reference to Exhibit 99.3 of Form S-8 filed July 1, 2004.).* | ||
| 10.27 | Third Amendment to Wintrust Financial Corporation 1997 Stock Incentive Plan adopted by the Board of Directors on May 27, 2004 (incorporated by reference to Exhibit 99.4 of Form S-8 filed July 1, 2004.).* | ||
| 10.28 | Wintrust Financial Corporation 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on January 16, 2007).* | ||
| 10.29 | Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.30 of the Company’s Form 10-K for the year ending December 31, 2004).* | ||
| 10.30 | Form of Restricted Stock Award (incorporated by reference to Exhibit 10.31 of the Company’s Form 10-K for the year ending December 31, 2004).*] | ||
| 10.31 | Form of Nonqualified Stock Option Agreement under the Company’s 2007 Stock Incentive Plan.* | ||
| 10.32 | Form of Restricted Stock Award under the Company’s 2007 Stock Incentive Plan.* | ||
| 10.33 | Wintrust Financial Corporation Employee Stock Purchase Plan (incorporated by reference to Appendix B of the Proxy Statement relating to the May 22, 1997 Annual Meeting of Shareholders of the Company).* | ||
| 10.34 | Wintrust Financial Corporation Directors Deferred Fee and Stock Plan (incorporated by reference to Appendix B of the Proxy Statement relating to the May 24, 2001 Annual Meeting of Shareholders of the Company).* |
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| 12.1 | Computation of Ratio of Earnings to Fixed Charges. | ||
| 13.1 | 2006 Annual Report to Shareholders. | ||
| 14.1 | Code of Ethics (incorporated by reference to Exhibit 14.1 of the Company’s Form 10-K for the year ending December 31, 2005) | ||
| 21.1 | Subsidiaries of the Registrant. | ||
| 23.1 | Consent of Independent Auditors. | ||
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32.1 | Certification Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 99.1 | First Amendment dated as of June 1, 2006, to Credit Agreement dated as of November 1, 2005, among Wintrust Financial Corporation, the various financial institutions party thereto and LaSalle Bank National Association, as Administrative Agent. | ||
| 99.2 | Second Amendment dated as of August 1, 2006, to Credit Agreement dated as of November 1, 2005, among Wintrust Financial Corporation and LaSalle Bank National Association, in its individual capacity. | ||
| 99.3 | Third Amendment dated as of January 1, 2007, to Credit Agreement dated as of November 1, 2005, among Wintrust Financial Corporation and LaSalle Bank National Association, in its individual capacity. | ||
| 99.4 | Fifth Amendment to Second Amended and Restated Loan Agreement (relating to $50 million Revolving Note executed August 26, 2005) dated as of June 1, 2006, between Wintrust Financial Corporation, and LaSalle Bank National Association, in its individual capacity. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
WINTRUST FINANCIAL CORPORATION
(Registrant)
(Registrant)
Edward J. Wehmer
|
/s/ EDWARD J. WEHMER | March 1, 2007 | ||
| President and Chief Executive Officer | ||||
David L. Stoehr
|
/s/ DAVID L. STOEHR | March 1, 2007 | ||
| Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
John S. Lillard
|
/s/ JOHN S. LILLARD | March 1, 2007 | ||
| Chairman of the Board of Directors | ||||
Edward J. Wehmer
|
/s/ EDWARD J. WEHMER | March 1, 2007 | ||
| President and CEO and Director | ||||
Allan E. Bulley, Jr.
|
/s/ ALLAN E. BULLEY, JR. | March 1, 2007 | ||
| Director | ||||
Peter D. Crist
|
/s/ PETER D. CRIST | March 1, 2007 | ||
| Director |
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Bruce K. Crowther
|
/s/ BRUCE K. CROWTHER | March 1, 2007 | ||
| Director | ||||
Joseph F. Damico
|
/s/ JOSEPH F. DAMICO | March 1, 2007 | ||
| Director | ||||
Bert A. Getz, Jr.
|
/s/ BERT A. GETZ, JR. | March 1, 2007 | ||
| Director | ||||
James B. McCarthy
|
/s/ JAMES B. MCCARTHY | March 1, 2007 | ||
| Director | ||||
Albin F. Moschner
|
/s/ ALBIN F. MOSCHNER | March 1, 2007 | ||
| Director | ||||
Thomas J. Neis
|
/s/ THOMAS J. NEIS | March 1, 2007 | ||
| Director | ||||
Hollis W. Rademacher
|
/s/ HOLLIS W. RADEMACHER | March 1, 2007 | ||
| Director | ||||
J. Christopher Reyes
|
/s/ J. CHRISTOPHER REYES | March 1, 2007 | ||
| Director | ||||
John J. Schornack
|
/s/ JOHN J. SCHORNACK | March 1, 2007 | ||
| Director | ||||
Ingrid S. Stafford
|
/s/ INGRID S. STAFFORD | March 1, 2007 | ||
| Director |
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