Regulatory Matters

Banking laws place restrictions upon the amount of dividends that can be paid to Wintrust by the banks. Based on these laws, the banks could, subject to minimum capital requirements, declare dividends to Wintrust without obtaining regulatory approval in an amount not exceeding (a) undivided profits, and (b) the amount of net income reduced by dividends paid for the current and prior two years. During 2016, 2015 and 2014, cash dividends totaling $59.0 million, $22.2 million and $77.0 million, respectively, were paid to Wintrust by the banks and other subsidiaries. As of January 1, 2017, the banks had approximately $156.9 million available to be paid as dividends to Wintrust without prior regulatory approval and without reducing their capital below the well-capitalized level.

The banks are also required by the Federal Reserve Act to maintain reserves against deposits. Reserves are held either in the form of vault cash or balances maintained with the FRB and are based on the average daily deposit balances and statutory reserve ratios prescribed by the type of deposit account. At December 31, 2016 and 2015, reserve balances of approximately $507.0 million and $412.7 million, respectively, were required to be maintained at the FRB.

The Company and the banks are subject to various regulatory capital requirements established by the federal banking agencies that take into account risk attributable to balance sheet and off-balance sheet activities. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly discretionary — actions by regulators, that if undertaken could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the banks must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the banks to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 leverage capital (as defined) to average quarterly assets (as defined). The Federal Reserve’s capital guidelines require bank holding companies to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8.0%, of which at least 4.50% must be in the form of Common Equity Tier 1 capital and 6.0% 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 4.0%. In addition the Federal Reserve continues to consider the Tier 1 leverage ratio in evaluating proposals for expansion or new activities.

As reflected in the following table, the Company met all minimum capital requirements at December 31, 2016 and 2015:



	2016		2015
Total capital to risk weighted assets	11.9	%	12.2	%
Tier 1 capital to risk weighted assets	9.7		10.0
Common Equity Tier 1 capital to risk weighted assets	8.6		8.4
Tier 1 leverage Ratio	8.9		9.1

Wintrust is designated as a financial holding company. Bank holding companies approved as financial holding companies may engage in an expanded range of activities, including the businesses conducted by its wealth management subsidiaries. As a financial holding company, Wintrust’s banks are required to maintain their capital positions at the “well-capitalized” level. As of December 31, 2016, the banks were categorized as well capitalized under the regulatory framework for prompt corrective action. The ratios required for the banks to be “well capitalized” by regulatory definition are 10.0%, 8.0%, 6.5% and 5.0% for total capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, Common Equity Tier 1 capital to risk weighted assets and Tier 1 leverage ratio, respectively.

To maintain adequate capitalization in satisfaction of these required ratios, the Company from time to time makes subordinated loans to one or more of its subsidiary banks, with a corresponding intercompany subordinated note issued by such subsidiary bank to the Company on account of each such loan. Such subordinated indebtedness was included in the Company’s calculation of its subsidiary banks’ respective Tier 2 capital. On April 29, 2016 the Company determined that the intercompany subordinated note agreements that the Company’s subsidiary national banks utilized to issue subordinated debt did not conform with the provisions of 12 CFR 5.47(f)(ii) and OCC Bulletin 2015-22, which were issued in early 2015. This ruling impacted four of the Company’s national bank subsidiaries: Beverly Bank, Schaumburg Bank, Barrington Bank and Old Plank Trail Bank. Accordingly, the Company recalculated the capitalization ratios of its affected subsidiary national banks to exclude subordinated debt that had been issued by such banks subsequent to January 1, 2015 from each bank’s respective Tier 2 capital. On April 29, 2016, each of these banks repaid to the Company 100% of their respective outstanding subordinated indebtedness, and the Company in turn infused corresponding amounts of capital surplus (Tier 1 capital) into the four banks. Following this effective substitution of Tier 1 capital for Tier 2 capital, the total capital to risk-weighted assets ratios of the four banks remained identical and each bank remained well capitalized. In May 2016 the Company determined that certain intercompany subordinated note agreements that the Company’s Illinois chartered banks utilized to issue subordinated debt did not qualify as Tier 2 capital due to a provision in the agreement which allowed the note holder to accelerate payment of principal. Accordingly, the subordinated notes issued after January 1, 2015 were not includable in Tier 2 capital. This determination impacted eight of the Company’s Illinois-chartered bank subsidiaries: Lake Forest Bank, Libertyville Bank, Northbrook Bank, St. Charles Bank, State Bank of the Lakes, Village Bank, Wheaton Bank and Wintrust Bank. Accordingly, the Company recalculated the capitalization ratios of its affected Illinois-chartered banks to exclude subordinated debt that had been issued by such banks subsequent to January 1, 2015 from each bank’s respective Tier 2 capital. In May 2016, each of these banks issued replacement subordinated note agreements in a form that the Company is advised is sufficient to qualify as Tier 2 capital. Following this issuance of replacement subordinated note agreements, the total capital to risk-weighted assets ratios of the eight banks remained identical and each bank remained well capitalized.

The Company believes that all of its banks have effectively been consistently well capitalized at all times during 2015 and 2016. As a technical matter under these revised ratio calculations, however, Beverly Bank was not considered to be well capitalized at December 31, 2015 as shown in the table below. The Company considers this to be immaterial because of the amount of subordinated indebtedness that actually was held by Beverly Bank as of that date, notwithstanding the required recalculation to exclude subordinated indebtedness from Tier 2 capital. Nonetheless, because the Credit Agreement requires that the Company’s banks maintain certain minimum regulatory capital ratios which are higher than some of the adjusted capital ratios, the Company received waivers from the Required Lenders under the Credit Agreement, waiving any technical default that may have existed on these dates.

The banks’ actual capital amounts and ratios as of December 31, 2016 and 2015 are presented in the following table:



(Dollars in thousands)	December 31, 2016								December 31, 2015
	Actual				To Be Well Capitalized by Regulatory Definition				Actual				To Be Well Capitalized by Regulatory Definition
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Lake Forest Bank	$	348,058	11.7	%	$	296,573	10.0	%	$	272,921	10.9	%	$	251,560	10.0	%
Hinsdale Bank	211,605		11.7		180,470		10.0		200,436		12.1		165,157		10.0
Wintrust Bank	441,330		11.2		393,081		10.0		364,015		10.9		334,596		10.0
Libertyville Bank	133,571		11.4		117,620		10.0		124,665		11.5		108,619		10.0
Barrington Bank	205,766		11.5		178,846		10.0		187,062		11.3		165,810		10.0
Crystal Lake Bank	93,905		11.8		79,829		10.0		89,476		11.9		75,314		10.0
Northbrook Bank	190,853		11.1		171,647		10.0		138,890		10.5		132,200		10.0
Schaumburg Bank	106,108		11.5		92,496		10.0		78,682		10.3		76,422		10.0
Village Bank	136,958		11.2		122,125		10.0		115,043		11.0		105,027		10.0
Beverly Bank	115,638		11.4		101,235		10.0		79,843		9.6		83,442		10.0
Town Bank	181,907		11.3		161,492		10.0		159,508		12.0		133,344		10.0
Wheaton Bank	130,255		11.3		114,887		10.0		103,873		10.1		102,479		10.0
State Bank of the Lakes	97,196		11.5		84,880		10.0		85,988		10.6		80,923		10.0
Old Plank Trail Bank	127,868		11.2		114,021		10.0		110,058		11.3		97,223		10.0
St. Charles Bank	109,345		12.0		91,188		10.0		79,024		10.9		72,812		10.0
Tier 1 Capital (to Risk Weighted Assets):
Lake Forest Bank	$	331,883	11.2	%	$	237,259	8.0	%	$	256,126	10.2	%	$	201,248	8.0	%
Hinsdale Bank	201,353		11.2		144,376		8.0		191,553		11.6		132,125		8.0
Wintrust Bank	375,907		9.6		314,464		8.0		311,322		9.3		267,677		8.0
Libertyville Bank	126,387		10.7		94,096		8.0		117,965		10.9		86,895		8.0
Barrington Bank	198,545		11.1		143,077		8.0		176,489		10.6		132,648		8.0
Crystal Lake Bank	89,700		11.2		63,863		8.0		85,521		11.4		60,251		8.0
Northbrook Bank	167,721		9.8		105,760		8.0		129,514		9.8		105,760		8.0
Schaumburg Bank	100,854		10.9		73,997		8.0		71,958		9.4		61,137		8.0
Village Bank	127,028		10.4		97,700		8.0		108,221		10.3		84,021		8.0
Beverly Bank	111,281		11.0		80,988		8.0		76,708		9.2		66,754		8.0
Town Bank	174,234		10.8		129,194		8.0		153,902		11.5		106,675		8.0
Wheaton Bank	112,664		9.8		91,910		8.0		96,799		9.5		81,983		8.0
State Bank of the Lakes	86,092		10.1		67,904		8.0		76,609		9.5		64,738		8.0
Old Plank Trail Bank	122,067		10.7		91,216		8.0		100,506		10.3		77,778		8.0
St. Charles Bank	104,843		11.5		72,950		8.0		75,348		10.4		58,250		8.0
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Lake Forest Bank	$	331,883	11.2	%	$	192,773	6.5	%	$	256,126	10.2	%	$	163,514	6.5	%
Hinsdale Bank	201,353		11.2		117,305		6.5		191,553		11.6		107,352		6.5
Wintrust Bank	375,907		9.6		255,502		6.5		311,322		9.3		217,488		6.5
Libertyville Bank	126,387		10.7		76,453		6.5		117,965		10.9		70,603		6.5
Barrington Bank	198,545		11.1		116,250		6.5		176,489		10.6		107,777		6.5
Crystal Lake Bank	89,700		11.2		51,889		6.5		85,521		11.4		48,954		6.5
Northbrook Bank	167,721		9.8		85,930		6.5		129,514		9.8		85,930		6.5
Schaumburg Bank	100,854		10.9		60,123		6.5		71,958		9.4		49,674		6.5
Village Bank	127,028		10.4		79,381		6.5		108,221		10.3		68,267		6.5
Beverly Bank	111,281		11.0		65,802		6.5		76,708		9.2		54,237		6.5
Town Bank	174,234		10.8		104,970		6.5		153,902		11.5		86,674		6.5
Wheaton Bank	112,664		9.8		74,677		6.5		96,799		9.5		66,611		6.5
State Bank of the Lakes	86,092		10.1		55,172		6.5		76,609		9.5		52,600		6.5
Old Plank Trail Bank	122,067		10.7		74,113		6.5		100,506		10.3		63,195		6.5
St. Charles Bank	104,843		11.5		59,272		6.5		75,348		10.4		47,328		6.5




(Dollars in thousands)	December 31, 2016								December 31, 2015
	Actual				To Be Well Capitalized by Regulatory Definition				Actual				To Be Well Capitalized by Regulatory Definition
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 Leverage Ratio:
Lake Forest Bank	$	331,883	9.6	%	$	172,160	5.0	%	$	256,126	9.1	%	$	140,541	5.0	%
Hinsdale Bank	201,353		10.1		100,006		5.0		191,553		9.9		97,023		5.0
Wintrust Bank	375,907		9.2		204,994		5.0		311,322		8.9		174,117		5.0
Libertyville Bank	126,387		9.7		65,318		5.0		117,965		9.6		61,320		5.0
Barrington Bank	198,545		10.0		99,722		5.0		176,489		9.8		90,168		5.0
Crystal Lake Bank	89,700		9.4		47,575		5.0		85,521		9.4		45,445		5.0
Northbrook Bank	167,721		8.9		94,466		5.0		129,514		8.6		75,287		5.0
Schaumburg Bank	100,854		10.0		50,643		5.0		71,958		8.4		42,707		5.0
Village Bank	127,028		9.1		69,511		5.0		108,221		9.2		58,817		5.0
Beverly Bank	111,281		10.1		55,002		5.0		76,708		8.4		45,757		5.0
Town Bank	174,234		9.5		91,558		5.0		153,902		10.3		74,452		5.0
Wheaton Bank	112,664		8.8		64,361		5.0		96,799		8.1		59,482		5.0
State Bank of the Lakes	86,092		8.7		49,446		5.0		76,609		8.3		46,001		5.0
Old Plank Trail Bank	122,067		9.3		65,293		5.0		100,506		8.5		59,383		5.0
St. Charles Bank	104,843		11.2		46,641		5.0		75,348		9.4		39,942		5.0

Wintrust’s mortgage banking division and broker/dealer subsidiary are also required to maintain minimum net worth capital requirements with various governmental agencies. The mortgage banking division’s net worth requirements are governed by the Department of Housing and Urban Development and the broker/dealer’s net worth requirements are governed by the SEC. As of December 31, 2016, these business units met their minimum net worth capital requirements.