DBRS Confirms Wintrust Financial Corporation at A (low); Trend Stable

DBRS, Inc. (DBRS) confirmed the ratings of Wintrust Financial Corporation (Wintrust or the Company), including the Company’s Long-Term Issuer Rating of A (low). At the same time, DBRS confirmed the ratings of its banking subsidiaries, including its primary banking subsidiary, Wintrust Bank (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is ‘A’, while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
The ratings reflect Wintrust’s entrenched banking franchise in the Chicagoland market. In addition, the ratings also consider the Company’s conservative and proactive credit culture that has resulted in consistent through-the-cycle profitability. At the same time, Wintrust’s average, albeit improving profitability metrics, and comparatively limited geographic diversification are also factored into the ratings.

RATING DRIVERS
DBRS views Wintrust as well placed within its rating category. Over the longer term, sustained above peer profitability and further revenue diversification, while maintaining sound balance sheet fundamentals, could lead to positive rating actions. Conversely, sustained deterioration in asset quality, or a material decline in capital levels, could lead to negative rating pressure.

RATING RATIONALE
With $32 billion in assets, Wintrust is the second largest commercial bank headquartered in Chicago. The Company has emerged as the leading local alternative to the large banks in the highly competitive Chicagoland market, despite its relatively brief operating history. Wintrust’s rapid growth has been supported by its community bank operating model, considerable number of small bank acquisitions (typically Chicago-based community banks with less than $1 billion in assets) and organic branch strategy.

The Company’s deliberate pause on expansion just prior to the financial crisis allowed Wintrust the opportunity to execute on several strategic transactions, including the significant expansion of its premium finance business, which DBRS views as providing revenue and geographic diversity and a distinguishing characteristic relative to peers. In aggregate, premium finance receivables comprise 31% of the loan portfolio. Additionally, the premium finance book is diversified throughout the U.S. and Canada, is well collateralized and has an exceptionally low loss history.

The remainder of the loan portfolio is predominately commercial (33% C&I and 29% CRE) and heavily exposed to the Chicago and Milwaukee metro areas. Although geographically concentrated, Wintrust’s sound through-the-cycle credit performance largely mitigates this concern. In addition, the Company typically resolves problem credits in a prompt fashion. Overall, Wintrust’s asset quality metrics continue to be very strong, hovering around historically low levels.

Wintrust has been consistently profitable throughout its history, including during the financial crisis, although return metrics had historically trailed similarly-rated banks. In recent periods, however, results have improved to peer median levels (ROA of 1.18% in 2018 and 1.16% in 1Q19), as the Company has significantly benefited from its highly asset-sensitive balance sheet and continued growth in earning assets. Going forward, Wintrust plans to moderate its asset sensitivity given the current interest rate outlook, although previous rate hikes are expected to benefit earnings throughout 2019. DBRS notes that Wintrust generates a considerable amount of fee income (typically about 30% of total revenue) for a bank of its size.

Wintrust’s funding and liquidity profile remains solid. DBRS considers the Company’s deposit base to be defensible even with a comparatively high amount of CDs, as the mix has improved considerably over the past decade, reflecting the impact of its acquisitions and organic growth. Consistent with industry trends, Wintrust’s deposit base has experienced a shift from noninterest-bearing to interest-bearing balances in recent quarters, although deposit betas have abated.

Wintrust has historically returned modest amounts of capital to shareholders, preserving it for acquisitions and organic growth. The Company’s tangible common equity (TCE) ratio was a sound 8.3% at the end of 1Q19.

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.

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

The applicable methodology is Global Methodology for Rating Banks and Banking Organisations (July 2018), 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.

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

For more information on this credit or on this industry, visit www.dbrs.com.

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