Wintrust
Financial Corp. (WTFC, $61): “Winning My Trust through Growth”
By:
Brendan Hopkins, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary:
·
Wintrust Financial Corp. (WTFC) operates
as a bank holding company, which engages in community banking, specialty
financing, and wealth management services. Located in Rosemont, IL, the company
provides community-orientated, personal and commercial banking services to
customers located in the greater Chicago-land area and southern Wisconsin
metropolitan areas through its 15 wholly owned banking subsidiaries.
·
WTFC has grown substantially through
acquisitions and taking on new loans, but simultaneously have increased
expenses as they expand their business. This growth will likely result in
increased performance and profitability of the firm, but it is necessary to
recognize the increase of risks attached with it.
·
Substantial Growth from 1Q16-2Q16: Net
Income up 14% from $43.8M to $50M, Assets up 16%, and Loans up 16%.
Key
points:
Wintrust Financial is
setting itself up for continued success. Over the past few quarters, growth has
been a goal of management and they have gone out and executed. WTFC has
acquired several regional competitors, have organically grown their balance
sheet, and have begun building momentum in the field of loans. On the last day
of 1Q16, they acquired a regional bank in Foundations Bank and because of this,
they experienced the related expenses in 2Q16. This past quarter they again
made a strategic acquisition with First Community Bank of Elgin, which provides
them with 100% market overlap in this community and will allow them to
experience cost savings once the bank is converted and moved out.
Beyond these
acquisitions, Wintrust has emphasized the importance of increasing their
activity within the loan market. This past quarter they announced an agreement
to buy more than $500M of GE’s franchise loans, which will close in the middle
of 3Q16, bringing WTFC’s overall portfolio to just shy of $1B. Currently the
loan pipeline is at an all-time high and this agreement will serve as a strong
first step for Wintrust as they plan to get momentum going and increase their
activity within the loan industry. As for organic growth, WTFC has increased
their activity in the field of mortgages but recognizes the need to improve
their technology as expenses have nearly doubled over the past 3 years.
Upgrading this technology will increase short term cost but will allow for
lower overhead costs in the future with improved efficiency.
With this growth, costs
have increased substantially and most of these expenses will be realized in
upcoming quarters. To support their growth through acquisitions, the increase
in loans, and organic balance sheet growth, WTFC sold 3 million shares of
common stock, which raised $152.8M towards the end of 2Q16. Core funding growth
is strong with deposits growing, credit quality improving, and WTFC has not had
to rely on institutional money.
What
has the stock done lately?
Recently, the stock has not seen a large amount of
fluctuations or anything that requires any concern. In mid-April, the stock rocketed
in an upward trajectory and has consistently risen since this time due to
management decisions and earnings success. I believe that it is likely this
stock will continue to improve and perform strongly through the rest of 2016
and the early part of 2017.
Past
Year Performance:
Over the past year, the stock’s price has been
relatively volatile with a 52 Week Range of $37.96-56.68 and currently trading
near it’s high at $53.98. WTFC has floated around a price of $50, but had a
sharp drop in the beginning of the year and remained low throughout the first
quarter which aligns with the financial sector at this time. The P/E achieved
throughout the year has also mirrored WTFC’s segment as it has floated around
16X.
Source:
FactSet
My
Takeaway
Wintrust’s performance
over the past year is extremely impressive. They have demonstrated the
abilility to grow both organically and through acquisitions, while at the same
time continuing to maintain profitability and a strong balance sheet. The stock
was originally pitched in 2013 with a price target of $52.04 but has
since exceeded that price and will likely reach new highs, so it is recommended
that we either hold or even look into increasing our position.
The three
investment thesis’ utilized when WTFC was originally purchased are all still in
play with acquisitions already occurring and more than likely to continue,
interest rates not being hiked to anything significant, and the US economy has
not strengthened significantly (depending on who you are talking to). I believe
that WTFC will continue to expand, be profitable, and that a price near the
current $61 is not anything to shy away from.
