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.
Summary
•
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.
