© 2001 Wall Street Corporate Reporter - All rights reserved One Wall Street Plaza - 1311 Route 739, Dingmans Ferry, PA 18328 Phone 570/686-7714 Fax 570/686-7677; Vol. 6 Issue 26 December 3, 2001 Wintrust Financial Corporation

grew rather remarkably. We then identified Wintrust Financial other affluent towns that no longer were ser- viced by a local bank and launched our own Corporation style of community banking. The rest is his- NASDAQ - WTFC tory. “In 1996, we realized that we had run out of family, friends and neighbors to raise capital WSCR #104126 to support the substantial growth we had ex- EDWARD J. WEHMER perienced and decided to put all of the banks President under one holding company and take it pub- Chief Executive Officer lic. Most of us came from a public environ- ment and many were CPAs who knew how to Interview by John O’Hanlon deal with the constraints involved. In order Publisher and Managing Editor to avail ourselves of additional capital and give shareholders liquidity, as opposed to Mr. Edward J. Wehmer having to make a market ourselves to sup- ur company will be ten years old on port our growth, we knew that we had to go December 27, 2001. My partners and public. When we first started, we really had I previously worked at Corus no idea that the bank would be as successful Bankshares,O formerly River Forest Bancorp, as it has been in terms of growth. We are hav- which had purchased of some banks during ing a lot of fun and have been able to attract our tenure there. That company’s stock had great people to work with us.” performed very well. In fact, it was the one of Starting a new bank the top twenty best publicly traded stock in “Initially the concept was to bring back real EDWARD J. WEHMER the ’80s. A number of us thought that we President would like to go out on our own and take community banking to fill the space that was voided when the big banks took Chief Executive Officer over the smaller banks. The idea 30 locations at this point. We accomplished was based on service, service, this by branching out of those seven banks and more service, and we were to other surrounding towns. We push our able to attract some terrific man- money, decision-making and personnel, down agement that had worked in to down to the customer level, as opposed to these communities. These are at the holding company level. We do this be- experienced bankers who had cause this is a people and customer driven been turned into branch manag- business—that is where you make your ers and spent most of their time money. Pretty much everybody in our bank is in meetings as opposed to deal- cross-trained so we have less people than a ing with customers and running typical bank would have. a business, which is what they “But we pay our employees more money really wanted to do. Our concept and are therefore able to attract very good advantage of an opportunity to service cus- was to open de novo banks. people. When a customer calls one of our tomers that had been disenfranchised by the “Currently we operate seven community banks, they will speak to a real person right institutionalization of their community banks banks in affluent suburban Chicago area mar- off the bat, somebody that can answer any when they were bought out by a bigger bank. kets. We have opened one bank about every concerns or issues they may have. That gives “Our idea was to target the high net worth 18 months since our inception and have about our customers a level of comfort and our em- areas around Chicago and we began by open- ing our first bank in our hometown of Lake Forest, Illinois. Initially our intention was to grow the bank to be a couple of hundred mil- lion dollars in assets, a hometown Mayberry- Wintrust Financial Corporation type bank, and enjoy our lives. Quality of life 727 North Bank Lane was very important to all of us when we Lake Forest, IL 60045 started this and we all wanted to be close to our families while growing the business. We 847-615-4096 raised money from family and friends, and low 847-615-4091 FAX and behold, the idea took off and the bank ployees like it better because they are not Funding. We built First Insurance Funding before they were taken over by the big banks. isolated in a cubical somewhere doing one from scratch to become the fourth largest “We were able to come in to that environ- thing all day. Instead they actually get to learn commercial insurance premium finance com- ment and fill that void by offering people bank- the banking business. All of this leads to pany in the country. ing the way it used to be, which is the way greater employee morale and happier custom- “We will generate $1.4 billion of premium that people like it. We position ourselves as ers at Wintrust.” finance loans this year; so that is a great busi- the local alternative to the big regional or na- ness for us. These are nine-month full pay- tional banks in these markets. Our banks of- Wintrust Financial out loans with great spreads and yields. We fer great products and services that enable Corporation can put these loans on our banks’ books to us to compete with the big guys. What differ- “Wintrust Financial Corporation is a finan- optimize the performance of the banks. With entiates us very clearly in the market place is cial services company with $2.5 billion in as- good earning assets from this and our other good, professional and very personal service sets. We have seven suburban Chicago com- niches, we can be aggressive in gaining mar- on top of that.” munity bank subsidiaries, each of which was ket share when we expand our community Service founded as a de novo bank since December banking into new towns.” 1991. Our banks are located in high-income Unique “Wintrust Financial provides mid-level pri- retail markets and include Lake Forest Bank vate banking services, although not in the & Trust Company, Hinsdale Bank & Trust “Our area of service is the high net worth private banking motif. Some of the wealthiest Company, North Shore Community Bank & communities in the Chicago market where the customers I know, and there are a number of Trust Company in Wilmette, Libertyville Bank average household income is typically more them in the towns and communities that we & Trust Company, Barrington Bank & Trust than double that of the overall Chicago mar- serve, are just regular people that want good Company, Crystal Lake Bank & Trust Com- ket. There are a number of things that distin- service. They don’t need to go to the bank pany and Northbrook Bank & Trust Company. and receive any sort of stature Our banks also operate facilities in Lake Bluff, ‘boost’ from where they bank. Highwood, Glencoe, Winnetka, Skokie, “At Wintrust, we call What they want is good, atten- Clarendon Hills, Western Springs, tive service and that is what we Wauconda, Hoffman Estates, and McHenry, technology the great are able to give them. If a client Illinois. equalizer because for the comes in with their child to have “We also operate three non-bank compa- their change counted, not only nies, including First Insurance Funding Cor- same price or less, we can do we not charge them for that poration, which services customers through- offer the same delivery service, but we will actually al- out the country and is one of the largest com- low their child to climb over the mercial insurance premium finance companies systems that the big banks counter and put the coins in the operating in the U.S. Our second non-bank counting machine themselves, subsidiary, Wintrust Asset Management can offer.” which gives them a big thrill. Company, allows Wintrust to service custom- — EDWARD J. WEHMER “If a customer comes in with ers’ trust and investment needs at each of their dog, we will give them a our banking locations. Our third non-bank dog biscuit. Those are the types subsidiary, Tricom, Inc., provides short-term of little things that we do that accounts receivable financing and value- guish our banks from other banks that com- really differentiate us. In addition, we are in- added outsourced administrative services, pete in these communities starting with the volved in a lot of community events. In fact, such as data processing of payrolls, billing fact that we provide our customers with out- this Saturday we are having neighborhood and cash management services to temporary standing personal service. We do not charge Octoberfest to raise money for the local se- staffing service clients located throughout nuisance fees. Our affluent customers demand nior center where we bring in a live band and the U.S.” this kind of service, and when they do not serve people food all day. On other occasions, get it from their bank, they are not happy. For we will close down streets and have free com- Attracting new customers example, a customer doesn’t have to call four munity carnival for the town. “As a company, we have very good market- different places to get an answer to a ques- “This really endears ourselves to the local ing that really caters to service. We utilize tion or complete a transaction. residents so that we become an intricate part entertaining advertising that effectively po- “When a customer calls one of our banks, a of the community. Most of the people that sitions our banks as the ‘David’ versus the real person answers the phone and that per- work in our banks also live in the communi- big bank ‘Goliath’. We also offer great prod- son is usually capable of answering that ties so we are really engrained into the fabric ucts such as our Founder’s Ac- of the town. Our banks are in the old estab- count package that offers five lished downtown parts of communities or six basic banking products around Chicago as opposed to in strip cen- and services at very good ters. This puts us right in the middle of the prices—for life! That helps us central business districts in the towns that to buy some market share we service and makes it easier for us to be upfront. One of the reasons very involved in the activities of those Wintrust has been able to grow towns.” profitability is because a basic Trust and investment tenant of our operations since day one has been that we want services to be asset driven. “Each of our banks has a trust and invest- “We want to generate more ment operation through Wintrust Asset Man- earning assets than we need so agement Company. We currently have over that we know that every deposit we bring in customer’s question or resolving an issue for $400 million in assets under management. can be laid off with a positive spread. In fact, them. And if not, they’ll get the answer very Wintrust Asset Management Company was we currently sell $60 to $75 million of com- quickly. You have to remember that Illinois formed about three years ago and offers full mercial loans every quarter out of our pre- was one of the last states to modernize their trust services, investment accounts and mium finance subsidiary. That assures us that branching laws and when it did, a number of money management services. We believe that our growth will be profitable going forward. great community banks were taken over and the larger trust/investment institutions are We have a number of specialty asset genera- institutionalized. People remembered the great doing the same thing on the money manage- tion niches. Our largest is First Insurance service they got from the community banks ment side as they did on the bank side, mean- ing that they really alienate their customers agency’s employees, bill the end employer but fortunately because of the diversification by utilizing a ‘one size fits all’ approach. for the employees and make a spread in the of our asset portfolio and income stream, that “This results in a model portfolio that they middle as well as fee income for the services shouldn’t be too much of an issue for us. We try to run efficiently by doing the same allo- we perform.” have not seen any cracks in our credit quality cations for all of their accounts. In our wealthy to date. Obviously lower rates help people communities this usually doesn’t work. For Running a successful and businesses make their payments in a example, we may have a customer that has community bank timely manner so that helps us from a credit had a low basis stock in their family for a long “Our recipe for running a successful com- quality standpoint.” time that they want to sell over ten years. Our munity bank is pretty simple. We use a few Loan loss reserves professional staff will work with that customer basic ingredients, like providing the best cus- individually to meet his or her specific needs. tomer service possible, with fewer fees, and “On a loan loss basis, we operate near 25 Wintrust Asset Management clients receive innovative products customized to meet the basis points of charge-offs, which is just right individualized trust and investment services local community needs. We believe in local around the industry average. With regard to and our special brand of attentive personal management of our community banks. This non-performing loans, our peer group oper- service.” allows us to make decisions locally that are in ates at about 50 basis points and we operate Market share the best interest of that bank and its custom- in the same area. Even though we started our ers. We also like to staff these banks with banks from scratch with zero reserves and we “On the banking side, we have a number local experienced bankers who become very have had great growth, we have been able to one or two market share in most of the towns involved in their community. That’s our recipe build our reserve up rather nicely to about 70 that we are in, which is amazing given that for a successful community bank. basis points of our overall portfolio. the average age of our locations is less than “However, our recipe for a successful com- “I know that the industry is over 1% but five years. We have been able to penetrate munity bank holding company has a few more many of our peers have had 50 to 60 years to these wealthy markets, launch a bank from ingredients. A good community bank can lend build their loan reserves whereas we have scratch with no customers, no deposits and itself up to about 60% of its optimal capacity only had ten years. We are dedicated to build- no loans, and in a few short years grow these by doing mortgage loans, small commercial ing up our reserves, but right now, based on banks to a leadership position in the market.” loans, etc. From day one, we decided that we our historical record, we have three or four Products and services needed asset niches such as the premium fi- years of charge-offs in reserve. All in all, our nance company and other areas of expertise charge-offs and non-performing loans are “Each of our seven chartered banks oper- that would generate earning assets. In that pretty much at or below peer group and our ates as its own little holding company. They way, our people would not have to go out credit quality has been pretty good.” have the opportunity to branch into desig- and stretch for quality because we would pro- Return on assets nated areas, and we think that each of these vide them with assets to optimize their bal- banks has the potential to grow to $1 billion ance sheets from these other businesses. “Right now our return on assets is about 80 in assets. Each bank offers their own versions “We actually generate more assets than we basis points, but you have to view that in of banking products and services, custom- need and therefore our growth going forward terms of how old our company and opera- ized to meet the needs of their tions are. We have had one, three and five- particular markets. We also have year compounded growth rates of 30% to 50% aggressively introduced in terms of revenues, assets and deposits so internet services such as on-line you can see that we have had very consis- banking, bill pay and other web- tent growth of our vital statistics. Our return based products and services. on assets is 80 basis points and our return on “We also have our trust and equity is 15% to 16%. Because of our de novo investment company as well as strategy that requires investing in a bank be- a premium finance subsidiary, fore it grows and matures into a profitable First Insurance Funding Corpo- operation, we are not anywhere near our op- ration, First Insurance is located timum return on assets. in Northbrook, Illinois and “Our oldest bank, Lake Forest Bank & Trust, makes loans to business in all is a $650 million bank and we make 170 basis 50 that need to fund their busi- points on assets, or 1.70%, at that bank. Our ness insurance. These loans are secured by always comes on profitably. These extra loans next oldest bank, the Hinsdale Bank makes the unearned premiums from the insurance and the income they provide affords us the about 120 basis points on assets, and our carriers. If a loan is delinquent, the returned ability to be more aggressive with customer next oldest bank, North Shore Bank makes premium then comes to us to pay off the loan. acquisition and deposit market share growth about 110 basis points or 1.1%. Every year We have 2,500 independent insurance agents than the typical community bank that even- these banks grow $50 to $60 million and im- around the country that direct business to tually cannot find enough loans to profitably prove their performance by 10 to 20 basis us. This is also a regulated industry and each continue its growth.” points. Our youngest banks is losing money state has its own laws as it relates to premium at this point, but they will keep moving up finance companies so the barriers to entry Fluctuations in the prime this trend line toward 175 to 200 basis points are significant.” rate on assets. Over time and we will be able to push that overall return on assets up to lev- Tricom, Inc. “We haven’t seen rate changes of this mag- els that will be terrific.” “Tricom, Inc. provides short-term accounts nitude in this period of time in many years, receivable financing and value-added and the last time we did see such drastic rate Internet banking services outsourced administrative services such as changes, they were moving upwards. We are “At Wintrust, we call technology the great data processing of payroll, billing and cash down four or five points in a very short pe- equalizer because for the same price or less, management services to temporary staffing riod of time, which doesn’t hurt us from a we can offer the same delivery systems that service clients throughout the U.S. There is loan generation standpoint, but it does de- the big banks can offer. That said, in order for some float generated in the temporary help press our margins. We still get the spread, us to compete, we have to offer better prod- business since the temporary staffing agency but with a retail bank, the spreads narrow ucts with the same and better delivery mecha- has to pay its employees every week, but bills because it is almost impossible to bring the nisms. Because of that, we invested very the company that is utilizing that employee deposit end down fast enough to keep up smartly in our Internet banking system and on a monthly basis. We provide a loan wherein with the asset rates coming down. we think that we have a great system. Our we actually pay the temporary staffing “Our margin is getting squeezed just a bit, customers have the ability to go online to pay bills, look up accounts or transfer money. investment management and trust sides of own board of directors. Two or three people In fact, we try to stay ahead of the game with the business as well as get into the brokerage from each of the bank boards also sit on the regard to our Internet system and are actu- side of the business.” holding company’s board of directors to make ally wireless right now, which not many of sure that we don’t get away from what we set the big banks can say. A customer can actu- Acquisitions out to do, which is to bring good service to ally get online with us on a wireless basis “We continue to be approached by the local communities and be an intricate part from a Palm Pilot. Chicagoland community banks and invest- of those local communities. “We also offer full telephone banking and ment companies with the goal of merging their “Our Wintrust board is a very good check are just about to introduce voice-activated business into the Wintrust family. Our man- and balance for the operation that we are run- telephone banking. We try to stay ahead on agement team and Board of Directors are dedi- ning because every decision that we make is the technology and delivery side because we cated to being disciplined with regard to pric- critical here. For example the decision to ex- have to give people what they want or they ing potential acquisitions to be accretive to pand into Northbrook one year ago was a will give their business to someone else. earnings per share. To date we have elected critical decision that required a lot of capital People want to know their account represen- not to pursue any of these merger candidates. and human resources and in doing so we tative and to have a personal relationship with We will keep evaluating potential acquisi- hope to achieve the same success that we that person. We have been able to attract a tions. We also continue to look to add earn- have in the past when we have opened new lot of smart people to join us because of our ing asset niche or fee generation businesses, banks.” entrepreneurial spirit and the fact that nobody either as de novo operations or through ac- else is out there building a business like we quisition. This type of growth will add diver- Attracting potential are, which is from scratch. We have a great sified earning asset and fee-based business investors technology group. And in fact, I would put it niches to supplement Wintrust’s banking rev- “Wintrust has had growth rates 30% to 50% up against anybody’s.” enues.” compounded and we believe that we should The future Management and employee be able to sustain above average growth rates in the future as we continue to open new “Our youngest bank, which is in ownership banks and new locations, as our younger Northbrook, Illinois, has grown faster than “The board of directors, management team banks reach maturity and as we continue to any of the other Wintrust banks that we have and employees of Wintrust own over 30% of grow earnings. We continue to grow by $50 introduced over the last ten years. This tells the company. In fact, the majority of our se- to $60 million per bank per year and I believe me that people still want what we have to nior management team’s net worth is tied up that as long as we execute our plan, we can offer and we are just getting better and better in this enterprise. We have built this enter- maintain the growth rates that we have expe- at introducing de novo community banks. In prise from nothing and the fact that we put rienced in the past. This whole enterprise has addition there are still markets out there that out own money into it meant that we had to gone a lot further than any of us ever thought have the high net worth demographics that have faith in ourselves. Our feeling was that it was going to go and we are all mentally and we have not penetrated yet. We still need to we would rather bet on ourselves than on fiscally tied to the success of this enterprise. complete our branch network of our existing other people. “We like to say that we are only one-third banks. We accomplish this expansion while “Also, we offer our employees discount the way up a growing mountain and that we balancing growth versus earnings so that we stock purchase plans and push stock options have lots of open field in front of us that is don’t get too far ahead of ourselves. We are all the way down to our tellers because we going to enable us to grow and really be some- going to continue to do what we have been want our employees to think like owners and thing down the road. No one else has done doing because it is working and providing to be owners. We all have a great sense of what we have done. We have grown to be the great returns for us. pride of ownership because we started this 130th biggest bank holding company in the “Going forward, there will be a significant from nothing. We have our personal capital country in only ten years, from nothing. In emphasis on the money management and bro- as well as our professional capital tied up in addition, we pay a dividend to our sharehold- kerage businesses, which we intend to grow this enterprise and its success.” ers and are committed to making this some- organically through our existing distribution thing really special going forward. We have network and we may also do some acquisi- Most important decision the infrastructure in place to do that and sim- tions in that area. This is a bulk game and it is ply have to keep going forward with the same harder to build those assets organically as “In the past year, the major decision was to simply stay the course and execute our stra- energy that we have had in the past to con- the rate of growth isn’t what it is on the bank- tinue to grow and make it happen.” ing side. This year we are looking to grow the tegic plan. Each of our seven banks has its