Thursday, December 15, 2016

An AIM Equity Holding: Wintrust Financial (WTFC) by Donnie Smiley. “A solid regional bank - WTFC should remain in the portfolio in 2017 as yield curve steepens"

Wintrust Financial Corporation (WTFC, $70.34): “Gaining the Consumers Trust - and Prospering in the Current Rate Environment”
By: Donnie Smiley, AIM student/MSAE Graduate program
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 (WTFC) offers personal and commercial banking services, wealth management services and specialty financial products. The community banking segment makes up about 75% of their bottom line. WTFC operates in Chicago and Wisconsin through 115 branches.

·         Net Income for Q3 2016 increased to $53M, up from $38M YoY

·         The company reported net interest income of $184M in Q3 2016, up from $165M YoY

·         The loan portfolio increased from $17B to $19B as a result of success in their commercial banking segment

·         WTFC pays a quarterly dividend of $0.12 per share ($0.48 on an annualized basis)

Key Points: WTFC was originally pitched in October in 2014 and has been a very solid performer for the AIM equity fund. The company has a strong financial position and as interest rates continue to rise, WTFC is best positioned to benefit relative to their peers. WTFC has the advantage of being large and they offer a wide variety of electronic banking options for both commercial and retail customers. 

In July 2016, WTFC announced they acquired First Community Financial Corporation which had about $172M in assets between two locations in Illinois. The company continues to make meaningful acquisitions which are fueling growth and contributing to net income. While the majority of the growth has been from the commercial banking segment, the specialty finance and wealth management segment both reported small increases in net income for Q3 2016. Total assets are $25B as of September 30, 2016 representing an increase of 15% YoY.

What has the stock done lately?
WTFC had a solid Q3 2016 which was highlighted by a 38% increase in net income YoY, a quarterly dividend of $0.12 and a 10% increase in net interest income YoY. The company is in a strong financial position proven by their ability to pay a dividend and their ability to continue making successful acquisitions. 

WTFC is in a fantastic position to benefit from increasing interest rates as the Fed begins to hike rates, with a consensus on December 2016. These factors all provide nice tailwinds for the company to continue its outperformance, +27.8% YTD.

Post Election Performance: Over the past 12 months WTFC has increased over 30% to $70. The stock was originally added into the AIM small cap portfolio at a price of $46.57. The Trump election has helped regional banks and Wintrust's stock price has risen to more than $70 per share. As the company continue to grow within the commercial banking segment, the stock price should continue to rise.


Source: Yahoo!Finance

My Takeaway

WTFC has had a solid 52 week period and prospects for the future remain high. I am optimistic that the stock will continue to rise as the yield curve steepens. Since WTFC was added to the portfolio, it has easily passed the original price target of $50.53 and doesn’t seem to be slowing down. I expect loan growth and acquisitions to continue, resulting in additional upside. For these reasons, I believe WTFC should remain in the AIM small cap portfolio well into 2017. 

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