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.
Summary:
• 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
