Wednesday, November 21, 2018

A Current AIM Program Small Cap Equity Holding: Wintrust Financial Corporation (WTFC) by: Ryan Dahlen. "When We Trust"

 Wintrust Financial Corporation (WTFC, $77.86): “When We Trust”
By: Ryan Dahlen, 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 (NYSE: WTFC) operates as a bank holding company, which engages in the provision of banking and financial services. It operates through the following segments: Community Banking, Specialty Finance, and Wealth Management.

• Wintrust has completed many acquisitions in recent years including Delaware Place Bank with an aggregate purchase price of $33.4 million. The transaction is not expected to have an impact on 2018 earnings per share.

• Since the financial crisis in 2008 Wintrust has increased their interest income every year. While seeing their earnings per share go from 0.76 in 2008 to 5.67 currently. During the same time period, dividends per share have grown by 97.2%.

• Wintrust’s financial performance reflects the improved profitability of our banking subsidiaries as they mature, offset by the costs of establishing and acquiring banks and opening new branch facilities.

• The company has employed certain strategies since 2013 to manage net income amid an environment characterized by low-interest rates and increased competition. In general, the company has taken a steady and measured approach to grow strategically and manage expenses.

Key points:

Within life insurance, Wintrust continues to experience increased competition and pricing pressure from the current market. Life insurance is the primary form of collateral and these loans are often secured with a letter of credit. In some cases, Wintrust Life Financial may make loans that have a partially unsecured position.

During the 3Q earnings call, Wintrust announced that the company has achieved its 11th straight quarter of record earnings, with a net income of almost $92 million ($1.57 per share). Over the same quarter last year, the pre-tax earnings were up 18% or $122 million. Wintrust’s loan to deposit ratio is down to 92%, which is not at the desired rate of 85%-90% but management has a positive outlook with their goals.

With the acquisition of Delaware Place Bank in Q2, five new branches opening, Delaware contributed to $552 million of deposit growth. Contributing to the positive outlook management has to reach their desired loan-to-deposit ratio range.

CEO, Edward Wehmer believes that this positive quarter will do well for earnings growth and balance sheet growth will benefit franchise value. The reduction in taxes and increased interest rates have helped Wintrust reach record quarters with respect to earnings. Additionally, Wintrust is also looking to cut processing costs 50% by using different outsourced companies.

What has the stock done lately?

Over the last three months, WTFC’s stock has decreased -.13% from $89.14 to $77.21. Throughout the past year, the stock has fluctuated from $72.17-$99.96. Midway through October, WTFC reached a low point of $72.29. Currently trading slightly above the 52-week low, WTFC needs a positive catalyst to reenergize the stock price.

Past Year Performance: 

Wintrust has increased in value 1.92% over the past year. With the current stock drop-off, I believe that Wintrust is a strong buy and should be looked at with a positive outlook. I hope to see the stock price bounce back from the recent volatility. 

Source: FactSet

My Takeaway:

Since Wintrust was introduced into the AIM small-cap equity fund in 2013, on the drivers of strategic acquisitions, rising interest rates, and an improving national economy the stock has done very well. In 2013 the economy was much different than today. Following the financial crisis, banks were carnivores acquiring smaller regional banks. However, Wintrust survived and has continued to thrive making acquisitions and gaining a strong market share in the Chicago-land area. Today interest rates are rising, but not from a low point. Increasing interest rates could prove to put a strain on Wintrust. An improving national economy has allowed Wintrust to also increase their revenues by allowing customers the ability to deposit and make more loans. Since then many things have changed but Wintrust is a strong company and has weathered through the worst so far. I expect the stock to continue to do well despite the recent downturn in stock price.  

Source: FactSet