DBRS Assigns A (low) Long-Term Issuer Rating to Wintrust Financial Corporation; Stable Trend

DBRS, Inc. (DBRS) assigned ratings to Wintrust Financial Corporation (Wintrust or the Company), including a Long-Term Issuer rating of A (low) and a Short-Term Issuer rating of R-1 (low). At the same time, DBRS assigned ratings to its various banking subsidiaries, including Wintrust Bank (the Bank), its primary operating entity, which has a Long-Term Issuer Rating of ‘A’. The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is ‘A’, while its Support Assessment is SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

The ratings reflect Wintrust’s entrenched banking franchise within the Chicago and Milwaukee metro areas, as well as its solid balance sheet fundamentals. Moreover, the Company’s strong risk profile has resulted in favorable asset quality through the cycle, supported by a conservative and proactive credit culture. The ratings also consider Wintrust’s track record of below-peer profitability metrics and lack of geographic diversification compared to other high-rated banks.

While fairly young at 26 years old, Wintrust has identified an underserved community banking market niche in the highly competitive Chicagoland market, which it has been able to successfully serve to fuel its growth. Importantly, Wintrust’s strategy has stayed fairly consistent and the Company has been able to replicate this successful strategy in new markets, while expanding its product offerings to better serve these customers. Providing a level of geographic and product diversity to the loan portfolio, Wintrust operates in a number of niche businesses that comprise approximately one-third of the loan portfolio. Of note, the Company has a top-tier national premium finance business, which DBRS views as a distinct characteristic relative to peers.

Wintrust’s earnings are well-diversified, especially for a Company in its size range, with approximately 30% of revenues derived from fee income sources. Wintrust has grown earnings steadily and at an impressive rate, including growth of 32% in 2016 and 24% during the first half of 2017 (1H17). In addition, the Company has been consistently profitable throughout its history, including during the financial crisis, with its returns (ROA of 0.97% in 1H17) improving to peer median levels in recent periods. DBRS notes that Wintrust remains highly asset sensitive and would benefit significantly from a further rise in interest rates.

Importantly, the Company’s asset quality remains strong, with very low levels of nonaccrual loans (0.29% of total loans in 2Q17) and net charge-offs (0.10% of average loans in 2Q17). Moreover, DBRS notes that Wintrust’s geographic concentration within the Chicago metro area is mitigated by the Company’s consistently conservative underwriting standards. Meanwhile, Wintrust’s funding and liquidity profile remains solid, underpinned by a substantial deposit base, benefiting from strong growth and mix improvement over the past decade.

DBRS views Wintrust’s capitalization as solid, especially considering the Company’s well-managed credit risk. Indeed, Wintrust’s tangible common equity (TCE) ratio was a sound 8.3% at the end of 2Q17, which improved 40 basis points from the prior quarter, benefiting from the conversion of its convertible preferred stock into common equity at the end of April.

The Grid Summary Grades for Wintrust are as follows: Franchise Strength – Strong/Good; Earnings Power – Strong/Good; Risk Profile – Strong/Good; Funding & Liquidity – Strong/Good; Capitalisation – Strong/Good.

RATING DRIVERS
Given DBRS’s view that Wintrust is in the bottom tier of its rating category, DBRS does not currently see any intermediate-term positive rating implications. Over the long-term, sustained improvement in profitability metrics and further geographic revenue diversification, while maintaining sound balance sheet fundamentals, could lead to positive rating implications. Sustained deterioration in asset quality, or if the Company’s risk appetite significantly changes, could result in negative rating pressure. Continued below-peer profitability metrics or a material decline in tangible capital levels could also lead to negative rating pressure.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: Michael McTamney, Vice President – Global FIG
Rating Committee Chair: William Schwartz, Senior Vice President – Global Credit Policy
Initial Rating Date: August 28, 2017
Last Rating Date: Not applicable as no last rating date.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.