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Important disclosure information appears on the last page of this report.
Research Analysts:
Ryan Funk Matt Tolton
[email protected] [email protected]
Garrett Grimshaw Nile Ringen
[email protected] [email protected]
Executive Summary After an in-depth valuation analysis, our team has decided to
issue a “Hold” rating on Wintrust Financial Corporation. Our
conclusion is backed by our model on which we arrived at a
target price of $77 to $84. Despite outstanding recent growth,
much can be attributed to an aggressive acquisition strategy
with which they have purchased 11 other banks in the past 5
years1. Since our team foresees a period with less favorable
economic conditions compared to recent times, and because we
do not find their growth strategy sustainable, we have
forecasted growth at a much more modest rate rather than
continuing with historical growth.
Stock Performance Highlights 52-week High $99.96
52-week Low $61.53
Beta 1.16
Average Daily Volume 452,159
Share Highlights Market Capitalization 4.069B
Shares Outstanding 56,507,000
Book Value per Share $55.71
EPS (TTM) $5.86
P/E Ratio (TTM) 12.29
P/B Ratio 1.32
Dividend Yield 1.14%
Dividend Payout Ratio 12.97%
Company Performance Highlights ROA 1.07%
ROE 11.53%
Net Loans $23.7B
Total Deposits $26.1B
Financial Ratios Loan to Asset Ratio 76.24%
Net Interest Margin 3.09
Current Price $73.51
Target Price $77-$84
Investment Thesis
Investment Negatives
• More stable (or perhaps even decreasing) Fed Funds rates
will halt the growth of yield spreads for banks, thus hindering
profitability. We believe that better investments can be made in
industries that benefit from the current economic climate.
• The recent inversion of the yield curve points to less
favorable forward-looking economic conditions when
compared to recent years, making it much more difficult to
digest their recent cash-based acquisitions.
• The threat of new entrants to the financial services industry
grows as more disruptive technologies emerge. The traditional
geographic-focused growth strategy for regional banks is
vulnerable to less capital-intensive online banking platforms.
Investment Positives
• The current interest rate climate could encourage
borrowers to take out more loans, providing higher volume for
banks’ lending processes.
• The rebound of the housing market could drive growth in
real estate loans, especially as borrowers gain confidence from
the absence of rate hikes.
1-year Stock Performance vs S&P 500
(Source: Yahoo Finance)
Krause Fund Research
Spring 2019
Financial Services
Recommendation: HOLD
Wintrust Financial Corporation (WTFC)
April 11, 2019
2
U.S. Federal Funds Rate
The Fed Funds rate is one of the most frequently monitored
economic variables, and it carries a huge implication for firms
within the financial services industry due to its correlation with
other interest rates. Decreasing rates hinder performance of
banks by decreasing yield spreads, thus negatively impacting
profitability. At the same time, however, decreased rates will
encourage borrowers to take out loans at more desireable rates,
increasing lending volume for banks. Our team expects the
profit hinderance from decreased spreads to overpower volume
increases. Our conservative growth estimates are largely a
reflection of our bearishness on the Fed Funds rate and the
corresponding yield curve.
(Figure 1: CME Group)
We anticipate the Fed Funds Rate to remain relatively
stable at 2.5%. With a considerable chance of a minor
decrease. Figure 1 above illustrates public sentiment
towards probabilities of rate changes, with a 27.0%
chance of a 25bps decrease in the next 6 months2. The
Federal Open Market Committee (FOMC) signaled in its
most recent meetings that there are no plans for rate hikes
for the rest of 2019 yet has not mentioned the possibility
of a lowered target rate.
U.S. Real Gross Domestic Product (GDP)
Real GDP acts as a key inflation-adjusted indicator for the
health of the U.S. economy by measuring the total value
of goods and services produced each year. We anticipate
the GDP growth rate to decrease to approximately 2.0%
in 2019, down from an estimated 3.0% in 2018 seen in
Figure 2. Our assumption is backed by the median
estimate given by the FOMC at 2.1 percent3. A key
component of the projected slowdown is the trade war
induced by the current administration, but it is also largely
influenced by cyclical factors. We anticipate seeing continued
declines in GDP growth over the next few years, falling below
1.8% by 2022 due to cyclically deteriorating conditions.
(Figure 2: FRED)
This decline in growth will slow Wintrust in the short
term but will not negatively impact the firm severely. We
factored this tapering of GDP into our conservative CV
growth estimate of 3 percent.
Existing Home Sales
Banks take on very high exposure to real estate, and thus
any economic data regarding real estate is crucial.
Exposure is taken on in several areas, including holdings
of real estate assets, lending to customers for real estate
purchases, financing developers and construction
companies, and relying on real estate as collateral for
various types of lending4. One of the most popular real
estate market indicators is the Existing Home Sales report.
(Figure 3: Trading Economics)
After very poor results in Q4 2018, existing home sales
bounced back an impressive 11.8% last month as
illustrated by Figure 3 above. Despite the drawback, a
recent drop in mortgage rates has temporarily eased
homebuyers. We expect this metric to continue with more
Economic Analysis
3
modest growth. The latest surge in sales is a positive
indicator for the financials industry – more home
purchases means more residential mortgages, a small but
quickly growing business segment for Wintrust. With the
rebound of existing home sales, we forecasted real estate-
related balance sheet items to grow more quickly than
historic figures in the short term, but then taper off
towards the CV year.
Consumer Confidence Index (CCI)
Consumer confidence is a measure of the public’s
mood and optimism regarding the U.S. economy. The
Organization for Economic Cooperation and
Development (OECD) surveys this confidence and
creates a long-term averaged index referred to as the
CCI. Consumer spending drives transactions in the
Financial Services sector, and this survey is an
indicator of future activity.
5-Year Consumer Confidence Index
As illustrated in Figure 4, the CCI has experienced a
significant decline since the mid point of 2018. This
implies that the public is demonstrating a growing
concern for the well-being of the global economy. When
consumers are unhappy or believe the economy is in poor
condition, they are more likely to cut back on spending
and borrowing, resulting in decreased banking activity.
Going forward, this measurement serves as a precursor to
a likely decline in consumption. Among other factors, an
explaination for this confidence decline is the looming
trade war occuring across many nations. A resolution to
this trade issue will likey result in confidence to again
trend upward and transaction volume to see a significant
increase.
Yield Curve
As mentioned previously, yield rates are a significant
indicator of economic wellbeing. Historically, longer-
term loans have yielded a higher rate of return as
compared to shorter-term loans. Each of the past seven
instances in which the 10-year minus the 1-year Treasury
has been negative, there was a recession within the next
18 months.
(Figure 5, Guru Focus)
Earlier this month, the 10-year minus the 1-year Treasury
again inverted. While this is not a definite statement that
a recession is coming, it is important to note that an
economic slowdown is likely based on similar historic
yields. As incentive to invest at longer horizons decreases,
the long-term growth and health of the overall economy
becomes questionable. As a result of this inversion, our
group belives the overall health of the eomomy is
decreasing and a slowdown is now more likely than at any
point in the past 10 years.
Regional Banking Industry Description
A regional bank is a bank with a primary market in a
regional or metropolitan area that takes deposits
throughout the states in which it is located. These banks
can also provide services outside of the states in which
they are located. A typical regional bank strategy is to
expand further geographically and offer more services
than local banks. In the regional bank industry, Wintrust
is relatively small when compared to larger players such
as Capital One Financial, U.S. Bancorp and PNC
Financial.
Industry Analysis
(Figure 4: OECD)
4
Industry Activities and Revenue Streams
Regional banks can provide a variety of services to their
customers including deposits, loans, leases, mortgages
and credit cards, and even wealth management services.
The regional banking industry creates most of its income
through interest on their wide variety of loan products
ranging from real estate loans, commercial loans,
mortgage loans, credit card loans, and other personal
loans. The rest of their income comes from non-interest
income generating products such as wealth management
services, various depository services including retirement
accounts, CDs, and savings accounts. Also included is
generated fee income from services on loans. Figure 6
below breaks down the 2018 proportion of revenue in the
regional banking industry.
(Figure 6: IBISWorld)
Roughly two thirds of all industry income will be
generated in the forms on interest income on loans and
fees5. The largest percent of total revenue is driven by real
estate loans. Over the past few years, the residential real
estate sector has recovered and allowed for a greater
number of mortgages to be created, thus increasing
overall mortgage lending. The second largest portion of
overall revenue is depository services and non-interest
generating income products5. Unlike income from loans,
noninterest revenue is typically less volatile as deposit
accounts are less sensitive to interest rate hikes or drops.
This type of income is much more stable since consumers
will only remove their deposits when the consumer
confidence drops in the overall financial system and
customers become reluctant to deposit their money into
financial institutions.
Competitive Landscape
Regional banks often struggle in the battle for consumer
deposits against big banks. Firms like Goldman Sachs and
JP Morgan Chase leverage their well-established
reputation in the industry to gain the majority of market
share. However, Wintrust also faces competition from
companies that operate on a similar scale such as
Associated Bank and First Midwest Bank6.
The main competitive forces in the industry are customer-
service based, with the edge granted to firms who can
utilize technology to make customers’ banking
experience more efficient and convenient. These forces
are heightened by the fact that the consumers face
relatively low switching costs in the banking industry,
especially in retail and commercial banking. Secondly,
the financial services industry has been around for
hundreds of years, so most people who need banking
services already have them. Therefore, banks must rely on
attempts to lure clients away from competitors. This is
done through lower financing, better rates, and more
convenience for customers7. Another factor that can
influence the future of the banking industry is the
direction of technology and online banking. Many online
banks are currently providing higher interest rates on
savings and financial instruments to entice customers to
switch to their online service. Many customers find it hard
to find the difference between one financial institution
from the next so there is a level of said “inertia” that
prevents customers from making the change8.
Peer Comparisons
Our group selected the following financial institutions
based off geographic location with comparable market
share and operations. We also compared Wintrust to a
much larger national bank to analyze how well they
compete with larger institutions. For the smaller regional
banks, we chose First Midwest Bank (FMBI), Associated
Bancorp (ASB) and Fifth Third Bancorp (FITB). For the
larger institution we chose Wells Fargo (WFC). The
metrics we chose to compare across firms were Net
Interest Margin (NIM), Efficiency Ratio, Price to Book
ratio, and Return on Equity.
5.8%
33.2%
29.4%
11.5%
11.2%
8.9%
Credit card loans Real estate loans
Non-interest income Personal loans
Commerical loans Other
5
(Figure 6: FactSet)
WTFC vs. FMBI
First Midwest Bancorp is a regional bank headquartered
in Chicago, Illinois. They are currently trading at $21.74
and have approximately half the market capitalization of
Wintrust at 2.3 billion9. Compared to Wintrust, they
maintain a lower Efficiency and ROE ratio at 57.9% and
7.99% respectively. They have a slightly higher net
interest margin at 3.9%, placing them among the highest
in all the peer comparisons.
(Figure 7: FactSet)
WTFC vs. Fifth Third Bancorp
Fifth Third Bancorp is a regional banking firm
headquartered in Cincinnati, Ohio. They are currently
trading at $27.66 and have a considerably larger market
capitalization at $21.3 billion10. FITB has a lower
efficiency and NIM at 59.7 and 3.22% respectively,
however they maintain a larger ROE at 13.31%. This
could be contributed to their much larger market cap
paired with a larger geographical reach in terms of
providing services to more customers. FITB recently
acquired MB Financial who has been another major
competitor to Wintrust in the Chicagoland area11.
(Figure 8: FactSet)
WTFC vs. Associated Bancorp
Associated Bancorp is a regional bank headquartered in
Green Bay, Wisconsin. They are currently trading at
$22.81 with a $3.7 billion market capitalization12. They
are only slightly above WTFC in terms of Efficiency at
63.5%. They operate at lower NIM and ROE at 2.97% and
9.46% respectively.
(Figure 9: FactSet)
WTFC vs. Wells Fargo
Wells Fargo is one of the largest banks in America with
$1.87 trillion in assets. They are currently trading at
$46.49 with a market cap of $212B13. Our team thought it
would be beneficial to compare WTFC against a well-
established corporation to see how they measure against
larger players. The comparison in Figure 9 shows that
Wintrust leads with a higher NIM and ROE. Wells Fargo
maintains an Efficiency Ratio at 65.00% and their current
ROE is 11.11%. Wintrust, although much smaller than
Wells Fargo, offers impressive metrics when shown side
by side with a bank the size of Wells Fargo13.
0.00%
20.00%
40.00%
60.00%
80.00%
Efficieny NIM ROE
WTFC v.s FMBI
WTFC FMBI
0.00%
20.00%
40.00%
60.00%
80.00%
Efficieny NIM ROE
WTFC v.s FITB
WTFC FITB
0.00%
20.00%
40.00%
60.00%
80.00%
Efficieny NIM ROE
WTFC v.s ASB
WTFC ASB
0.00%
20.00%
40.00%
60.00%
80.00%
Efficieny NIM ROE
WTFC v.s WFC
WTFC WFC
6
Price to Book Comparisons
One of the most popular valuation metrics in the banking
industry is the is the P/B ratio, which compares market
value per share to book value per share. Banks are
notoriously difficult to evaluate, especially as they expand
into nontraditional business segments with
multidimensional risk. The book value of equity offers a
more stable relative valuation metric since complex
banking operations can produce very volatile earnings
each quarter. This ratio is widely used in banking because
most assets and liabilities on the balance sheet of a bank
are valued closely to market values. As you can see above
WTFC has the highest P/B out of all the direct
comparisons at 1.32.
(Figure 10: FactSet)
Peer Comparison Summary
Wintrust maintains solid metrics in comparison to other
banks, even to firms of much greater size. While the
above comparisons may suggest Wintrust is poised to
perform better than its peers, the uncertain health of the
financial sector leads still our team to believe that there
are better investment opportunities elsewhere.
Porters Five Forces
Threat of Substitution: High
Regional banks face fierce competition, and with minimal
switch-over costs for consumers, the threat of a substitute
is substantial. Wintrust’s strategy of local service and
relationship building helps attract and maintain loyal
customers. However, larger companies use their well-
established reputation and enormous product offerings to
persuade customers into switching.
Bargaining Power of Consumers: Medium
Most players in the regional banking industry offer the
same types of loans, and depending on the geographical
location, similar interest rates. Because consumers have
so many alternatives, banks are forced to offer very
competitive rates. Therefore, customers cannot always
use their bargaining power to get better prices. Most
banks can provide the required services that the average
customer demands, so the single consumer does not pose
a large threat. However, the availability of internet has
given banking customers slightly more bargaining power
by allowing them to compare rates among different
banks8.
Bargaining power of suppliers: Medium
The two main sources of capital for banks come in the
form of customer deposits and borrowings from other
institutions. Since customers demand incredibly
competitive rates, and since the market is already so
saturated, banks are forced to offer similar rates on
customer deposits. However, other larger institutions may
use their size to exercise bargaining power when lending
to Wintrust. The Federal Reserve sets standard rates for
inter-bank lending, but Wintrust is likely to be a price-
taker from large firms.
Threat of new entrants: High
As technology continues to develop it is becoming less of
a requirement for banks to have physical locations – users
can bank entirely online. This undermines the regional
banking model of dominating a geographic region and
allows new entrants with less capital to enter the market.
Companies like PayPal, its subsidiary Venmo, and others
are increasingly popular among millennials and pose the
potential to cut into the traditional banking industry. To
combat this substitution risk, Wintrust is working to
diversify their product offerings and expand their mobile
banking presence14.
Competitive Rivalry: High
As mentioned several times throughout this report, the
competitive environment for banks is very harsh due to
saturation and low switch-over costs. Large banks offer a
valuable reputation with the ability to reach many
geographical locations that regional banks do not. Also,
instead of competing against only banks, banks face much
more competition from various types of financial
companies such as credit unions, mortgages brokers, and
non- depository lenders5. Since banks offer similar
0
0.2
0.4
0.6
0.8
1
1.2
1.4
WTFC FMBI FITB ASB WFC
P/B
7
services, the winner is decided primarily by convenience
factor and cost effectiveness.
Summary of Porter’s Five Forces
These fives forces highlight the risk and competitiveness
of the industry. Industry leaders will be the ones who can
adapt quickly to changing technological environments
and offer their customers the most cost effective and
convenient experience. Wintrust has recognized this and
has so far been successful in keeping up with the rest of
the industry as determined by their comparable industry
metrics.
Recent Developments and Industry Trends
Over the past few years regional banking has seen growth
in assets under management resulting from an increase in
economic growth. Other factors include an increase in
consumer confidence and increased confidence in the
financial system post-crisis. With all these factors coming
together, industry revenue has grown 7.4% up to $214
billion, with overall industry growth quoted at 8.9% in
20185.
Soon, regional banking is predicted to experience slowed
growth – overall industry revenue is expected to grow at
2.9% into 20235. A large concern for the industry is how
the yield curve will affect banks and their lending
practices. In a normal economy with an upward sloping
yield curve, banks will borrow on the short term from
other banks at a low rate and then lend on the long term.
But with recent economic news and the yield curve
inversion our team believes that the future industry
growth will be lower than expectations. When the yield
curve becomes inverted, banks are forced to borrow for
more than they are lending. Borrowing at the one-month
treasury or the overnight rate and lending at the 10 year is
not ideal for revenue streams. Figure 11 displays the
treasury yield curve today, one year from today and three
years ago to the day.
Treasury Yield Curve as of 4/11/19
(Figure 11: US Department of Treasury)
Company Overview and Business Description
Wintrust Financial Corporation is a bank and financial
holding company founded in 1991 that operates in
Chicago, southern Wisconsin, and northwest Indiana.
Wintrust conducts its business through three reported
segments: community banking, wealth management, and
specialty finance services. Community banking, the
largest segment by far, offers “non-interest-bearing
deposits, non-brokered interest-bearing transaction
accounts, and savings and domestic time deposits; home
equity, consumer, and real estate loans; safe deposit
facilities; and automatic teller machine (ATM), Internet
banking, and other services” per Bloomberg. With over
150 locations, Wintrust employs nearly 4800 people15.
0
0.5
1
1.5
2
2.5
3
3.5
1 Mo 3 Mo 1 Yr 3 Yr 7 Yr 20 Yr
Today 1 Yr 3 Yr
Company Analysis:
(Figure 13: FactSet)
8
Corporate Strategy
Wintrust was created as a local alternative to the big bank
competition. Their CEO Edward J. Wehmer believes in
putting customers first and having a neighborhood bank
that is involved within the community. Wintrust prides
itself in being able to offer the resources of a large,
national institution while providing the personal attention
and customer service of a local bank. Wintrust is still in
its growth stage – it was founded only 27 years ago, and
it continues to open new branches while aggressively
acquiring smaller banks.
Map of Wintrust Locations
(Figure 14: WTFC Shareholder Letter)
Acquisition Growth
Wintrust’s aggressive acquisition strategy began a
decade ago during the 2008 financial crisis. During the
crisis, they were able to use pre-crisis capital alongside
government TARP funds to acquire several small,
troubled banks throughout Chicago at good prices. Their
acquisition strategy is still in full-force, with multiple
acquisitions in the past year including PyraMax Bank,
American Enterprise Bank, and Elektra Holding
Company, LLC1. While their recent growth rate has been
profound, our team is not convinced that their inorganic
approach, if sustained, will produce high-quality
shareholder value in the long-term.
Financial Summary
In the recent quarterly earnings announcement, Wintrust
posted record levels of net income at $343.2 million, up
33% from last year16. Interest margin was increased by
18bps from 2017, and when coupled with strong loan
and deposit growth, Wintrust generated a net interest
income increase of 16%. However, their most recent
earnings also included several losses in Q4 accredited to
market volatility and various acquisition costs. In the
most recent earnings call, the CEO stated that they will
be trying to drive down their deposit ratio to allow them
to diversify their investment portfolio in the future.
Management gave a very positive outlook on
commercial loan and commercial mortgage growth, so
we forecasted these items with higher growth.
Products and Markets
Community Banking - Through its local community
banking, Wintrust provides banking and financial
services primarily to individuals, small to medium sized
businesses, surrounding governments, and institutional
clients. With community banking they offer several types
of local services such as checking and savings accounts,
credit cards, home equity credit, building and repairing
credit, and community mortgages. With small businesses
they offer cash management, real estate advice and SBA
loans. Growth in community banking is partly fueled by
strong growth in residential real estate loans, which we
forecasted to grow at 14% year-over-year for the next 5
years before tapering in the CV year. We decided to
forecast residential real estate loans by this strong
historical average due to solid numbers in Q1 existing
home sales.
Specialty Finance - This segment of the company offers
financing of insurance premiums and equipment
(Figure 15: FactSet)
9
financing through loans and lease products. These are
offered to several types of customers in multiple
industries. They offer outsourced administrative services
and other various services. Wintrust is also involved in
commercial banking, offering commercial loans and
commercial real estate loans and services. The largest and
fastest-growing specialty finance account is commercial
loans, which we grew by 10% year over year before
slowing growth in the CV.
Wealth Management - Wintrust offers a wide range of
wealth management services, such as trust and investment
services, tax-deferred like-kind exchange services, asset
management, securities brokerage and 401(k) retirement
plan services. Within this division there has been a recent
acquisition – Wintrust acquired CDEC in December
2018, which provides qualified intermediary services for
taxpayers looking for tax-deferred exchanges16. The
company also offers customized credit, deposit services,
personal investments, and portfolio management. Wealth
management deposits have been growing by an average
of 12% each year – guidance from management suggests
strong continued growth in this area, so we forecasted
according to historical growth.
Significant Customers
Wintrust openly recognizes itself as “Chicago’s Bank” as
it first started in 1991 with the goal of being the alternative
to big banks in the region. In taking on this roll of being
“Chicago’s Bank” it is very clear that they have a large
focus on serving customers in the Chicago area, as well
as serving the community in general. Unlike many large
organizations, Wintrust takes pride in being the happy
medium for their customers, as they believe they can
provide both exemplary customer service and
professional resources for their clients. As they take pride
in their customers and community, it is important for the
company to maintain their image in the eyes of their
customers as they have a narrow focus on the people and
communities they intend to serve.
Government News and regulation
Like all financial institutions, Wintrust faces many
regulations that continuously shape the way they operate.
Wintrust is a bank holding company, requiring them to
comply with the regulations laid out in the Bank Holding
Company Act of 1956. Because of this act, the bank is
subject to regulation, supervision, and examination by the
Federal Reserve. These regulations allow Wintrust to
operate in the areas of securities and insurance considered
to be financial in nature. The bank is subject to many other
regulations including acquisitions of ownership,
regulatory reform, the Volcker rule, as well as capital and
liquidity requirements. Wintrust does not face any
irregular regulations and requirements relative to other
comparable companies.
Regulation requires banks to maintain a certain capital
requirement, commonly expressed as a ratio of equity to
total assets. Wintrust’s equity to assets ratio has
historically been in the 10% to 11%15 range, which we
were able to maintain with our growth forecasts.
Overview
After analyzing economic, industry, and company-
specific factors, we built corresponding assumptions into
various models to reach a target price of $77 to $85 per
share. The valuation techniques used included the
Discounted Cash Flow Model (DCF), Economic Profit
Model (EP), Dividend Discount Model (DDM), and
relative valuation. Our team felt that the most accurate
valuation came from the DCF and EP models due to the
depth of assumptions that we were able to include. We felt
that the final price from the DDM was less accurate due
to low dividend growth. Finally, we felt that the relative
valuation gave solid insight as to how Wintrust compares
to other companies but lacked in evidence explaining why
Wintrust trades at higher multiples.
Revenue Decomposition
The largest portion of Wintrust’s income comes in the
form of interest on fees and loans. This proportion is
expected to slightly decrease over the next 5 years.
Commercial loans make up the largest percentage of loans
held by the company. It makes up on average 30% of all
loans. We forecasted commercial loans to make up 34%
of assets by the CV year. Wintrust also generates a large
portion of profit from their wealth management and
mortgage banking divisions, both being non-interest
earning revenue. The outlook is uncertain regarding
Valuation Analysis:
10
future interest rates and how the federal funds target will
affect their lending and depository services.
CV Company Growth
In forecasting our company-wide continuing value
growth for year 2023 and beyond, we chose a rate to
match long-term economic growth. Based off our team’s
expectations for overall long-term GDP and inflation.
Backed with our data and research from the industry and
economic analysis we arrived at a CV growth rate of 3%.
This analysis allowed our team to develop a better
understanding of how Wintrust’s stock performed relative
to its CV.
CAPM Cost of Equity
Generally, the weighted average cost of capital is not used
in evaluating the financial structure of banks. Instead, we
used the Capital Asset Pricing Model (CAPM) to
determine the cost of equity. Our raw Beta was obtained
via FactSet at 1.2217. For our risk-free rate, we chose the
10-year T-Note as of April 11, 2019, listed at 2.51
percent10. We assumed an equity (market) risk premium
to be 4.20 percent. This value represents the average
implied ERP from 1960-Current and was obtained from
Damodaran18. We chose this value because we believe
there is a lot of uncertainty forthcoming relating to macro-
economic factors and overall health of the economy. We
assume this value represents the implied average historic
scenario making it the safest assumption. Using these
variables, we were able to arrive at a 7.62% cost of equity
for Wintrust.
DCF and EP Models
For our calculation of the DCF model we began with
forecasting our free cash flow to equity (FCF). This was
completed in the drivers section of the model. Free cash
flow to equity is calculated from the current year Net
Income minus the change in total assets plus the change
in total liabilities. As a part of this function we needed to
find the continuing value (CV) free cash flows and then
discount them back to their present value. The CV FCF is
a function of the forecasted CV growth, CV ROE, CV Net
Income, and cost of equity. After discounting back to time
zero and taking the sum of the discounted cash flows. We
subtracted the employee stock options and divided by the
number of shares outstanding to arrive at our intrinsic firm
value of $82.39 per share.
Our value for Economic Profit model is calculated by
multiplying the beginning total stockholder’s equity by
the product of ROE less cost of equity (Re). To arrive at
our CV economic profit, we again utilized the variables
of CV growth, ROE, Re, and Net Income. In a complex
formula and one unique to banks and insurance
companies, the CV year EP is divided by the cost of
equity. Then added to the product of CV Net Income
times the quotient of growth and ROE. The number is
grown to a forward number by dividing in a function
based mainly from the cost of equity. Only in this
calculation did we add beginning total stockholder’s
equity back to the discounted level of economic profit.
Then, we again subtracted the employee stock options and
divided by the number of outstanding shares to arrive at
an intrinsic price of $82.39 per share.
In both models we arrived at a target price of $83.78 per
share. Our team feels that this price correctly captures the
per-share value of the company given the economic and
industry outlook.
Dividend Discount Model
For our Dividend Discount Model, we utilized the
projected levels of earnings per share and forecasted
dividends per share. We calculated a future stock price
using the CV growth, ROE and cost of equity. For the
CV year we forecasted a future stock price and then
discounted that value along with all the dividends back to
time zero. The sum of those values is our intrinsic stock
price at $75.69 per share. We forecasted Wintrust to
slightly grow their dividend payout ratio over time but
keeping it consistent around the 12% range, slightly
increasing each year. Although this price is near our
overall target price, we feel the DCF analysis is a more
accurate representation of future projected stock prices.
Relative Valuation Model
In the relative valuation model, we chose competitors to
Wintrust that operate in the same geographical region and
have similar operations. The ratios that we used to
compare were the price to earnings ratio (P/E) and the
price to book ratio (P/B). Wintrust currently trades above
the industry average in both the P/E ratio and P/B ratio.
11
Our model forecasts Wintrust to finish the 2019 fiscal
year with a P/E ratio of 11.9. This is an indicator of the
potential for future growth or investors willing to pay a
premium for future earnings. Wintrust’s P/B ratio is
slightly higher than the industry average at 1.32 which
indicates that investors are willing to pay a premium to
own the company stock.
Performing the sensitivity analysis allowed our team to
test certain economic and industry variables and observe
how the stock price reacts to these changes.
Beta vs. Effective Tax Rate
Beta is one variable used in calculating CAPM or the risk
of equity. The effective tax rate is the average rate that
Wintrust is required to pay to the government for income
tax and tax expenses. These variables necessarily don’t
move in cohesion with one another, but it allows us to see
how the stock price changes in varying market conditions.
As shown in the table below, a lower beta creates a higher
stock price and vice versa. As the effective tax rate
increases, the share value decreases.
Using this data table, we can illustrate potential price
changes, and we predict that the price will stay in the
range of $73.99-$92.19 per share.
Interest on Deposits vs. Interest on Fees & Loans
The interest paid on deposits and the interest income
generated on fees and loans is how banks create most of
their value.
The interest level that is paid on deposits does not have a
large effect on the overall stock price. Currently paying
on average 1.5%. If Wintrust were to increase their
interest paid on deposits the stock price wouldn’t move
more than a dollar down.
The interest margin on fees and loans has a larger impact
on the overall stock price. With an increase of 60 basis
points the stock price rises to $88 per share.
Using this data table, we can illustrate potential price
changes, and we predict that the price will stay in the
range of $80.98-$83.51 per share.
CV Growth Rate vs. Market Risk Premium
The CV growth rate is the expected overall growth of the
company in the continuing value year of 2023. The CV
growth is a function of economy GDP and company
growth combined. Price moves only slightly with a
change of 10bps. The stock price is more sensitive to a
10bps change in market risk premium.
Using this data table, we can illustrate potential price
changes, and we predict that the price will stay in the
range of $79.621-$85.12 per share.
Cost of Equity vs. Interest bearing Deposit Growth
In this table we were able to test the overall deposit
growth forecasted into the expected time horizon against
the cost of equity which we obtained from the CAPM.
Using this data table, we can illustrate potential price
changes, and we predict that the price will stay in the
range of $78.12-$87.24 per share.
Sensitivity Analysis:
12
Risk Free Rate vs CV ROE
We tested the Risk-free rate (which we chose as the
current yield on the 10-year T-note) against the
continuing value return on equity. This analysis can show
us how changes in net income, total stockholders’ equity
and the risk-free rate could potentially impact the stock
price.
Using this data table, we can illustrate potential price
changes, and we predict that the price will stay in the
range of $79.98-$84.59 per share.
13
REFERENCES
1“Mergers & Acquisitions.” Wintrust, ir.wintrust.com/MNA.
2“CME FedWatch Tool: Countdown to FOMC.” Countdown
to FOMC, CME Group,
www.cmegroup.com/trading/interest-
rates/countdown-to-fomc.html.
3“Economic Projections of Federal Reserve Board Members and
Federal Reserve Bank Presidents under Their
Individual Assessments of Projected Appropriate
Monetary Policy, March 2019.” Board of Governors of
the Federal Reserve System, 20 Mar. 2019,
www.federalreserve.gov/monetarypolicy/fomcprojtabl2
0190320.htm.
4Hilbers, Paul, et al. “Real Estate Markets Developments and
Financial Sector Soundness.” International Monetary
Fund, Sept. 2001,
www.imf.org/external/pubs/ft/wp/2001/wp01129.pdf.
5Gambardella, Anthony. “Regional Banks in the
US.” IBISWorld, Dec. 2018,
clients1.ibisworld.com/reports/us/industry/default.aspx
?entid=6091.
6“Wintrust Competitors, Revenue, Number of Employees,
Funding and Acquisitions.” Owler: Competitive
Intelligence to Outsmart Your Competition,
www.owler.com/company/firstmidwest.
7“Porter's 5 Forces and the Banking Industry - The Banking
Industry And The Internet.” Google Sites, 30AD,
sites.google.com/site/bankingindustryandtheinternet/ho
me/5-forces.
8Pilcher, Jeffry. “Overcoming Inertia: Getting Consumers to
Switch Banks.” The Financial Brand, 7 June 2016,
thefinancialbrand.com/59129/banking-inertia-
switching-checking-accounts/.
9 “First Midwest Bancorp.” FactSet, 2019, company-
security.apps.factset.com/snapshot/FMBI-US.
10“Fifth Third Bank.” FactSet, 2019, company-
security.apps.factset.com/snapshot/FITB-US.
11“U.S. Fed Approves Acquisition of MB Financial by Fifth
Third Bancorp.” Reuters, Thomson Reuters, 6 Mar.
2019, www.reuters.com/article/mb-financial-ma-fifth-
third/u-s-fed-approves-acquisition-of-mb-financial-by-
fifth-third-bancorp-idUSL1N20T1Q8.
12“Associated Bancorp.” FactSet, 2019, company-
security.apps.factset.com/snapshot/ASB-US.
13“Wells Fargo Bank.” FactSet, 2019, company-
security.apps.factset.com/snapshot/WFC-US.
14Macheel, Tanaya. “Wintrust Endeavors to Beat the Big
Banks in Mobile.” American Banker, 8 June 2015,
www.americanbanker.com/news/wintrust-endeavors-
to-beat-the-big-banks-in-mobile.
15“Company Overview of Wintrust Financial
Corporation.” Bloomberg.com, Bloomberg,
www.bloomberg.com/research/stocks/private/snapshot.
asp?privcapId=96334.
16“Wintrust Financial Corporation”, Q4 2018,
http://ir.wintrust.com/Cache/1001247418.PDF?O=PDF
&T=&Y=&D=&FID=1001247418&iid=1024452
17Chen, James. “Net Interest Margin.” Investopedia,
Investopedia, 12 Mar. 2019,
www.investopedia.com/terms/n/netinterestmargin.asp.
18Damodaran, Aswath. “Implied ERP (Annual) from 1960 to
Current.” Damodaran Online,
pages.stern.nyu.edu/~adamodar/.
14
This report was created by students enrolled in the
Security Analysis (FIN:4250) class at the University of
Iowa. The report was originally created to offer an
internal investment recommendation for the University of
Iowa Krause Fund and its advisory board. The report also
provides potential employers and other interested parties
an example of the students’ skills, knowledge and
abilities. Members of the Krause Fund are not registered
investment advisors, brokers or officially licensed
financial professionals. The investment advice contained
in this report does not represent an offer or solicitation to
buy or sell any of the securities mentioned. Unless
otherwise noted, facts and figures included in this report
are from publicly available sources. This report is not a
complete compilation of data, and its accuracy is not
guaranteed. From time to time, the University of Iowa, its
faculty, staff, students, or the Krause Fund may hold a
financial interest in the companies mentioned in this
report.
Disclaimer
Wintrust Financial CorporationRevenue Decomposition
Fiscal Year Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023EInterest incomeInterest income & fees on loans 89.36% 90.50% 89.21% 89.01% 88.80% 88.58% 88.36% 88.36%Mortgage loans held-for-sale 1.84% 1.30% 1.34% 1.36% 1.37% 1.38% 1.40% 1.40%Interest income on interest bearing deposits with banks 0.52% 0.98% 1.46% 1.43% 1.40% 1.37% 1.34% 1.34%Interest income on federal funds sold & securities purchased under resale agreements 0.14% 7.02% 6.90% 6.90% 6.90% 6.90% 6.90% 6.90%Interest income on investment securities 9.76% 9.76% 9.76% 9.76% 9.76% 9.76% 9.76% 9.76%Interest income on available-for-sale securities 2.63% 2.41% 2.74% 2.76% 2.79% 2.81% 2.84% 2.80%Interest income on trading account securities 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Interest income on Federal Home Loan Bank & Federal Reserve Bank stock 0.53% 0.46% 0.46% 0.46% 0.47% 0.48% 0.49% 0.49%Interest income on brokerage customer receivables 0.10% 0.07% 0.06% 0.06% 0.06% 0.05% 0.05% 0.05%
Percentage of Loans HeldCommercial loans 30.39% 31.37% 32.86% 33.36% 33.83% 34.25% 34.64% 34.44%Commercial real estate loans 31.35% 30.41% 29.11% 28.47% 27.82% 27.14% 26.45% 26.30%Home equity loans 3.67% 3.06% 2.32% 1.97% 1.67% 1.41% 1.20% 1.03% Residential real estate loans 3.57% 3.85% 4.21% 4.43% 4.65% 4.88% 5.12% 5.28%
Premium finance receivables commercial 12.54% 12.17% 11.93% 11.50% 11.08% 10.66% 10.24% 9.90%
Premium finance receivables life insurance 16.30% 18.65% 19.07% 19.80% 20.53% 21.26% 21.99% 22.73%
PCI life insurance loans 1.26% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Indirect consumer loans 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Consumer & other loans 0.62% 0.50% 0.51% 0.47% 0.43% 0.39% 0.36% 0.33%
Loans, net of unearned income, excluding covered loans 99.71% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Covered loans 0.29% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Non-interest Income
Wealth management 23.36% 25.59% 25.54% 26.17% 26.58% 26.96% 27.34% 27.81%
Mortgage banking 39.56% 35.51% 38.46% 38.11% 37.42% 36.70% 35.98% 35.19%
Service charges on deposit accounts 9.59% 10.80% 10.22% 10.42% 10.54% 10.64% 10.74% 10.77%
Gain (loss) on securities 2.35% 0.01% -0.81% -0.81% -0.79% -0.78% -0.76% -0.75%
Fees from covered call options 3.52% 1.38% 0.99% 0.79% 0.62% 0.49% 0.39% 0.32%
Trading gains (losses), net 0.03% -0.26% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Operating lease income, net 5.05% 9.28% 10.80% 10.77% 10.63% 10.45% 10.25% 10.05%
Other noninterest income 16.54% 17.69% 14.80% 14.54% 15.00% 15.53% 16.06% 16.60%
Interest expense
Interest expense on deposits 64.71% 72.84% 80.89% 80.12% 79.28% 78.37% 77.39% 77.39%
Interest expense on Federal Home Loan Bank advances 12.06% 7.69% 6.03% 6.02% 6.01% 5.99% 5.96% 5.96%
Interest expense on other borrowings 4.82% 4.69% 4.18% 4.75% 5.39% 6.12% 6.94% 6.94%
Interest expense on subordinated notes 7.88% 6.22% 3.46% 3.55% 3.64% 3.72% 3.81% 3.81%
Interest expense on junior subordinated debentures 10.53% 8.55% 5.45% 5.57% 5.68% 5.79% 5.90% 5.90%
Non-interest expense
Salaries & employee benefits 59.43% 58.77% 58.11% 58.78% 58.61% 59.04% 58.85% 59.09%
Equipment 5.44% 5.24% 5.20% 5.18% 5.24% 5.39% 5.48% 5.66%
Operating lease equipment depreciation 1.95% 3.29% 3.55% 2.87% 3.29% 2.65% 3.03% 2.46%
Occupancy, net 7.47% 7.23% 7.00% 7.01% 6.93% 6.91% 6.82% 6.82%
Data processing 4.22% 4.30% 4.24% 3.95% 4.01% 4.12% 4.19% 4.32%
Advertising & marketing 3.63% 4.21% 4.98% 5.11% 5.17% 5.28% 5.34% 5.43%
Professional fees 2.99% 3.80% 3.91% 4.05% 4.13% 4.26% 4.35% 4.51%
Amortization of other intangible assets 0.70% 0.60% 0.55% 0.71% 0.72% 0.74% 0.76% 0.78%
Federal Deposit Insurance Corporation insurance 2.36% 2.22% 2.08% 2.04% 1.97% 1.93% 1.86% 1.82%
Other real estate owned expenses, net 0.76% 0.49% 0.74% 0.91% 0.93% 0.95% 0.97% 1.00%
Other noninterest expenses 11.05% 9.83% 9.63% 9.37% 8.99% 8.71% 8.36% 8.11%
Wintrust Financial CorporationBalance Sheet (Thousands)
Fiscal Year Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E AssetsCash and due from banks 267,194 277,534 392,142 340,070 406,033 373,672 227,668 176,914Federal funds sold and securities purchased under resale agreements 2,851 57 58 58 58 58 58 58Interest bearing deposits with banks 980,457 1,063,242 1,099,594 1,143,578 1,189,321 1,236,894 1,286,369 1,324,961Available for sale securities, at fair value 1,724,667 1,803,666 2,126,081 2,285,537 2,456,952 2,641,224 2,839,316 2,981,281
Held to maturity securities, at amortized cost 635,705 826,449 1,067,439 1,098,941 1,131,372 1,164,761 1,199,134 1,234,523
Trading account securities 1,989 995 1,692 1,607 1,527 1,451 1,378 1,323
Equity securities with readily determinable fair value - - 34,717 34,717 34,717 34,717 34,717 34,717
Federal Home Loan Bank and Federal Reserve Bank stock 133,494 89,989 91,354 93,181 95,045 96,946 98,885 99,873
Brokerage customer receivables 25,181 26,431 12,609 11,348 10,213 9,192 8,273 7,197
Mortgage loans held for sale 418,374 313,592 264,070 232,382 204,496 179,956 158,362 141,734
Commercial loans 6,005,422 6,787,677 7,828,538 8,611,392 9,472,531 10,419,784 11,461,762 12,264,086
Commercial real estate loans 6,196,087 6,580,618 6,933,252 7,349,247 7,790,202 8,257,614 8,753,071 9,365,786
Home equity loans 725,793 663,045 552,343 508,156 467,503 430,103 395,695 367,996
Residential real estate loans 705,221 832,120 1,002,464 1,142,809 1,302,802 1,485,195 1,693,122 1,879,365
Premium finance receivables commercial 2,478,581 2,634,565 2,841,659 2,969,534 3,103,163 3,242,805 3,388,731 3,524,280
Premium finance receivables life insurance 3,220,370 4,035,059 4,541,794 5,109,518 5,748,208 6,466,734 7,275,076 8,093,522
PCI life insurance loans 249,657 - - - - - - -
Indirect consumer loans - - - - - - - -
Consumer & other loans 122,041 107,713 120,641 120,279 119,918 119,558 119,200 119,081
Loans, net of unearned income, excluding covered loans 19,703,172 21,640,797 23,820,691 25,810,934 28,004,327 30,421,793 33,086,657 35,614,116
Covered loans 58,145 - - - - - - -
Total loans 19,761,317 21,640,797 23,820,691 25,810,934 28,004,327 30,421,793 33,086,657 35,614,116
Less: allowance for loan losses 122,291 137,905 152,770 154,866 168,026 182,531 198,520 213,685
Less: allowance for covered loan losses 1,322 - - - - - - -
Net loans 19,637,704 21,502,892 23,667,921 25,656,069 27,836,301 30,239,262 32,888,137 35,400,431
Premises & equipment, net 597,301 621,895 671,169 711,439 754,125 799,373 847,335 876,992
Lease investments, net 129,402 212,335 233,208 244,868 257,112 269,967 283,466 296,222
Accrued interest receivable & other assets 593,796 567,374 696,707 738,509 782,820 829,789 879,577 927,953
Trade date securities receivable - 90,014 263,523 270,111 276,864 283,785 290,880 297,425
Goodwill 498,587 501,884 573,141 573,141 573,141 573,141 573,141 573,141
Other intangible assets 21,851 17,621 49,424 54,366 58,444 61,512 64,280 66,851
Total Assets 25,668,553 27,915,970 31,244,849 33,489,923 36,068,541 38,795,701 41,680,975 44,441,596
Liabilities
Non interest bearing deposits 5,927,377 6,792,497 6,569,880 7,108,943 7,657,239 8,221,754 8,794,642 9,345,166
NOW accounts 2,624,442 2,315,055 2,897,133 3,102,243 3,341,106 3,593,729 3,860,998 4,116,720
Wealth management deposits 2,209,617 2,323,699 2,996,764 2,960,888 3,188,867 3,429,979 3,685,070 3,929,140
Money market deposits 4,441,811 4,515,353 5,704,866 5,775,657 6,220,365 6,690,690 7,188,283 7,664,378Savings deposits 2,180,482 2,829,373 2,665,194 3,031,966 3,265,418 3,512,318 3,773,533 4,023,462
Time certificates of deposit 4,274,903 4,407,370 5,260,841 5,501,244 5,924,823 6,372,801 6,846,753 7,300,228
Interest bearing deposits 15,731,255 16,390,850 19,524,798 21,086,782 22,773,724 24,595,622 26,563,272 28,422,701
Total Deposits 21,658,632 23,183,347 26,094,678 28,195,725 30,430,963 32,817,376 35,357,914 37,767,868
Federal Home Loan Bank advances 153,831 559,663 426,326 413,325 443,025 477,136 513,213 551,381
Notes payable 52,445 41,222 144,461 84,812 90,906 97,906 105,309 113,141
Short term borrowings 61,809 17,209 50,593 48,364 51,839 55,830 60,051 64,518
Other borrowings 18,154 49,131 47,722 41,603 44,593 48,026 51,657 55,499
Secured borrowings 130,078 158,561 151,079 159,388 168,155 177,403 187,160 196,518
Subordinated notes 138,971 139,088 139,210 140,602 142,008 143,428 144,862 144,935
Junior subordinated debentures 253,566 253,566 253,566 253,566 253,566 253,566 253,566 253,566
Accrued interest payable & other liabilities 505,450 537,244 669,644 628,736 673,913 725,802 780,681 838,741
Total liabilities 22,972,936 24,939,031 27,977,279 29,966,122 32,298,967 34,796,474 37,454,413 39,986,165
Shareholders Equity
Preferred stock series C 126,257 - - - - - - -
Preferred stock series D 125,000 125,000 125,000 125,000 125,000 125,000 125,000 125,000
Common stock 51,978 56,068 56,518 56,563 56,608 56,653 56,699 56,744
Surplus 1,365,781 1,529,035 1,557,984 1,643,946 1,762,070 1,897,744 2,041,233 2,193,042
Treasury stock, at cost (4,589) (4,986) (5,634) (5,600) (6,003) (6,465) (6,954) (7,471)
Retained earnings (accumulated deficit) 1,096,518 1,313,657 1,610,574 1,771,631 1,904,504 2,004,490 2,094,692 2,178,480
Accumulated Securities (65,328) (41,835) (76,872) (67,739) (72,606) (78,196) (84,109) (90,364)
Total Shareholders Equity 2,695,617 2,976,939 3,267,570 3,523,802 3,769,574 3,999,227 4,226,562 4,455,431
Total Liabilities and Shareholders Equity 25,668,553 27,915,970 31,244,849 33,489,923 36,068,541 38,795,701 41,680,975 44,441,596
Wintrust Financial Corporation
Income Statement
Fiscal Year Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Interest IncomeInterest income & fees on loans 726,048 856,549 1,044,502 1,083,671 1,124,308 1,166,470 1,210,213 1,246,519Mortgage loans held-for-sale 14,953 12,332 15,738 16,525 17,351 18,219 19,130 19,704Interest income on interest bearing deposits with banks 4,236 9,252 17,090 17,389 17,693 18,003 18,318 18,868Interest income on federal funds sold & securities purchased under resale agreements 4 2 1 1 1 1 1 1Interest income on investment securities 62,038 63,315 87,382 93,499 100,044 107,047 114,540 117,976Interest income on available-for-sale securities - - - - - - - -Interest income on trading account securities 75 25 43 46 50 53 57 59Interest income on Federal Home Loan Bank & Federal Reserve Bank stock 4,287 4,370 5,331 5,651 5,990 6,349 6,730 6,932Interest income on brokerage customer receivables 816 623 723 723 723 723 723 745 Total interest income 812,457 946,468 1,170,810 1,217,505 1,266,160 1,316,865 1,369,712 1,410,803Interest ExpenseInterest expense on deposits 58,409 83,326 166,553 169,051 171,587 174,161 176,773 178,187Interest expense on Federal Home Loan Bank advances 10,886 8,798 12,412 12,702 13,000 13,304 13,615 13,724Interest expense on other borrowings 4,355 5,370 8,599 10,020 11,676 13,605 15,853 15,980
Interest expense on subordinated notes 7,111 7,116 7,121 7,485 7,868 8,271 8,694 8,763
Interest expense on junior subordinated debentures 9,503 9,782 11,222 11,749 12,300 12,877 13,481 13,589Total interest expense 90,264 114,392 205,907 211,007 216,430 222,217 228,416 230,244
Net interest income 722,193 832,076 964,903 1,006,497 1,049,730 1,094,648 1,141,296 1,180,560
Provision for credit losses (34,084) (29,768) (34,832) (34,832) (34,832) (34,832) (34,832) (34,832) Net interest income after provision for credit losses 688,109 802,308 930,071 971,665 1,014,898 1,059,816 1,106,464 1,145,728
Non-interest income
Wealth management 76,018 81,766 90,963 95,966 101,244 106,813 112,687 119,167
Mortgage banking 128,743 113,472 136,990 139,730 142,524 145,375 148,282 150,803
Service charges on deposit accounts 31,210 34,513 36,404 38,224 40,135 42,142 44,249 46,130
Gain (loss) on securities 7,645 45 (2,898) (2,956) (3,015) (3,075) (3,137) (3,200)
Fees from covered call options 11,470 4,402 3,519 2,886 2,366 1,940 1,591 1,384
Trading gains (losses), net 91 (845) 11 12 13 14 14 15
Operating lease income, net 16,441 29,646 38,451 39,508 40,496 41,407 42,235 43,080
Other noninterest income 53,812 56,507 52,710 53,306 57,136 61,536 66,188 71,111
Total non-interest income 325,430 319,506 356,150 366,676 380,900 396,151 412,111 428,490
Non-interest expense
Salaries & employee benefits 405,158 430,078 480,077 506,481 534,338 563,726 594,731 621,494
Equipment 37,055 38,358 42,949 44,603 47,808 51,489 55,382 59,501
Operating lease equipment depreciation 13,259 24,107 29,305 24,770 30,038 25,327 30,638 25,834
Occupancy, net 50,912 52,920 57,814 60,416 63,134 65,975 68,944 71,702
Data processing 28,776 31,495 35,027 34,077 36,526 39,338 42,312 45,459
Advertising & marketing 24,776 30,830 41,140 44,020 47,101 50,398 53,926 57,162
Professional fees 20,411 27,835 32,306 34,890 37,682 40,696 43,952 47,468
Amortization of other intangible assets 4,789 4,401 4,571 6,157 6,599 7,107 7,645 8,213
Federal Deposit Insurance Corporation insurance 16,065 16,231 17,209 17,596 17,992 18,397 18,811 19,187
Other real estate owned expenses, net 5,187 3,593 6,120 7,878 8,444 9,094 9,781 10,509
Other noninterest expenses 75,297 71,969 79,570 80,764 81,975 83,205 84,453 85,297
Total non-interest expense 681,685 731,817 826,088 861,651 911,636 954,753 1,010,576 1,051,826
Income (loss) before taxes 331,854 389,997 460,133 476,690 484,162 501,214 507,999 522,392
Income tax expense (benefit) 124,979 132,315 116,967 121,079 122,977 127,308 129,032 132,688
Net income (loss) 206,875 257,682 343,166 355,611 361,185 373,906 378,967 389,704
Preferred stock dividends 14,513 9,778 8,200 7,216 6,350 5,588 4,918 4,524
Net income applicable to common shares 192,362 247,904 334,966 348,395 354,835 368,318 374,050 385,180
Dividends Per Share 0.48 0.56 0.76 0.79 0.82 0.85 0.89 0.92
Net income per share - basic 3.83 4.53 5.95 6.16 6.27 6.50 6.60 6.79
Shares Outstanding (in thousands) 51,881 55,965 56,408 57,494 58,585 59,677 60,769 61,860
Wintrust Financial CorporationCash Flow Statement
Fiscal Year Ending Dec. 31 2016 2017 2018Operating ActivitiesNet cash provided by / used for operating activities 309,081 401,041 377,182Net income 206,875 257,682 343,166Adjustments to reconcile net income to net cash used for / provided by operating activities 102,206 143,359 34,016Provision for credit losses 34,084 29,768 34,832Depreciation, amortization and accretion, net 53,148 63,107 67,665Deferred income tax expense / benefit 6,676 63,243 55,224Stock-based compensation expense 9,303 12,858 13,496Excess tax benefits from stock-based compensation arrangements (951) - -Net amortization / accretion of premium / discount on securities 5,646 6,098 7,411Accretion of discount on loans (35,571) (22,784) (20,318)Mortgage servicing rights fair value change, net 3,405 1,857 5,370Originations and purchases of mortgage loans held-for-sale (4,386,339) (3,692,085) (3,955,438)Proceeds from sales of mortgage loans held-for-sale 4,468,984 3,869,137 4,076,887Increase / decrease in accrued interest receivable and other assets, net (47,208) (129,595) (138,967)Bank owned life insurance, net of claims (3,594) (3,524) (5,448)Increase / decrease in accrued interest receivable and other assets, net excluding bank owned life insurance, net of claims (43,614) (126,071) (133,519)Decrease / increase in trading securities, net (1,541) 994 (697)Net increase / decrease in brokerage customer receivables 2,450 (1,250) 13,822
Gains on mortgage loans sold (112,981) (88,699) (104,998)Losses / gains on investment securities, net, and dividend reinvestment on equity securities (7,645) (45) 2,000Gains on early extinguishment of debt (3,588) - -
Loss / gain on sales of premises and equipment, net (305) (192) 64
Net gains / losses on sales and fair value adjustments of other real estate owned 1,381 639 4,664
Gain on termination of loss share agreements with the FDIC - (385) -
Decrease / increase in accrued interest payable and other liabilities, net 113,258 30,693 (27,001)
Investing Activities
Net cash used for / provided by investing activities (2,492,665) (2,303,744) (2,763,498)
Proceeds from maturities and calls of available-for-sale securities 1,234,162 284,257 352,683
Proceeds from maturities and calls of held-to-maturity securities 735,036 108,998 11,129
Proceeds from maturities of held-to-maturity securities 710 57,908 11,129
Proceeds from calls of held-to-maturity securities 734,326 51,090 -
Proceeds from sales of available-for-sale securities 2,208,010 336,539 214,196
Proceeds from sales of equity securities with readily determinable fair value - - 1,895
Proceeds from sales of equity securities without readily determinable fair value - - 1,324
Purchases of available-for-sale securities (3,398,640) (774,066) (1,095,375)
Purchases of held-to-maturity securities (486,696) (301,964) (253,129)Purchases of equity securities without readily determinable fair value - - (4,592)Purchase / redemption of Federal Home Loan Bank and Federal Reserve Bank stock, net (31,913) 43,505 (1,365)
Distributions from investments in partnerships, net - - 3,409
Net cash paid / received for acquisitions (613,619) (284) (53,871)
Proceeds from sales of other real estate owned 38,367 18,742 19,375
Proceeds received from / payments provided to the FDIC related to reimbursements on covered assets 1,207 (15,411) -
Net decrease / increase in interest bearing deposits with banks (366,591) (81,621) (15,988)
Net increase / decrease in loans (1,779,905) (1,863,245) (1,883,354)
Redemption / purchases of bank owned life insurance 1,840 - 8,438
Purchases of premises and equipment, net (33,923) (59,194) (68,273)
Financing Activities
Net cash provided by / used for financing activities 2,177,834 1,910,249 2,500,925
Increase / decrease in deposit accounts 2,769,022 1,524,848 2,547,399
Increase / decrease in other borrowings, net (3,405) (4,888) 137,257Increase / decrease in Federal Home Loan Bank advances, net (707,594) 403,000 (147,999)
Proceeds from the issuance of common stock, net 152,911 - -
Redemption of junior subordinated debentures, net (10,695) - -
Excess tax benefits from stock-based compensation arrangements 951 - -
Issuance of common shares resulting from the exercise of stock options and the employee stock purchase plan 15,828 28,229 15,903
Common stock repurchases (616) (397) (648)
Dividends paid (38,568) (40,543) (50,987)
Net increase / decrease in cash and cash equivalents (5,750) 7,546 114,609
Cash and cash equivalents at beginning of period 275,795 270,045 277,591
Cash and cash equivalents at end of period 270,045 277,591 392,200
Supplemental disclosure
Cash paid during the period for
Interest (91,390) (112,783) (197,911)
Income taxes, net (94,888) (76,812) (69,118)
Fair value of assets acquired, including cash and cash equivalents 882,865 1,022 485,368
Value ascribed to goodwill and other intangible assets 27,083 999 109,548
Fair value of liabilities assumed 259,631 738 423,234
Transfer to other real estate owned from loans 13,352 15,013 7,936
Wintrust Financial CorporationCash Flow Statement
Fiscal Year Ending Dec. 31 2019E 2020E 2021E 2022E 2023(CV)Net Income 355,611 361,185 373,906 378,967 389,704Adjustments to ReconcileFederal funds sold & securities purchased under resale agreements - - - - -Interest bearing deposits with banks (43,984) (45,743) (47,573) (49,476) (38,591)Available-for-sale securities, at fair value (159,456) (171,415) (184,271) (198,092) (141,966)Held-to-maturity securities, at amortized cost (31,502) (32,431) (33,388) (34,374) (35,388)Trading account securities 85 80 76 73 55Brokerage customer receivables 1,261 1,135 1,021 919 1,075Mortgage Loan Held for Sale 31,688 27,886 24,539 21,595 16,628Net loans (1,988,148) (2,180,232) (2,402,961) (2,648,874) (2,512,294)Accrued interest receivable & other assets (41,802) (44,311) (46,969) (49,787) (48,377)Trade date securities receivable (6,588) (6,753) (6,922) (7,095) (6,545)Total deposits 1,808,354 1,942,552 2,087,093 2,242,789 2,106,825Federal Home Loan Bank advances (13,001) 29,699 34,111 36,076 38,168Short Term Borrowings (2,229) 3,475 3,991 4,221 4,466Secured Borrowings (8,309) (8,766) (9,249) (9,757) (9,358)Net Cashflows provided by Operating (98,020) (123,639) (206,595) (312,814) (235,597)Investing Activities:Federal Home Loan Bank & Federal Reserve Bank stock (1,827) (1,864) (1,901) (1,939) (989)Premises & equipment, net (40,270) (42,686) (45,248) (47,962) (29,657)Lease investments, net (11,660) (12,243) (12,856) (13,498) (12,756)Federal Deposit Insurance Corporation indemnification asset - - - - -Goodwill - - - - -Other intangible assets (4,942) (4,077) (3,068) (2,768) (2,571)
Accrued interest payable & other liabilities (40,908) 45,177 51,889 54,878 58,060Net Cashflows provided by investing (99,608) (15,694) (11,183) (11,289) 12,087Financing Activities:Common stock 45 45 45 45 45Notes Payable (59,649) 6,094 7,000 7,403 7,832
Other borrowings (6,119) 2,989 3,433 3,631 3,842
Subordinated notes 1,392 1,406 1,420 1,434 72
Surplus 85,962 118,124 135,674 143,489 151,809
Treasury stock, at cost 34 (402) (462) (489) (517)
Retained Earnings 161,057 132,872 99,986 90,202 83,788
Accumulated Securities 9,133 (4,867) (5,590) (5,912) (6,255)
DIvidends Paid (46,300) (50,966) (56,088) (61,704) (67,860)
Net Cash provided by financing 145,556 205,296 185,417 178,099 172,755
Change in Cash (52,072) 65,962 (32,360) (146,004) (50,754)
Cash at Beg of Year 392,142 340,070 406,033 373,672 227,668
Cash at End of Year 340,070 406,033 373,672 227,668 176,914
Wintrust Financial CorporationIncome Statement
Fiscal Year Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Interest Income
Interest income & fees on loans 2.83% 3.07% 3.34% 3.24% 3.12% 3.01% 2.90% 2.80%
Mortgage loans held-for-sale 0.06% 0.04% 0.05% 0.05% 0.05% 0.05% 0.05% 0.04%
Interest income on interest bearing deposits with banks 0.02% 0.03% 0.05% 0.05% 0.05% 0.05% 0.04% 0.04%
Interest income on federal funds sold & securities purchased under resale agreements 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Interest income on investment securities 0.24% 0.23% 0.28% 0.28% 0.28% 0.28% 0.27% 0.27%
Interest income on available-for-sale securities 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Interest income on trading account securities 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Interest income on Federal Home Loan Bank & Federal Reserve Bank stock 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Interest income on brokerage customer receivables 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total interest income 3.17% 3.39% 3.75% 3.64% 3.51% 3.39% 3.29% 3.17%
Interest Expense 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Interest expense on deposits 0.23% 0.30% 0.53% 0.50% 0.48% 0.45% 0.42% 0.40%
Interest expense on Federal Home Loan Bank advances 0.04% 0.03% 0.04% 0.04% 0.04% 0.03% 0.03% 0.03%
Interest expense on other borrowings 0.02% 0.02% 0.03% 0.03% 0.03% 0.04% 0.04% 0.04%
Interest expense on subordinated notes 0.03% 0.03% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Interest expense on junior subordinated debentures 0.04% 0.04% 0.04% 0.04% 0.03% 0.03% 0.03% 0.03%
Total interest expense 0.35% 0.41% 0.66% 0.63% 0.60% 0.57% 0.55% 0.52%
Net interest income 2.81% 2.98% 3.09% 3.01% 2.91% 2.82% 2.74% 2.66%
Provision for credit losses -0.13% -0.11% -0.11% -0.10% -0.10% -0.09% -0.08% -0.08%
Net interest income after provision for credit losses 2.68% 2.87% 2.98% 2.90% 2.81% 2.73% 2.65% 2.58%
Non-interest income
Wealth management 0.30% 0.29% 0.29% 0.29% 0.28% 0.28% 0.27% 0.27%
Mortgage banking 0.50% 0.41% 0.44% 0.42% 0.40% 0.37% 0.36% 0.34%
Service charges on deposit accounts 0.12% 0.12% 0.12% 0.11% 0.11% 0.11% 0.11% 0.10%
Gain (loss) on securities 0.03% 0.00% -0.01% -0.01% -0.01% -0.01% -0.01% -0.01%
Fees from covered call options 0.04% 0.02% 0.01% 0.01% 0.01% 0.01% 0.00% 0.00%
Trading gains (losses), net 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Operating lease income, net 0.06% 0.11% 0.12% 0.12% 0.11% 0.11% 0.10% 0.10%
Other noninterest income 0.21% 0.20% 0.17% 0.16% 0.16% 0.16% 0.16% 0.16%
Total non-interest income 1.27% 1.14% 1.14% 1.09% 1.06% 1.02% 0.99% 0.96%
Non-interest expense
Salaries & employee benefits 1.58% 1.54% 1.54% 1.51% 1.48% 1.45% 1.43% 1.40%
Equipment 0.14% 0.14% 0.14% 0.13% 0.13% 0.13% 0.13% 0.13%
Operating lease equipment depreciation 0.05% 0.09% 0.09% 0.07% 0.08% 0.07% 0.07% 0.06%
Occupancy, net 0.20% 0.19% 0.19% 0.18% 0.18% 0.17% 0.17% 0.16%
Data processing 0.11% 0.11% 0.11% 0.10% 0.10% 0.10% 0.10% 0.10%
Advertising & marketing 0.10% 0.11% 0.13% 0.13% 0.13% 0.13% 0.13% 0.13%
Professional fees 0.08% 0.10% 0.10% 0.10% 0.10% 0.10% 0.11% 0.11%
Amortization of other intangible assets 0.02% 0.02% 0.01% 0.02% 0.02% 0.02% 0.02% 0.02%
Federal Deposit Insurance Corporation insurance 0.06% 0.06% 0.06% 0.05% 0.05% 0.05% 0.05% 0.04%
Other real estate owned expenses, net 0.02% 0.01% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Other noninterest expenses 0.29% 0.26% 0.25% 0.24% 0.23% 0.21% 0.20% 0.19%
Total non-interest expense 2.66% 2.62% 2.64% 2.57% 2.53% 2.46% 2.42% 2.37%
Income (loss) before taxes 1.29% 1.40% 1.47% 1.42% 1.34% 1.29% 1.22% 1.18%
Income tax expense (benefit) 0.49% 0.47% 0.37% 0.36% 0.34% 0.33% 0.31% 0.30%
Net income (loss) 0.81% 0.92% 1.10% 1.06% 1.00% 0.96% 0.91% 0.88%
Preferred stock dividends 0.06% 0.04% 0.03% 0.02% 0.02% 0.01% 0.01% 0.01%
Net income applicable to common shares 0.75% 0.89% 1.07% 1.04% 0.98% 0.95% 0.90% 0.87%
Wintrust Financial CorporationBalance Sheet (Thousands)
Fiscal Year Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E AssetsCash and due from banks 1.04% 0.99% 1.26% 1.02% 1.13% 0.96% 0.55% 0.40%Federal funds sold and securities purchased under resale agreements 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Interest bearing deposits with banks 3.82% 3.81% 3.52% 3.41% 3.30% 3.19% 3.09% 2.98%Available for sale securities, at fair value 6.72% 6.46% 6.80% 6.82% 6.81% 6.81% 6.81% 6.71%
Held to maturity securities, at amortized cost 2.48% 2.96% 3.42% 3.28% 3.14% 3.00% 2.88% 2.78%
Trading account securities 0.01% 0.00% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00%
Equity securities with readily determinable fair value 0.00% 0.00% 0.11% 0.10% 0.10% 0.09% 0.08% 0.08%
Federal Home Loan Bank and Federal Reserve Bank stock 0.52% 0.32% 0.29% 0.28% 0.26% 0.25% 0.24% 0.22%
Brokerage customer receivables 0.10% 0.09% 0.04% 0.03% 0.03% 0.02% 0.02% 0.02%
Mortgage loans held for sale 1.63% 1.12% 0.85% 0.69% 0.57% 0.46% 0.38% 0.32%
Commercial loans 23.40% 24.31% 25.06% 25.71% 26.26% 26.86% 27.50% 27.60%
Commercial real estate loans 24.14% 23.57% 22.19% 21.94% 21.60% 21.28% 21.00% 21.07%
Home equity loans 2.83% 2.38% 1.77% 1.52% 1.30% 1.11% 0.95% 0.83%
Residential real estate loans 2.75% 2.98% 3.21% 3.41% 3.61% 3.83% 4.06% 4.23%
Premium finance receivables commercial 9.66% 9.44% 9.09% 8.87% 8.60% 8.36% 8.13% 7.93%
Premium finance receivables life insurance 12.55% 14.45% 14.54% 15.26% 15.94% 16.67% 17.45% 18.21%
PCI life insurance loans 0.97% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Indirect consumer loans 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Consumer & other loans 0.48% 0.39% 0.39% 0.36% 0.33% 0.31% 0.29% 0.27%
Loans, net of unearned income, excluding covered loans 76.76% 77.52% 76.24% 77.07% 77.64% 78.42% 79.38% 80.14%
Covered loans 0.23% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total loans 76.99% 77.52% 76.24% 77.07% 77.64% 78.42% 79.38% 80.14%
Less: allowance for loan losses 0.48% 0.49% 0.49% 0.46% 0.47% 0.47% 0.48% 0.48%
Less: allowance for covered loan losses 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Net loans 76.50% 77.03% 75.75% 76.61% 77.18% 77.94% 78.90% 79.66%
Premises & equipment, net 2.33% 2.23% 2.15% 2.12% 2.09% 2.06% 2.03% 1.97%
Lease investments, net 0.50% 0.76% 0.75% 0.73% 0.71% 0.70% 0.68% 0.67%
Federal Deposit Insurance Corporation indemnification asset 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Accrued interest receivable & other assets 2.31% 2.03% 2.23% 2.21% 2.17% 2.14% 2.11% 2.09%
Trade date securities receivable 0.00% 0.32% 0.84% 0.81% 0.77% 0.73% 0.70% 0.67%
Goodwill 1.94% 1.80% 1.83% 1.71% 1.59% 1.48% 1.38% 1.29%
Other intangible assets 0.09% 0.06% 0.16% 0.16% 0.16% 0.16% 0.15% 0.15%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Liabilities
Non interest bearing deposits 23.09% 24.33% 21.03% 21.23% 21.23% 21.19% 21.10% 21.03%
NOW accounts 10.22% 8.29% 9.27% 9.26% 9.26% 9.26% 9.26% 9.26%
Wealth management deposits 8.61% 8.32% 9.59% 8.84% 8.84% 8.84% 8.84% 8.84%
Money market deposits 17.30% 16.17% 18.26% 17.25% 17.25% 17.25% 17.25% 17.25%
Savings deposits 8.49% 10.14% 8.53% 9.05% 9.05% 9.05% 9.05% 9.05%
Time certificates of deposit 16.65% 15.79% 16.84% 16.43% 16.43% 16.43% 16.43% 16.43%
Interest bearing deposits 61.29% 58.71% 62.49% 62.96% 63.14% 63.40% 63.73% 63.96%
Total Deposits 84.38% 83.05% 83.52% 84.19% 84.37% 84.59% 84.83% 84.98%
Federal Home Loan Bank advances 0.60% 2.00% 1.36% 1.23% 1.23% 1.23% 1.23% 1.24%
Notes payable 0.20% 0.15% 0.46% 0.25% 0.25% 0.25% 0.25% 0.25%
Securities sold under repurchase agreements 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Short term borrowings 0.24% 0.06% 0.16% 0.14% 0.14% 0.14% 0.14% 0.15%
Other borrowings 0.07% 0.18% 0.15% 0.12% 0.12% 0.12% 0.12% 0.12%
Secured borrowings 0.51% 0.57% 0.48% 0.48% 0.47% 0.46% 0.45% 0.44%
Subordinated notes 0.54% 0.50% 0.45% 0.42% 0.39% 0.37% 0.35% 0.33%
Junior subordinated debentures 0.99% 0.91% 0.81% 0.76% 0.70% 0.65% 0.61% 0.57%
Trade date securities payable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Accrued interest payable & other liabilities 1.97% 1.92% 2.14% 1.88% 1.87% 1.87% 1.87% 1.89%
Total liabilities 89.50% 89.34% 89.54% 89.48% 89.55% 89.69% 89.86% 89.97%
Shareholders Equity 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Preferred stock series C 0.49% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Preferred stock series D 0.49% 0.45% 0.40% 0.37% 0.35% 0.32% 0.30% 0.28%
Common stock 0.20% 0.20% 0.18% 0.17% 0.16% 0.15% 0.14% 0.13%
Surplus 5.32% 5.48% 4.99% 4.91% 4.89% 4.89% 4.90% 4.93%
Treasury stock, at cost -0.02% -0.02% -0.02% -0.02% -0.02% -0.02% -0.02% -0.02%
Retained earnings (accumulated deficit) 4.27% 4.71% 5.15% 5.29% 5.28% 5.17% 5.03% 4.90%Accumulated Securities -0.25% -0.15% -0.25% -0.20% -0.20% -0.20% -0.20% -0.20%
Total Shareholders Equity 10.50% 10.66% 10.46% 10.52% 10.45% 10.31% 10.14% 10.03%
Total Liabilities and Shareholders Equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Wintrust Financial CorporationKey Management Ratios
Fiscal Year Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Liquidity RatiosLoan to Assets Ratio (Loans/Assets) 76.99% 77.52% 76.24% 77.07% 77.64% 78.42% 79.38% 80.14%Current Ratio 1.12 1.12 1.12 1.12 1.12 1.11 1.11 1.11Cash Ratio (Cash+Cash Equivalents)/ Current Liabilities 1.16% 1.11% 1.40% 1.13% 1.26% 1.07% 0.61% 0.44%
Activity or Asset-Management RatiosDeposit Growth 16.20% 7.04% 12.56% 8.05% 7.93% 7.84% 7.74% 6.82%Asset Growth 12.01% 8.76% 11.92% 7.19% 7.70% 7.56% 7.44% 6.62%
Financial Leverage RatiosDebt Ratio (Total Liabilities/Total Assets) 89% 89% 90% 89% 90% 90% 90% 90%Loan to Deposit Ratio (Net Loans/Total Deposits) 91% 93% 91% 91% 91% 92% 93% 94%Debt to Equity (ST Debt + LT Debt)/ Total Equity 8.5 8.4 8.6 8.5 8.6 8.7 8.9 9.0
Profitability RatiosROA (NI/TA) 0.75% 0.89% 1.07% 1.06% 0.98% 0.95% 0.90% 0.87%ROE 8.79% 9.56% 11.53% 10.88% 10.25% 9.92% 9.48% 9.22%Net Interest Margin (Interest Received-Interest Paid)/TA 2.81% 2.98% 3.09% 3.01% 2.91% 2.82% 2.74% 2.66%
Payout Policy RatiosPayout Ratio (Dividends Per Share/EPS) 12.53% 12.36% 12.77% 12.83% 13.11% 13.15% 13.48% 13.62%
Wintrust Financial CorporationValue Driver Estimation
Fiscal Year Ending Dec. 31 2016 2017 2018 2019E 2020E 2021E 2022E 2023ENet Income $ 206,875.00 $ 257,682.00 $ 343,166.00 $ 355,610.86 $ 361,185.17 $ 373,905.70 $ 378,967.15 $ 389,704.29 Beg. Total Stock Holders Equity 2,352,274.00$ 2,695,617.00$ 2,976,939.00$ 3,267,570.00$ 3,523,801.60$ 3,769,573.84$ 3,999,226.65$ 4,226,561.92$ Return on Equity 8.79% 9.56% 11.53% 10.88% 10.25% 9.92% 9.48% 9.22%
Net Income $ 206,875.00 $ 257,682.00 $ 343,166.00 $ 355,610.86 $ 361,185.17 $ 373,905.70 $ 378,967.15 $ 389,704.29 Less Change in TA 2,751,387.00$ 2,247,417.00$ 3,328,879.00$ 2,245,074.19$ 2,578,617.93$ 2,727,159.44$ 2,885,274.58$ 2,760,621.21$ Plus Change in TL $ 2,408,044.00 $ 1,966,095.00 $ 3,038,248.00 $ 1,988,842.59 $ 2,332,845.69 $ 2,497,506.63 $ 2,657,939.32 $ 2,531,752.22 NI - Chg. TA + Chg. TLFree Cash Flow $ (136,468.00) $ (23,640.00) $ 52,535.00 $ 99,379.26 $ 115,412.94 $ 144,252.89 $ 151,631.88 $ 160,835.31 Beg. Total Stock Holders Equity 2,352,274.00$ 2,695,617.00$ 2,976,939.00$ 3,267,570.00$ 3,523,801.60$ 3,769,573.84$ 3,999,226.65$ 4,226,561.92$ ROE - Re 1.16% 1.93% 3.89% 3.25% 2.62% 2.29% 1.84% 1.59%Equity Economic Profit (Beg TSE) * (ROE - Re) 27,302.40$ 51,898.60$ 115,906.48$ 106,164.57$ 92,178.16$ 86,136.43$ 73,666.19$ 67,033.27$
Wintrust Financial CorporationWeighted Average Cost of Capital (WACC) Estimation
Cost of Equity (CAPM) 7.63%Risk Free + Equity Risk Premium) * Beta
Risk Free Rate 2.51%Beta 1.22Equity Risk Premium 4.20%ERP = MRP - RF
Wintrust Financial CorporationDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs: CV Growth 3.00% CV ROE 9.22% Cost of Equity 7.63% CV Net Income 389,704$ CV Beg TSE 2023 = TSE 2022 4,226,562$
Fiscal Year Ending Dec. 31 2019E 2020E 2021E 2022E 2023E
DCF ModelFree Cash Flow to Equity 99379 115413 144253 151632 5673338Number of Years Discounted 1 2 3 4 4Discounted Free Cash Flow 92331 99622 115685 112978 4227082
Equity Value 4,647,698$ Less: PV of Employee stock 146PV of Equity 4,647,552$ # Shares Outstanding 56408Stock Price 82.39$ Target Price 83.78$
EP ModelEconomic Profit 106165 92178 86136 73666 67033Number of Years Discounted 1 2 3 4 4Economic Profit CV 1446575Discounted EP 98635 79566 69078 54887 1077812Beg Total Sotck Holders Equity 3,267,570.00$
Equity Value 4,647,548.32$ Less: PV of Employee stock 146PV of Equity 4,647,402.32$ # Shares Outstanding 56408Intrinsic Price 82.39$ Target Price 83.78$
Wintrust Financial CorporationDividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Year Ending Dec. 31 2019E 2020E 2021E 2022E 2023E
EPS 6.16$ 6.27$ 6.50$ 6.60$ 6.79$
Key Assumptions CV growth 3.00% CV ROE 9.22% Cost of Equity 7.63%
Future Cash Flows P/E Multiple (CV Year) 14.56 EPS (CV Year) 6.79$ Future Stock Price 98.82$ Dividends Per Share 0.79 0.82 0.85 0.89 98.82$ Future Cash Flows# of Years Discounted 1 2 3 4 4 Discounted Cash Flows 0.73 0.71 0.69 0.66 73.629$
Intrinsic Value 75.69$ Target Price 76.96$
Wintrust Financial CorporationRelative Valuation Models
EPS EPS BVTicker Company Price 2019E 2020E P/E 19 P/E 20 Equity P/BASB Associated Bank Corp $21.35 $2.08 $2.15 10.30 9.90 21.43 1.00 FMBI First Midwest Bancorp $20.46 $1.91 $2.15 10.70 9.50 19.32 1.06 USB U.S. Bancorp $48.19 $4.32 $4.61 11.10 10.50 28.01 1.72 WFC Wells Fargo $48.32 $4.94 $5.63 9.80 8.60 37.75 1.28 FITB First Third Bancorp $27.13 $2.79 $3.06 9.70 8.90 23.07 1.18 PNFP Pinnacle Financial $56.42 $5.09 $5.45 11.10 10.40 51.18 1.10
Average 10.45 9.63 30.13 1.26
WTFC Wintrust Financial Corporation$73.51 $6.16 $6.27 11.9 11.7 55.71 1.32
Implied Relative Value: P/E (EPS19) $ 64.37 P/E (EPS20) 60.38$ P/B 70.41$
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares): 4,334Average Time to Maturity (years): 3.99Expected Annual Number of Options Exercised: 1,086
Current Average Strike Price: 41.56$ Cost of Equity: 7.63%Current Stock Price: $72.65
2019E 2020E 2021E 2022E 2023EIncrease in Shares Outstanding: 1,086 1,086 1,086 1,086 1,086Average Strike Price: 41.56$ 41.56$ 41.56$ 41.56$ 41.56$ Increase in Common Stock Account: 45,141 45,141 45,141 45,141 45,141
Change in Treasury Stock 34 -402 -462 -489 -517Expected Price of Repurchased Shares: 72.65$ 78.20$ 84.17$ 90.59$ 97.51$ Number of Shares Repurchased: 0 (5) (5) (5) (5)
Shares Outstanding (beginning of the year) 56,408 57,494 58,585 59,677 60,769Plus: Shares Issued Through ESOP 1,086 1,086 1,086 1,086 1,086Less: Shares Repurchased in Treasury 0 (5) (5) (5) (5) Shares Outstanding (end of the year) 57,494 58,585 59,677 60,769 61,860
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol WTFCCurrent Stock Price $73.51Risk Free Rate 2.51%Current Dividend Yield 1.42%Annualized St. Dev. of Stock Returns 31.20%
Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Optionsof Shares Price Life (yrs) Price GrantedRange 1 1,552 41.32 4.60 35.11$ 54,486$ Range 2 1,698 41.50 4.00 34.56$ 58,680$ Range 3 1,084 41.98 3.10 33.50$ 36,316$ Total 4,334 41.56$ 3.99 38.17$ 149,482$
149.48$
