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) and Short-Term Issuer Rating of R-1 (low). At the same time, DBRS confirmed the ratings of 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 growing banking franchise within the Chicago and Milwaukee metro areas, as well as its strong 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, albeit improving, profitability metrics and less geographic diversification compared to other highly rated banks.

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
Wintrust has identified an underserved community banking market niche in the highly competitive Chicagoland market and has emerged as the leading local alternative to the large banks. Wintrust’s strategy has remained consistent, but also opportunistic, as it has capitalized on large bank consolidation and market dislocation, as well as expanded into new communities, resulting in rapid growth. Notably, niche businesses comprise around one-third of Wintrust’s loan portfolio, highlighted by a top tier national premium finance business, which provides a level of geographic and product diversity to the loan portfolio, while distinguishing Wintrust 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. In addition, the Company has delivered sustained earnings growth, reporting record earnings in each of the past nine quarters. Further, the Company has been consistently profitable throughout its history, including during the financial crisis, with its returns (ROA of 0.98% in 2017 and 1.18% in 1Q18) improving to peer median levels in recent periods. DBRS notes that Wintrust remains highly asset sensitive and will continue to significantly benefit from additional rate hikes.

The Company’s asset quality remains pristine, with a nonaccrual loan ratio of 0.36% and net charge-off ratio of 0.12% reported in 1Q18. While Wintrust’s commercial loan portfolio (C&I and CRE comprise about 60% of total loans) is heavily concentrated within the Chicago and Milwaukee metro areas, DBRS considers the Company’s conservative underwriting, which has produced sound through the cycle results, as a key mitigating factor. Moreover, Wintrust’s premium finance receivables, which represent nearly one-third of the total loan portfolio, are diversified throughout the U.S. and Canada, are well collateralized and have a minimal loss history.

Wintrust’s funding and liquidity profile remains solid, underpinned by a defensible deposit base. DBRS notes that the Company’s loan-to-deposit ratio for 1Q18 was 95%, residing above its targeted range of 85% to 90%. While management expects this ratio to stay in the low 90’s in the near term given the flat yield curve, the Company’s liquidity initiative is geared toward deposit growth outpacing loan growth over time, producing a loan-to-deposit ratio in line with its targeted range.

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 8.5% at the end of 1Q18. DBRS notes that the Company has historically returned modest amounts of capital to shareholders, opting to deploy capital for acquisitions and organic growth.

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 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, CFA, Vice President – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG – Global FIG
Initial Rating Date: 28 August 2017
Most Recent Rating Update: 28 August 2017

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 in connection with this rating action.

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