DBRS Morningstar Revises Wintrust Financial Corporation’s Trend to Stable; Confirms at A (low)

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, Wintrust Bank, N.A. (collectively the Banks). The trend for all long-term ratings has been revised to Stable from Negative. All short-term ratings have been confirmed at R-1 (low) with a Stable trend. The Intrinsic Assessment (IA) for the Banks 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 Banks’ IA.

KEY RATING CONSIDERATIONS
The ratings confirmation and Stable trend reflect Wintrust’s growing banking franchise within the Chicago and Milwaukee metro areas and added diversity from its scaled national insurance premium finance business. The ratings also consider the Company’s solid balance sheet fundamentals, conservative credit culture and strong pre-provision earnings. The impact of the Coronavirus Disease (COVID-19), low interest rate environment and the Company’s relatively limited geographic diversification have also been factored into the ratings.

RATING DRIVERS
Over the longer term, sustained above peer profitability and further revenue diversification, while maintaining sound balance sheet fundamentals, would lead to a ratings upgrade. Conversely, sustained deterioration in asset quality, or a material decline in capital levels, would lead to a ratings downgrade.

RATING RATIONALE
With $46 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.

Wintrust’s earnings are well diversified, especially for a Company of its size, with around 30% of revenues derived from noninterest income. Despite the challenging operating environment, the Company’s income before provisions and taxes in 2020 grew 13% from the prior year driven by record mortgage banking results and strong earning asset growth. However, net income declined 18% due to an outsized provision for credit losses, reflecting reserve building for the economic fallout from the coronavirus pandemic and the adoption of CECL. More recently, Wintrust reported record earnings in 1Q21, benefiting from a sizeable reserve release, another strong mortgage banking quarter, as well as good core loan growth.

Wintrust has a top-tier national premium finance business, which we view as a distinguishing characteristic relative to peers. Overall, the premium finance portfolio represents more than 30% of total loans, is well collateralized and has an exceptionally low loss history. The rest of the loan portfolio is predominately commercial, about evenly split between C&I and CRE, and heavily exposed to the Chicago and Milwaukee metro areas. Nonetheless, DBRS Morningstar’s concentration risk concerns are largely mitigated, considering Wintrust’s favorable credit performance during the financial crisis and current stellar asset quality metrics that provide virtually no indication of an ongoing global pandemic.

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. Consistent with industry trends, deposit growth continues to be exceptional, reflecting high levels of liquidity in the system. 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 an adequate 7.0% at the end of 1Q21.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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; Capitalization – Strong/Good.

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

The principal methodology is Global Methodology for Rating Banks and Banking Organisations (June 8, 2020): https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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