Wintrust Financial Corporation (WTFC) Earnings Call Transcript & Summary

Welcome, everyone. Welcome to Raymond James' 47th Annual Institutional Investors Conference. I'm David Long, one of the bank analysts here at Raymond James. And this morning, we are excited to welcome Wintrust Financial to the conference. Wintrust has become a staple at the conference. Wintrust is a $71 billion asset bank with a market capital of about $10 billion and the stock trades under the ticker WTFC. Joining us for discussion today is President and CEO, Tim Crane. Also on site is Dave Dykstra, Chief Operating Officer and Vice Chairman. Wintrust has grown to become the largest commercial bank headquartered in Chicago. And they've done that through mostly organic growth. They have supplemented some acquisitions in there and they've done that by taking market share from a lot of their larger bank peers in the marketplace. They've also done this while keeping credit quality pristine for the last -- or really throughout the history of the bank. With all that said, Tim, welcome to Orlando.

Thank you, David.

Thanks for joining us today. You've been at Wintrust now almost 20 years, 6 as President, I think now coming up on 3 as CEO. And during your time there, as I said, you've had some great growth. Maybe just reflect a bit on how the bank has been able to grow so rapidly over the -- let's maybe keep the last decade or so.

Yes, sure. So 2015 we would have been low 20s in terms of assets. I think a couple of pieces in terms of the growth. One is the strategy, which has been consistent through really Wintrust's existence, which is provide better service than the big banks do and provide better capabilities than the small banks. And in Chicago, in particular, although we're in Southeast Wisconsin and the Grand Rapids, West Michigan area as well, there are the money center banks obviously present, and then there's Wintrust at $70 billion. And then the next largest bank is really $10 billion. And so we sort of have a unique position in Chicago and have for some time as there's been a fair amount of disruption to continue to win share. And so again, taking great care of customers is the foundation. We like our markets. We're a little bit curious about the movement to the Southeast and Texas and California. Chicago has got a wealth of middle-market companies. Our area grows, it's affluent. So we like the markets. And then lastly, we've been opportunistic. And so whether that's been adding teams as we've had the opportunity to do so in the insurance business and the mortgage warehouse business or whether it's been acquisitions, we've pursued those. And we think we're pretty disciplined and pretty good at all those things.

Good. Good. What is it that you'd say you're most proud of? And maybe it's being part of the organization and maybe the culture? What is it being there for 20 years now or close to 20 years?

Well certainly proud to be part of an organization that's become well known in our markets is providing great service, being very consistent for our customers. But I'd say on consistency and the consistency of performance is what I'm really proud of. If you -- at the end of each year and our fourth quarter report, we provide charts that show our 10-year progress on a number of key indicators. So whether that's net income growth, tangible book value growth or loan and deposit type activity, we've been very, very consistent over those 10-year periods. And we focus on that and talk about that with our team. And if you just took tangible book value as an example, since Wintrust went public in 1996, our tangible book value has increased every year. When we look at peers, we think there's only 1 or 2 other banks that can say that. And that's with the acquisitions that we've done along the way. And so very pleased with just the performance expectations that we put on our teams and how we deliver.

Got it. And then you've been in the seat as CEO for about 3 years now. Have there been any material changes in the strategy or how you're running the organization versus how former CEO, Ed Wehmer did?

Yes and no. The foundational part of the strategy hasn't changed, which is focused on customers first. The market continues to give us opportunities as big banks go upmarket, as there's acquisitions in the market, those kind of things. What we have done is continue to focus on operating leverage, and we've looked at investments that we're making in the foundation of the company. So better capabilities, more automation, more efficiency, those types of investment we make along the way while continuing to basically deliver results. And so that would be the only change. And that's just more a function of what's happening in the market and the competition.

Sure. Okay. When you look out the next 3 to 5 years, what are some of your biggest goals for the next 3 to 5 years for the organization?

Well, continue to deliver the consistent performance. I mean at the end of the day, our shareholders are focused on the company moving in the right direction, making disciplined growth decisions. So we've always been a growth bank. We want to continue to grow the organization, very comfortable with the bulk of our footprint being in the Midwest with our sort of specialized businesses where we can differentiate ourselves, delivered nationally or in some cases, internationally. We like the insurance business very much. As you know, about 1/3 of our balance sheet is related to insurance finance in one form or another. It's one of the reasons the credit quality is so good. If you operate a company, insurance is about the last thing you're going to give up. And so lending against these insurance policies is very attractive. It's a business that we believe has material barriers to entry that we can protect. So I'd say continue to be one of, if not the leading independent player in the Midwest and then continue to build out the niches as they make sense.

Sure. What do you expect your footprint to look like over the next 5 years?

Yes. Retail banking for us is plus or minus 215 branches, Southeast Wisconsin, Northern Illinois, Northwest Indiana and most recently, West Michigan with the Macatawa acquisition. I think we'll try to do concentric in terms of our physical footprint. And then again, the niche businesses that we can differentiate ourselves nationally, operate out of about another 15 offices in other states. We'll continue to do that. But there are great aspirations to get to Texas or California. We have 8.5%, 9% market share in Chicago deposit market share. If we can get that number to 10% or 12%, that's very valuable. It's building the franchise.

And like I said, $71-ish billion in assets, does $100 billion? Does that -- is that a barrier for you at the print? Or how are you looking at that?

Yes, hard to say. I think we all believe that in the coming months, we're going to get some revision to the asset thresholds that operate. And I think the most punitive rules around exceeding $100 billion are probably going away. So we're, again, building the foundation for a bigger bank. We're evolving into the capabilities that you would need, whether those are LFI-type capabilities or just better management in terms of stress testing for capital and liquidity. But I think we'll see in the next couple of months. And we're operating as if we're going to continue on our growth trajectory. And if $100 billion has capabilities and rules, we'll be prepared to meet those.

Great. And then just overall, on the regulatory backdrop, a lot of talk of how it's gotten easier for the last little over a year, and we've got a few more years left, maybe it will change again. For Wintrust, at this point, what stands out as being -- is there anything that stands out in particular that benefits you more so than others?

Well, we've always had terrific relationships with our regulators and the size of acquisitions that we've done historically haven't been problematic. And so even a few years back under the prior administration acquiring Macatawa Bank in West Michigan, we were approved in 49 days. And so that traditionally hasn't been an issue for us. We have terrific relationships with our regulators. All 16 of our independent chartered banks are regulated by the OCC. I think the freeze or the change in rules around CRA, around 1031, I mean all of those rules either stabilizing or rolling back allows us to focus elsewhere as opposed to compliance-related activities. But it's marginal at this point for us. We've just always had such a good relationship and large acquisitions haven't been on the radar for us.

Great. And then what can you tell us about the Wintrust culture that allows you to continue to grow and put up such attractive growth metrics?

Yes. It's really one of the other things that I'm proud of. We could have added that, but it's customer first. And if you take to care of customers, a lot of the other things that they're running a business or running a line of business require fall into place. And the market has given us this unique space where the bigger banks sometimes look up market that makes -- gives us opportunities. The smaller banks can't provide the capabilities we provide, but it's very entrepreneurial. And so if somebody comes and says, I want to borrow money for a restaurant. Most banks don't like restaurants. We would say we might not like restaurants, but we can find a way to lend that individual money. It's just structured differently and it's a more focused approach on what that customer is trying to accomplish. And so we take a lot of pride in the success of our customers. The great news at Macatawa for example, which was a very nice $2 billion bank, but many of their customers were outgrowing that bank. We provide a bigger toolbox. And so the capabilities that we provide rival those of the biggest banks. And so we really have a unique model with better service and very good, if not top-tier capabilities.

You mentioned Macatawa again, so I'm going to go in that direction with M&A. They were in Michigan across -- I know it's across the pond, if you want to call it that. But what are your aspirations from an acquisition perspective? And how far would you go outside of the Chicago MSA?

Always been very disciplined. And Macatawa was a terrific property, again, prior administration from a political standpoint, but great deposit base, low loan-to-deposit ratio, a lot of capital, 26 branches, fairly densely populated in the Holland Grand Rapids area, which is growing faster than Chicago. So a lot of really terrific attributes that made that a very nice acquisition for us, and it's going very, very well. We'd like to do more concentric-type things. We'd like to build on to markets that we understand. Again, if in the Chicago area, and it's similar in West Michigan and Southeast Wisconsin, we have high single-digit deposit share. There's all sorts of opportunity for us. And so we don't need to go to California or we don't need to go to Florida to find opportunities. We'll continue to take share from larger banks, other banks in our markets, and we'll take very good care of those customers, and they'll be with us for a long time.

On the loan growth side, the bank has typically talked about mid- to high single-digit loan growth. Is that still appropriate on an organic basis as we're looking forward here?

Yes, we think so. It's a little bit uneven over the year. So there's some seasonality. First quarter tends to be our lowest loan and deposit growth quarter. But we still believe mid- to high single digits makes sense. Pipelines are good. Everything we're seeing right now is consistent.

There's obviously a lot of noise in the environment. What are the biggest risks to getting to that type of growth?

Yes. I mean, I don't know if noise is tariffs or the activities of the last couple of days, but the risk is really kind of irrational competition. So you talked about the fact that we're very disciplined from a credit perspective, and that's an important part of our equation that we just don't compromise on. So what we have seen over the last couple of years is that banks that haven't been able to grow loans will look for larger, fully funded deals and they'll do those on a transactional basis. We typically do not. We want full relationships if only for credit reasons, but more importantly, because we want the opportunity to sell them other products and services that they'll use over time. So irrational competition would be one risk. Obviously, there are macro elements that could slow growth dramatically. That certainly could affect what we do. But again, our pipelines, which give you pretty good visibility for 4 to 6 months look pretty good. And we continue to believe that we're on the mid- to high single-digit track, and we'll see what happens.

That type of growth would put you above that of most of your peers. How do you manage the credit side of the equation when putting up better than peer growth?

Yes. I mean decentralized credit as close to the customer as we can get it with very thorough behind-the-scene reviews to make sure that we're not missing anything. Now what I would tell you, though, for us, concentration is a huge issue. We spend a ton of time looking at individual concentrations in the portfolio to make sure that we're not overexposed in areas. And relative to our peers, we often screen low, for example, if you look at allowance. One, we have better credit quality. So we think lower allowance makes sense. But the other thing that's important to notice is that, again, 1/3 of our book is insurance-related finance. And so whether it's financing life policies for affluent individuals or it's financing, property and casualty policies for local businesses, very good credit quality, very predictable performance, very granular in terms of the loans. And so when you look at whether it's allowances or you look at capital, we think on a risk-adjusted basis, we're probably better positioned than most of our peers.

Great. On the deposit side of the equation, how is competition right now?

Yes, pretty rational, I would say, in Chicago. Again, one of the things that in 2025, we were very pleased with is we assumed the third largest deposit share in Chicago behind BMO and JPMorgan. So the 3 of us combined probably half the market, call it that, pretty reasonable pricing, I would say. And without loan growth, you're not seeing huge pressure from other banks to grow deposits irrationally. And so I would say pretty rational at the moment. And we hear that's not necessarily the case in the Southeast markets and maybe some other areas, but I don't think we've seen anything problematic in Chicago yet.

Great. On the fee revenue side, you guys have a few different drivers there. Where do you see the biggest opportunity to grow the fee revenues?

Yes. For us, 3 fee-based businesses. One is sort of the treasury services business generally described that way. As we continue to take share in the middle market, that business grows very nicely and has grown very nicely each year for the last several. So that will continue to grow. We're very excited about the wealth business. It continues to grow, not rapidly, but again, as either business owners sell or we continue to penetrate the market, we get wealth opportunities. In 2025, we completed the migration to the LPL platform, which was an important kind of piece of the equation for us to allow us to recruit more effectively and then also to offer a broader base of services. So continued optimism on the wealth side. And the third piece for us is mortgage. And mortgage has kind of been bouncing along the bottom for a couple of years. Over the last 9 months, we've seen very small windows where things got attractive and you'd get a couple of days where rates got at the right level and the business would pick up. But -- so that's a wildcard for us. We know we're growing our share of the mortgage market in Chicago as the independents that did primarily refinance activity have largely gone out of business. But that would be the biggest opportunity in terms of a wildcard, but we'll continue to grow the treasury services business really nicely in '26.

Got you. And then on the expense side, maybe talk maybe first about operating leverage. How important is positive operating leverage for the bank?

Well, it's really important. Increasingly, we have to invest in capabilities to stay current with the big guys. And we can't just do that as an incremental add to our expense base. And so we're always working to become more efficient, and we talk about taking those gains and reinvesting them in the business. And so I think you gave me the statistic. I didn't go back and get it, but 7 of the last 10 years, we've had positive operating leverage. 2 of the 3 years we didn't. We had extraordinary expenses around acquisitions. And last year, we were 340 basis points different in terms of revenue growth versus expense growth. So for us, it's sort of simplistic mid- to high single-digit loan growth, and our loans are 85%, 90% of our assets with sort of mid single-digit expense growth should yield operating leverage. And our target would be to do that every year as we can, again, save some extraordinary type circumstances, but it's very important. And I think it's important to our shareholders. They recognize that we're making investments that are paying off and that we're growing a franchise in a productive way.

A lot has been said about some of the bigger banks, the Wells Fargos, the JPMorgans, BofAs that have big IT expense budgets. How do you compete with them in that regard?

Well, part of it is the fact that we buy most of the basic underlying services from somebody like an FIS or from a Salesforce or nCino or pick your kind of vendor. And by and large, they do a reasonable job. And what we've tended to do is surround those core services with customer interfaces that make us attractive in the market. Obviously, the numbers that JPMorgan and BofA are investing are staggering. But we -- with rare exceptions, typically around international type products, we haven't found ourselves to be behind or to be disadvantaged. And again, it's the rare customer that needs something that we can't provide that may choose to go elsewhere. But in a lot of cases, we can partner to provide those services. So it's a focus and managing partners is a big part of the differentiation, and I think we do a good job.

And then on thinking about the mid-single-digit growth in expenses, what type of growth rate are you seeing in IT? And then also how -- where are you spending on AI right now?

Well, the IT component of the expense growth would be much higher. So if you took the HR side of equation, in 2025, we grew the bank 10%, 11%. We did it essentially with flat headcount. And so a lot of the expense growth in 2025 went to new technology, went to becoming more efficient. If you think about merit increases being, call it, 3% and your overall expense growth in the 4% to 6% range, the rest of it would be disproportionately technology and cybersecurity would be the other kind of big piece of it. Yes. AI, we focused on getting the governance piece first. So I'd say we're in the early stages, but AI has become such a broad term. You don't exactly know what it includes. We certainly do dozens of robotics type efficiency type plays. We're doing all sorts of modeling in terms of what makes sense for our customers. And so we're pretty optimistic that it will be a meaningful expense opportunity for us, but very likely a lot of that will get reinvested in the business.

Right. Okay. Your net interest margin, historically, you guys have been viewed as being more asset sensitive. And here we are with a 3.50-ish net interest margin for several quarters despite 725 basis point rate cuts.

Think several years, but go ahead.

Yes. What is your outlook for the NIM? Is it still the 350-ish? And then how do you guys manage that despite what most people think of as asset sensitive?

Yes, 3.50 is the outlook. And we've said for probably the remainder of this year, a couple of cuts or a couple of increases probably doesn't move the margin for us. In 2020, kind of during the 0 rate environment, our margin got into the 2.60s, which didn't feel very good. And at that point, the mortgage business, which is sort of a natural hedge for us, performed very well, and so we still delivered record earnings. But we didn't want the margin to go back sub-3% if we could avoid it. And so we've done a fair amount of hedging. So we've got about $6 billion worth of hedges that protect us against rates down. Those hedges cost us money for a number of years. They're actually now in the money helping us. And our portfolio, just the mix of the balance sheet, we managed to stay pretty neutral. And so if you take our CD book, for example, versus some of the insurance portfolios, they're actually a pretty good offset for each other. So we're pretty comfortable with the margin at 3.50 where we can grow net income by growing the business. And so if we add clients and we add assets intelligently at a stable margin, we'll add net income.

Great. Anyone in the audience here? Any questions for the team? All right. I'll keep going. When you're looking out to the growth and getting the mid-single-digit to high single-digit loan growth, how much hiring is involved with that? And what is your appetite to add veteran bankers in the marketplace?

Some hiring, for sure. We don't spend -- we've come to the investor conferences and some of our peers talk about we added 3 bankers in Nashville and we added 2 bankers in Pennsylvania that's just normal course of business for us. As competitors and talented people that work at competitors find they can't take care of their clients. So it's either throw the baby out with the bathwater approach or a strategic change or an acquisition. We're a pretty attractive home for bankers that want to take good care of their customers. And so we always have a good inflow of names of people that want to come work for us. And we're pretty selective about who we take, but we added a mortgage warehouse team from Comerica a couple of years ago. We recently added an insurance team that worked for a bank that was acquired that didn't think they were going to fit in the new bank's kind of plans. And these are 3, 5, 8 people at a time in some cases. And again, normal course of business for us. So we'll continue to be opportunistic doing that. And a lot of our adds to the extent we're adding people are on the revenue side. I mean we don't see a great need to add to the infrastructure of the bank as we get closer to scale in a number of these areas.

When you're bringing in other new bankers, do they come mostly from the larger banks? Or do they come from some of the smaller banks where they can benefit from having your larger balance sheet?

Both. I probably skewed toward larger banks where somebody has told them they can't take care of their customer or somebody who is reorganized or they feel like there's not a future for them. We're very entrepreneurial and very accommodating to somebody that has clients that has been known in the market, active in the market and wants to continue. And we create, we think, really good career opportunities for those folks.

Yes. The Chicago MSA, how would you characterize the health of the economy?

Yes. Despite the political headlines, some of which are real, some overblown at times, whether it's crime or tax policy, Chicago is a big, big market. It's second or depending on kind of how you're measuring, second or third largest market in the United States. And the surrounding area is a very large market. So we're not just Chicago proper, but the 8 collar counties in Southeast Wisconsin and Northwest Indiana. So I'd say it's reasonably healthy. I mean we have transportation. We have health care. We have education. We've got water. Wintrust doesn't do a lot of financing in data centers, but we've got great power and water, which is pretty attractive to data centers around the Lake Michigan kind of footprint. We will benefit from the ancillary activities that go into building those data centers. We think very attractive. And if we can continue to grow our share, deposit share, and we think core deposit growth is the foundation of the franchise. If we can continue to grow deposits in our 3 or 4 core markets and occupy the second, third, fourth position, extraordinarily valuable and virtually impossible to replicate.

We haven't seen commercial real estate in the headlines like we did, as much as we did a few years ago, what is the background? What does the Chicago commercial real estate market look like to you?

Yes, pretty good, actually. The downtown area is still kind of working through the office space challenges. Wintrust is not a lender to a large central business district type areas. But housing underbuilt in Chicago. So multifamily is really good. Our construction projects are terrific. We see large payoffs as others do. We actually like that. We want our customers to pay us back and get to the next project. I think we're through, except on an episodic basis, I think we're through the worst of the CRE issues.

Last chance. Anyone in the crowd? Question in the back.

[indiscernible]

Yes. And just if you couldn't hear that, the question was about size of acquisitions. I think you're right. With exceptions, deals under a couple of billion dollars, it would be hard to move the needles. The exception being if we just got in a market that we hadn't been in with some overlap type situations being the other example, we might consider doing those. But we also don't want to take the company's resources for something that's not going to move the needle very much. And so we've talked about 2 to 10 maybe being kind of the right target zone. We certainly could do something larger. We think we bring a lot to Macatawa as an example. The bigger toolbox for them is incredibly helpful. They have great relationships. They're in great markets. They just didn't have the capabilities to compete with larger banks. And so any of those situations where we can find somebody that is well positioned in their market but needs resources, we think we can help. That said, we're going to be pretty disciplined. We grow $1 billion to $1.5 billion a quarter on average. Again, there's some seasonality to that. So to do a bank that's $1 billion, it's less than a quarter's worth of growth. So I hope that helps a little bit.

[indiscernible]

Yes, I'm going to knock on our plastic podium here. It's been very good for a number of years. And all the banks have been talking about credit normalizing at some point. We just don't see it yet. I mean it continues to be very, very good. Our nonperforming assets and nonperforming loans have stayed in a very narrow range for several years now, kind of got through the real estate kind of concerns on particularly office. We're not a big player in leverage-type space. We have some leverage, some sponsor finance activity, but not a lot of the 4x, 5x leverage type stuff that you're seeing a little bit of conversation about right now. So we were very proud of how we've performed, charge-offs last couple of quarters have averaged about 15 basis points. And I think we're probably thinking we'll be in that same range for the next few quarters here.

[indiscernible].

So I didn't hear the second part of that. I heard private equity exposure. A little bit, yes. But we're so selective in terms of the sponsors that we do business with that we feel very comfortable, and a lot of that, for example, is capital call line. So the actual leverage lending is a very, very small part of what we do, and we do it on a very selective basis.

All right. We will conclude there. Thank you, everyone, for joining us today. Tim, this was great. Thank you so much.

Thank you, David.

If you'd like to continue the discussion, we're going to head downstairs to Cordova 6.