DBRS Morningstar Confirms Wintrust Financial Corp. at A (low); Trend revised to Negative from Stable

DBRS, Inc. (DBRS Morningstar) 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 Morningstar confirmed the ratings of its banking subsidiaries, including its primary banking subsidiary, Wintrust Bank, N.A. (the Bank). The trend for all long-term ratings has been revised to Negative from Stable. All short-term ratings have been confirmed at R-1 (low) with a Stable trend. 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 Negative trend reflects the wide and growing scale of the economic disruption resulting from the Coronavirus Disease (COVID-19) pandemic, which is already pressuring Wintrust’s earnings and asset quality and will likely continue to have a significant impact in future quarters. Nevertheless, unprecedented support measures have been put in place through monetary and fiscal stimulus, as well as relaxed criteria from regulators, which in our view, could help mitigate some of the negative impact of the crisis. However, should the crisis be prolonged, or if the recovery is muted, additional ratings pressure is likely.

The confirmation of Wintrust’s ratings reflects its growing banking franchise within the Chicago and Milwaukee metro areas. The ratings also consider the Company’s solid balance sheet fundamentals, conservative credit culture and strong pre-provision earnings. Wintrust’s limited geographic diversification compared to other highly rated banks is also factored into the ratings.

RATING DRIVERS
A prolonged adverse economic downturn resulting in sustained asset quality deterioration, or prolonged negative operating leverage, could result in a ratings downgrade. Given the Negative trend, an upgrade of the ratings is not currently anticipated. However, DBRS Morningstar could revise the trend back to Stable if the economic fallout from the coronavirus pandemic is not prolonged and outsized credit losses do not materialize.

RATING RATIONALE
With $39 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.

Notably, Wintrust has a top-tier premium finance business that operates across the U.S. and Canada. In aggregate, the premium finance portfolio represents 31% of total loans, is well collateralized and has an exceptionally low loss history. The rest of the loan portfolio is predominately commercial (32% C&I and 31% CRE) and heavily exposed to the Chicago and Milwaukee metro areas. DBRS Morningstar considers this geographic concentration as less of a concern when viewed in the context of Wintrust’s favorable credit performance during the financial crisis.

Wintrust’s earnings are well diversified, especially for a Company of its size, with approximately 30% of revenues derived from noninterest income. In 2019, the Company generated another solid performance, with a return on assets of 1.07%. More recently, Wintrust’s bottom line results in 1Q20 were substantially lower, reflecting a material reserve build for potential credit losses related to the economic fallout of the coronavirus, even though income before provision and taxes was relatively in line with recent periods. Given that the downturn is still in its early stages, net charge-offs remained very low in 1Q20, but will likely increase considerably going forward.

Wintrust’s funding and liquidity profile remains solid. DBRS Morningstar considers the Company’s deposit base to be defensible even with a comparatively high amount of CDs, as the deposit mix has demonstrated sustained improvement, benefiting from acquisitions and organic growth. 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 7.6% at the end of 1Q20.

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

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations, June 11, 2019 (https://www.dbrsmorningstar.com/research/346375/global-methodology-for-rating-banks-and-banking-organisations), which can be found on our website under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar 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 Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

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

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277