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 confirmed at Stable. 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 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 and insurance finance businesses. The ratings also capture Wintrust’s conservative credit culture, which has demonstrated resilience through credit cycles and strong pre-provision earnings. The ratings also consider the Company’s relatively limited geographic diversification and the increasing competitive pressures in its community banking business regions.
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.
Franchise Combined Building Block (BB) Assessment: Good/Moderate
With $50 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 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 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 30% of revenues derived from noninterest income. The Company’s relatively broad product range has supported resilient earnings performance through credit cycles, including the recent recession related to the pandemic. For 1Q22, Wintrust reported a return on assets of 1.04%. Results included an expanding NIM on lower deposit costs and increased deployment of cash assets into securities as long-term interest rates rose. Additionally, loans grew 9% from the prior year quarter, excluding PPP loans. We note that Wintrust has among the most interest rate sensitive balance sheets in our coverage universe, with about 80% of loans maturing or repricing in one year or less and is poised to benefit from the current rising rate environment.
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 35% 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.
Funding and Liquidity Combined Building Block (BB) Assessment: Strong/Good
Wintrust’s funding and liquidity profile remains solid. DBRS Morningstar considers the Company’s deposit base to be defensible, with demonstrated stability in market share in the past two years despite meaningful increases in competition for deposits in its service areas. While Wintrust’s CD level is relatively high, the overall deposit mix has demonstrated sustained improvement, benefiting from acquisitions and organic growth. Consistent with industry trends, deposits continue to grow at rates above historical trends, reflecting high levels of liquidity in the system.
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, but its 8.6% CET1 ratio at the end of 1Q22 resides at the low end of the peer group. While this is mitigated by solid core loan loss allowance levels and the bank’s strong track record of earnings generation, higher retained capital would better cushion the bank’s growing balance sheet in light of expected normalization of credit loss trends.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/397916
There were no Environmental, Social, or Governance Factors that had a significant effect on the credit analysis.
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is Global Methodology for Rating Banks and Banking Organisations (July 19, 2021): https://www.dbrsmorningstar.com/research/398692/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 (May 17, 2022): https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. 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
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