Sunday, March 11, 2018

A current AIM Program Small Cap Equity Holding: Wintrust Financial Corporation (WTFC) by: Nathaniel D' Amato. "Acquire & Conquer"

         Wintrust Financial Corporation (WTFC, $86.42): “Acquire & Conquer

By: Nathaniel D’Amato, 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.


Wintrust Financial Corporation (NASDAQ:WTFC) is engaged in wealth management, community banking, and specialty financing. Wintrust Financial has branch locations primarily concentrated in northern Illinois but also expand into southern Wisconsin and parts of northwest Indiana.

• Strong 2017 4Q performance with a record setting net income of $68.8 million

• Wintrust Financial Corp. acquired Veterans First Mortgage January 2018

• Net-charge-offs decreased to 7 basis points

• Total deposits have increased to 23.1 billion

• Quarterly cash dividend increased to $0.19 per share

Key points:

Wintrust Financial Corp. is on track for strong year following its 2017 performance. Net income reached $248 million on December 31, 2017 growing by 25% year-over-year thanks to increasing interest margins and strong loan growth. Fourth quarter NIM results of 3.49% beat street analyst estimates by 5 basis points exceeding expectations even in a rate rising environment that is optimistic on margins.

WTFC continues the momentum into 2018 by closing a deal in January to acquire Veterans First Mortgage. The purchase will allow WTFC to expand their loan market into complex VA lending. Veterans First originated more than $800 million in loans in 2017. The acquisition also includes approximately 9,000 loans from Veterans First – totaling an estimated balance of $1.4 billion of unpaid loans.

WTFC is well-positioned for loan growth with total deposits reaching 23.1 billion – growing 24% since Dec. ’15. The increasing loan volume has not affected quality, as net-charge-offs are on the decline at .07% in Q4 2017. WTFC continues to remain conservative with their allowance for loan losses, even with improving loan quality. Allowance for loan losses remained 153% over total non-performing loans.

The bank’s board of directors agreed to raise the quarterly dividend from $0.14 to $0.19 per share effective as of 02-07-18. WTFC is evidently optimistic about future cash flows with wage expenses also expected to increase after the bank announced that they will be raising their minimum hourly wage for all employees to $15. 

What has the stock done lately?

Wintrust Financial recently has shown some volatility in price; jumping up and down ~5% since the start of 2018. The volatility experienced in January was likely caused by investors responding to the recent acquisition of Veterans First Mortgage followed by the 4Q earnings report.

Past Year Performance: 2017 was a very strong year for WTFC. Expansion of their loan market and NIM resulted in a record setting growth of interest income at 16.5% compare to the 5-year historical average growth rate of 8.7%. This drove the stock price up 14% over the past year.

My Takeaway
Wintrust Financial long-term strategy of expanding through safe acquisitions has been very effective. Since 2012, WTFC has succeeded in acquiring over 20 separate entities and doesn’t show any signs of slowing down this method of expansion. This strategy for external growth will continue to work as long as WTFC is careful to maintain their strong credit quality.