Sunday, December 2, 2018

A Current AIM Program Small Cap Equity Holding: Wintrust Financial Corporation (WTFC) by: James F. Oddo. "Should We Trust in Wintrust?"

Wintrust Financial Corporation (WTFC, $77.24): “Should we Trust in Wintrust?”
By: James F. Oddo, 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 in the Midwest of the United States.

• WTFC’s Net Income is up 3.9% on its $247.6 million total. This was determined by higher deposit and loan growth, sensible expense tendencies, and higher mortgage proceeds.  

• Total loans at quarter end was at $23.1 billion, up 2.3% quarterly and 10.6% year over year.

• Management stays attracted to the idea of diffidently extending the duration of the securities portfolio over a period of time; the goal is to not be aggressive without a move volatile yield curve. It can be expected for Wintrust to continue to progressively add longer duration securities at its conservative pace.
• Wintrust Financial Corporation continues to find and execute on small acquisitions.

Key points: 

Wintrust took quite a hit this October, but it remains profitable and growing in its industry. Management will continue to reiterate its goal to lower the loan to deposit ratio over the next few quarters. While this will continue to bring in higher deposit costs, they will be manageable as Wintrust continues to use this new liquidity to bring in loans or longer duration securities.

Management recapped that they are looking at numerous profitable options to decrease their processing expenses, which could be helpful for the future of their production margins. With management’s views on expenses, apart from revenue and growth associated expenses, there is no expectation for any noteworthy pressures. The net result should be a well put together fundamental position for the company over the close to medium period.

Management does have expectations for some reduction in mortgage volumes in quarter 4, but this is only due to ordinary cyclical trends and higher mortgage rates. The overhead ratio dropped to 1.53% from 1.57% in the previous quarter. Additional noteworthy trends were a 13 bps growth in earning asset yields, however this was balanced out by a 22 bps growth in deposit costs and a 17 bps growth in interest bearing liability costs. It can be expected for the quarter 4 earnings call to concentrate on their future successes and goals in loan growth, mortgage volume, and a big picture view of their acquisition growth opportunities for the coming years.

What has the stock done lately?

Year to date, Wintrust Financial Corporation is down .91% and down 13.47% on the last 3 months. This is due to the correct period this October. From December 2017 to the end of September 2018, was up 8.98%. This was due to WTFC’s excellent revenue growth in its commercial banking division. Now that we are out of the correction period, it can be expected for WTFC to get back on track with its strong growth.

Past Year Performance: 

WTFC has decreased .91% in value over the past year, but the stock should still be considered for a buy. WTFC's market valuation implies a 2 year target price of $92/share, resulting in a 16% upside.

My Takeaway: 

Wintrust Financial Corporation has a definitive presence of revenue share in the United States, sitting at 4% and growing. WTFC is worth adding to a portfolio due to the correct period this October, leaving the share price undervalued. Due to the positive trends in loan growth, as well as management’s goals for lowering processing expenses Wintrust will rally and get over the hit it took during October.