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

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Wintrust Financial Corporation (Wintrust or the Company), including the Company's Long-Term Issuer Rating of A (low). At the same time, Morningstar DBRS confirmed the credit ratings of its banking subsidiaries, including Wintrust Bank, N.A. (collectively the Banks). The trend for all credit ratings is Stable. 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 CREDIT RATING CONSIDERATIONS
The credit ratings confirmation and Stable trend reflect Wintrust's well-defended market share in the Chicago and Milwaukee metro areas, the success of its community banking business model, and the added diversity of its scaled and growing national premium insurance finance businesses. The credit ratings also capture Wintrust's conservative credit culture, which has demonstrated resilience through credit cycles with strong pre-provision earnings. The credit ratings also consider the Company's relatively limited geographic diversification and large, albeit well managed, exposure to commercial real estate.

CREDIT RATING DRIVERS
Sustained above peer profitability and further revenue or geographic diversification, while maintaining sound balance sheet fundamentals, would lead to a credit ratings upgrade. Conversely, a sustained deterioration in asset quality, or significant margin pressure from higher funding costs resulting in below-peer profitability, or a material decline in capital levels, would lead to a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Good/Moderate
With $58 billion in assets, Wintrust is the second largest 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 growth has been supported by its community bank operating model, considerable number of small bank acquisitions and organic branch strategy. Most recently, the Company announced it was acquiring Macatawa Bank Corporation, a commercially-focused community bank headquartered in Holland, MI with $2.7 billion in assets at YE23. The acquisition is expected to close in 2H24 and will add a presence in contiguous markets and contribute to a better overall deposit funding profile. Wintrust has also opportunistically acquired and built a national insurance premium finance business, enhancing product and geographic diversification.

Earnings Combined Building Block (BB) Assessment: Strong/Good
Wintrust's earnings are well diversified, especially for a Company of its size, with around 25% of revenues derived from noninterest income. The Company's relatively broad product range has supported resilient earnings performance through credit cycles, including during the pandemic and the regional banking failures in 2023. For the full year 2023, Wintrust reported record net income of $623 million, which was up 22% from the prior year. In 1Q24, the Company delivered strong results, including a 1.35% return on assets, reflecting record quarterly revenue driven by strong fee income and a resilient net interest margin.

Risk Combined Building Block (BB) Assessment: Strong/Good
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 one-third 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, Morningstar DBRS's concentration risk concerns are largely mitigated, considering Wintrust's favorable credit performance during times of stress and still strong asset quality metrics.

Funding and Liquidity Combined Building Block (BB) Assessment: Good
Wintrust's funding and liquidity profile remains solid. We consider the Company's deposit base to be defensible, with demonstrated stability in market share in recent periods, despite ongoing stress and meaningful increases in competition for deposits in its service areas. While Wintrust's CD level is relatively high, the overall deposit mix has improved, benefiting from acquisitions and organic growth. Consistent with industry trends, deposits are migrating to higher interest-bearing accounts, with non-interest-bearing deposits representing 21% of total deposits at the end of 1Q24, down from 26% in the prior year quarter. Positively, deposit balances at the end of 1Q24 grew 9% from a year ago.

Capitalization Combined Building Block (BB) Assessment: Good/Moderate
Wintrust has historically returned modest amounts of capital to shareholders, preserving it for acquisitions and organic growth. We view Wintrust's capital position as solid, given its historically well-managed credit risk. Wintrust has increased its capital levels in the past year, with Common Equity Tier 1 now at 9.5%, placing it much closer to peers and well in excess of regulatory requirements.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/432481

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS 
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427029/morningstar-dbrs-publishes-updated-methodology-for-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (January 23, 2024).

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

Morningstar DBRS applied the following principal methodology: Global Methodology for Rating Banks and Banking Organizations (April 15, 2024): https://dbrs.morningstar.com/research/431155/global-methodology-for-rating-banks-and-banking-organisations.

In addition Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (January 23, 2024) in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

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

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

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

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