Wintrust Financial Corporation ($WTFC)

Jon, we always enjoy the conference.

Yes. It's great to have you here. Just maybe give us -- we have a lot more generalists here at the conference. There's a lot more interest in the bank stocks. It depends on the week. But generally, a lot more interest. So just give us a 30,000-foot description of Wintrust.

Sure. Happy to do that. And again, thank you for having us. Wintrust founded in 1991, predominantly a Midwest retail bank with commercial operations that are national and in some cases, international now. So 210 branches, West Michigan, predominantly Grand Rapids area, Northwest Indiana, Chicago land or Northern Illinois and then Southeast Wisconsin. A couple of branches in Florida where we follow our customers. Offices in 16 states, about 1/3 of our business, were $71 billion. About 1/3 of our business is related to insurance.

And then in terms of the loan portfolio, about 1/4 related to commercial real estate and the remainder, a little over 1/3 in C&I.

Okay. Good. And as with all these sessions, if you have questions, just put your hand up and we'll get to you, but we have a lot of ground to cover, but we're open for questions.

You Bet.

Just how you feel about the state of the economy and your markets in general and just overall business activity?

Yes, Jon, we feel really good. In fact, and I think we said this last year, if you weren't watching the news, you'd feel fantastic. Loan growth is good. Pipelines are pretty solid for us. We typically grow a little bit faster than the market in terms of our loans, slowish first quarter and then kind of a heavy seasonal benefit from our Property & Casualty business in the second quarter. Clients are reasonably optimistic. Deposit pricing is rational in the Midwest, and credit remains very good.

Okay. And what are you working on for '26 kind of key priorities?

Yes. Well, a couple of things. We continue to invest in our core businesses. So the C&I business, we like quite a bit in addition to kind of the normal loan growth and deposit-taking activities. We provide services. We provide wealth services for the owners and for the executives. That's grown nicely for us. Continue to work on efficiency. We talked earlier in 2025, we grew about 10%. We did that really adding very few, if any, people in terms of headcount. Obviously, there were some ins and outs. We're a little over a year into the complete integration of Macatawa in West Michigan. That's our most recent acquisition. We feel very good about the momentum that we have there in terms of giving them a better toolbox, a bigger toolbox to win clients. And so it's a lot of blocking and tackling efficiency on the radar for us but more of the same.

Business as usual.

Yes.

Okay. Good. You touched on the first quarter generally being a little bit slower. Just kind of review why that is take care, everybody understands it.

Yes. Just in terms of both loans and deposits, the first quarter tends to be our slowest quarter. One of our loan verticals, our insurance finance business tends to be a little bit seasonal, its slowest in the first quarter. strongest in the second quarter and then the second half of the year is pretty steady for us typically. On the deposit front, little bit with end of year type activities for corporate clients and then tax payments and kind of outflows in the first quarter. Deposit growth tends to be a little bit slower in the first quarter as well. But our objective has been and continues to be to match our loan growth with core deposit growth where we can. And building the franchise, adding deposit clients is important to us on a regular basis.

So nothing to flag for the first quarter. It's just...

No, not at this point. And again, credit still looks good. In terms of our portfolio, some folks are talking about a K-shaped economy and inflation. We really have very little consumer lending in terms of our portfolio. And so most of it is as I described.

Okay. Good. Premium Finance, an interesting business. I think it's somewhat unique to what you do. Do you feel like it's well understood or appreciated or maybe just explain it and why it makes sense for you.

Sure, happy to. So really 3 legs of the insurance stool for us. And again, it's about 1/3 of our assets. We have about $8 billion or $9 billion worth of life insurance premium finance. It's typically affluent individuals and business owners looking to do estate planning. The play here is that it's cheaper to finance your insurance relative to the returns you would get investing in your business. And so a little bit rate sensitive as rates come down, the arbitrage is better. Second, almost same size piece, about $8 billion or $9 billion is our P&C, property and casualty finance business. That's much lower loan size is typically about $50,000 of premium. We would have many hundreds of thousands of dollars of these loans that are very automated basically taking care of the vanilla insurance needs of a business. So whether it was workman's comp or directors' insurance or their straight property casualty. Again, very automated, good barriers to entry, life insurance rules that are different in 50 states. in a business that we've been in a long time. And then the third piece of the stool, and you'll recall, we purchased the Allstate Life insurer or the Allstate Agent Finance business a number of years ago. We help insurance agencies just generally with their banking outside of those 2 premium finance businesses, and that's a nice complementary business for us as well.

Okay. Good. You talk about commercial real estate, what you're seeing there? I know Rich usually gets the question in every earnings call, but how are you feeling about the health of the portfolio and the outlook as well?

Sure. And our commercial real estate activity is predominantly Midwest-based, but we follow clients throughout the country. And in some cases, our clients have found more attractive opportunities outside of the Chicago area. But very solid, focused on multifamily, a little bit of industrial, not very much retail. We think the worst is kind of over for the central business district activity, although we have very little of that. We do deep dives regularly with respect to our clients in terms of the change in interest rates. We obviously stress test our portfolios in terms of taxes. And relative to our peers, we're probably a little bit smaller, so about 25% of our loan book, commercial real estate. Our peers might be 30% to 35% or so. But it feels pretty good right now. And we're very careful in terms of client selection, I'd say we're probably on the conservative end in terms of advance ratios, and it feels like kind of pretty good.

And good growth opportunities.

And good, yes, steady growth opportunities for sure. We've seen some of the high payoff type activities. We're fine with that. We like it when clients pay back their loans. And in many cases, with these successful real estate investors, they have their next project waiting in the wings. And so it's a good flow for us, and we like the business. We just like it in the right proportion to the rest of the balance sheet.

Okay. The mortgage -- we can split maybe mortgage in the 2. We can talk mortgage originations later, but the warehouse business. How is that performing for you? What's your objective there?

Yes. We've been in the mortgage warehouse business for a long time. Again, client selection important to us. About 2.5 years ago, we added the mortgage warehouse team from Comerica Bank. They exited the business voluntarily. A number of those folks came to us with clients that were top shelf in terms of their mortgage operations that while not particularly thrilling these days, operate very nice businesses and continue to make money. And so we've won share there by taking business from others and continue to grow that business nicely even in a pretty tough mortgage market.

Okay. Good. And then just on Chicago, we all seem to focus on the faster-growing geographies. There's a lot of M&A focus in those markets as well. Why is Chicago a good market? What has allowed you to put up this mid- to high single-digit loan growth in Chicago. I'm not asking me to defend it, but It just seems like it gets less attention.

Well, yes. And we don't have any problem defending it. To be honest with you, we're a little curious to us why many of our competitors are going elsewhere. I mean Chicago third largest city in the United States, Milwaukee and West Michigan, both very vibrant markets on either side of Chicago, great health care, great transportation in the world of data centers. We've got water. We've got power. It's really an attractive market. And with fewer competitors, we like it a lot. It's affluent, roughly 175 of our branches are in Chicago, the other split between the other 2 markets. For all the headlines, it's a great place to do business. I can appreciate why people from the out of the area politically might look at us sort of sideways, but the business environment is great.

Okay. Good. And then you mentioned Macatawa earlier. Give us kind of a debrief on how Macatawa was performing and how Western Michigan is doing generally.

So Macatawa was a little about $2.5 billion bank in West Michigan, predominantly Holland and Grand Rapids, 26 very tightly centered branches. The bank had sort of a challenging history. They've got a local entrepreneur to kind of get the bank back on its feet. He did so very effectively. They reached a point where they didn't feel like they could make the investments to compete with the larger banks. And so we had known them for many years, acquired the bank, we think, a very attractive deal. They had excess capital. They had low-cost deposits, their loan-to-deposit ratio was low. They essentially had no nonperforming loans. They just needed more weapons. And so we're about a year since the full integration, and we're already seeing clients that had grown out of Macatawa come back and say, we'd like you to lead our deal. We'd like to use the other services that the bank offers. And so for us, it's been really a terrific acquisition, almost a model acquisition in terms of what you'd like to see.

Yes. Unique, but definitely fits.

Yes, hard to find ones that look like that. But again, we are very pleased and the folks that at Macatawa we've lost very few, if any, of the customer-facing people very effective now with more resources.

Yes. Okay. Good. It's one of the first IPOs that I worked on.

Was it really? Yes, that's perfect.

A long time ago. A long time ago. You mentioned this about bringing bigger products and services and just kind of the last one on lending. But as you grow, you become larger, do you have to do anything different from a lending point of view?

Well, No. Well, no would be the answer because we've tried to stay very disciplined in terms of our underwriting and the culture that we bring around credit. I would say relative to many of our peers, and frankly, many of the banks smaller than we are, we're very interested in concentrations. We're very cautious about the hold sizes that we take. And when we look at other banks, we would often see a much, much greater concentration in their top 20 or top 30 loans than we have. We do have some specialty units, and that's part of what can be effective as you get a little bit bigger. And so whether it's construction, architecture and engineering or a little bit of franchise finance, primarily around quick service restaurants, and we've probably got 10 of those specialty niches where we think we can differentiate ourselves and that's where we play nationally as opposed to in the Midwest.

Okay. Good. You mentioned rational deposit pricing. Give us an update on what you're seeing there and kind of the objective of funding loan growth with core deposit growth.

Yes. So we're 1/3 in terms of deposit share in Chicago land. One of the few large markets where you have a non-money center bank in the top several positions. We've got about 8.5%, 9% share. We've traditionally tried to match deposit growth with loan growth, but it's not about the loan-to-deposit ratio for us. It's about the deposit franchise, and we try to continue to acquire deposit clients that will be able to sell other products and service to. So today, promotional rates for CDs, for example, around 4% for about a 5-month CD, money market rates in the low 3s. And then we typically, as we acquire clients, work them even down a little bit from there. But bigger than us in the market, JPMorgan and BMO, both rational, not offering very high rates. And then we occupy a very unique position. So if you move away from the very largest banks. You'd have Wintrust at $70 billion and the next meaningful bank below us is about $10 billion. And so if you're looking for Chicago-based or a Midwest-based bank that offers sophisticated wealth services, sophisticated treasury management services, we really like where we are. We're in a very unique spot.

Okay. On the margin you guys have talked about maintaining it in the current range. Any -- maybe it's a short conversation. We don't have to go to the Bullpen for Dijkstra here. But how do you feel about the current range? Any puts or takes one way or the other in terms of the margin outlook?

Yes. So for everybody here, what we've said is plus or minus 350 and that's whether rates go up a couple or down a couple. The short history there is a number of years ago when rates were 0, our margin was in the 260s, 270s. And obviously, that's not an area where we feel comfortable performing at a high level. Fortunately, we had the mortgage business at the time and for part of that, a little bit of PPP fees. So we've taken the opportunity to position the balance sheet for a very stable margin in the mid-3s, where we essentially can grow the bank's income and continue to grow our franchise by adding clients. And so it's not an interest rate bet. It's essentially our ability to continue to win and market and steal share. And so again, we feel very comfortable in the 350 range. And at that level, even with mid- to high single-digit loan growth, we add capital. So...

Okay. We used to talk about the beach ball.

Beachball underwater. Absolutely.

Yes. Bringing that out from the archives. Fee businesses, obviously, as you become a larger bank, maybe the fee business is set to change a little bit. maybe not. But what are your longer-term aspirations and where are you focused?

Well, we'd like them to grow. We're very similar to our peers. About 20% of our revenue is fee-based in 3 businesses. So it's Treasury Services business, which as we continue to grow our commercial franchise in Chicago is growing very nicely. The wealth business, which we continue to grow, it's not trajectory changing, but it's been a good several years. We basically integrated into or moved on to the LPL platform to help us from a recruiting and sort of a product standpoint. And then our third fee-based business is a mortgage business and it's probably a little larger than most for our sized bank. And for the last 2.5 years, it has bounced along the bottom. It's been pretty tough. We've rationalized the expenses. We don't think it can really go much lower than it is right now, and we think we either break even or make a little bit of money. But we've also increased our share. So as the refinance shops and the independents have struggled we've acquired originators from those organizations. And of the current share, we're up considerably from where we were. And it's really 2 things. One, it's a great upside for the bank. If interest rates come down and the 10-year comes down, and it's also a good hedge, a natural hedge against lower rates. And so again, when rates were 0, we performed much better than many of our peers, in part because of the mortgage business.

Any early read on the spring mortgage volumes or expectations?

Well, we've said -- Dave said we've been hopeful the last couple of years that there would at least be a spring buying season of some consequence. And there's some signs of that a few weeks back when Wall Street Journal said mortgage rates under 6%. We saw 2 or 3 pretty significant days. And what I mean significant, probably double what it had been for a period of time and then the 10 year has gone back up and mortgage rates back up. And so it appears that there's a high level of sensitivity around 6%. And as we've talked about on our calls, our servicing book, the average yield is about 4.25% or so. And so there's a lot of business that's just not going to move even as rates come down. But you get below 6% and there's some business that would look helpful to us.

And there's obviously a lot of leverage in that business line for you.

There is a lot of leverage. I mean, we have a reasonably large operation, we think, pretty efficient. But it's not a super high efficiency business either. So we would get more income, but the efficiency ratio on some of our expenses would go up a little bit as well.

Yes. Okay. Okay. On expenses, just talk about your expense outlook and any priorities or pressure points that you have as you think through the expense outlook.

So we've normally talked about it in terms of operating leverage. And so in 2025, we had over 300 basis points of operating leverage. And our objective would be to grow revenues faster than expenses revenue is a bigger number to start with, so that would create a widening effect. We talked about 2025 with really the same FTE count. We grew the bank about 10% I don't know that you can do that every year, but our objective would be, obviously, to keep headcount, which is 50%, 60% of our expenses as flat as we can while we continue to grow the bank. And I don't know that we want to talk about AI here today, but the definition of AI is pretty broad, and there's all sorts of efficiency initiatives in the bank to help us automate things that we can automate and really deploy those resources either into better technology or more revenue-producing people. And so our objective is to continue to look for efficiencies that will allow us to grow the bank without increasing the expense base at a commensurate rate.

Do you have examples of AI being used in your business?

Very early on for us. And for a bank our size, $70 billion or so I think early on, it's going to be turning on the feature functionality in a lot of the third-party packages that we have. So whether it's Workiva, Workday or Encino or some of the products that FIS will offer I think our initial lift will be making those tools implemented into our teams. And so -- we're starting to see some of that. And of course, we've put in place a good governance program that make sure that we protect the client data that's so important to us.

Yes. Okay. Good. The $100 billion in asset threshold is kind of an expense trigger for a lot of banks. Maybe it goes away, maybe it doesn't. How do you think about that broadly?

Well, I guess a couple of things. One, we're optimistic that we'll get some relief there and that hopefully, we'll learn about that in the next 90 days or 120 days here. But we've really been evolving into a bigger bank for the last several years. And so again, taking some of these cost savings and the cost control and investing it into the infrastructure to be larger. And on that front, really 2 things. One, the people that run many of our control functions in the bank, so compliance and audit and BSA and the like generally come from larger banks. And being in Chicago, we have access to talent that many people don't. And so those folks have seen what it takes to operate a larger bank. They know the tools. The other thing is we've -- we're evolving into the capabilities you need to have at $100 billion. And those might be required, but in many cases, you would want them to run a larger bank. And so whether it's more liquidity or capital stress testing or more frequent reporting, we're on that path already. And so if we get close to $100 billion at some point and the regulators start asking those questions, we think we're in pretty good shape. And in any case, it looks like with the current administration it's more the letter of the law, which is you have to exceed $100 billion for 4 quarters and then you get a little bit of runway to deliver those capabilities as opposed to some of the banks that got caught in the year $85 billion, how are you operating, right?

Yes. So okay. Does the multiple charter question come up very often with investors?

Yes. It comes up periodically. So for those of you that don't know us, Wintrust operates 16 community bank charters, and they range from $3 billion banks to $10 billion banks right now. What's important to know is that it allows us the best of both worlds. We get a connection to markets that the big banks don't get and we get basically the synergies that many of the larger banks do. So all of the noncustomer-facing activities are centralized. So our compliance function, our finance functions, all of those activities are completely centralized. But from a marketing perspective, we believe -- continue to believe there's value in these individual brands. And the best example I can give you is that in the most affluent and meaningful markets in Chicago, we have a 1 or 2 deposit share. And so if you go to Lake Forest, we have a 50% market share. If you go to Hinnesdale, we have a 35%, 40% market share. And it's allowed us to do what others can't and that is continue to stay close to the leaders in those markets, continue to win business locally while getting some of the scale efficiencies. So we get asked about it. One of the big benefits is our MaxSafe product. We have about $6 billion or $7 billion of MaxSafe deposits. That's our name for it, where we can provide up to $4 million worth of insurance seamlessly. And so in periods when you get a lot of volatility in the market, people come in and say, I know you can give me more insurance than your peers, please open my account.

Home run in 2023.

Home run. In 2023, they just said, I'd like my money to be here when I get back -- and so that was helpful.

Yes. Okay. Good. Credit quality, any updates there? How is it tracking generally against your expectations?

Yes. Knock on wood, still very good. we're not seeing any systemic deterioration in credit. Again, we don't have much consumer. So we're not as much of an early warning signal as some banks are in terms of that. We watch the hold sizes, we watch concentrations. We continue to feel very good about the credit environment.

And then provision and reserve level outlook and thought process there.

Yes, I'm glad you asked that because if you just look at the reported results for Wintrust, our allowance looks low. And the reason it looks low is, again, 1/3 of our business is this insurance business. The Life business is a 0 loss business. The P&C business is a 20 basis point loss business. And so relative to other banks, particularly our peer banks, we believe that our loan portfolio is much less risky just on a structural basis, forget underwriting and what else we might do. So our provision has been in the kind of low 20s to high 20s I wouldn't expect that to move much. The number we watch is sort of the core provision, which is easier to compare to our peers, which is about 135 basis points right in the peer range that others have.

Okay. Good. We can touch on this briefly, but a couple of sessions ago, this was the BDC panel role, and it was standing room only, Usually, it's not -- but NDFI, any updates there in terms of your exposure.

Well, not much of an update. It hasn't changed, but we're between $2 billion and $3 billion. The great, great majority of that is in mortgage warehouse and capital call lines, which we believe to be if not 0 loss, very low loss opportunities. Not much of a sponsor finance activity that's outside of those parameters. A little bit of leasing where we help fund some customers that have other clients, but it's very modest for us. And Jon, what I'd tell you is for the last 3 or 4 years, we would go to some of these clients, and again, not on NDFI particularly, but if you take clients looking for more leverage and you go down that path, we'd offer a deal at SOFR plus 300, somebody else would offer a deal with more leverage, but it's SOFR plus 500. They go for the leverage every time. And so I think a lot of the activity, whether it's leverage activity or lending money to people that lend it to somebody else is probably moving away from the banking system or has, at least in our case. And so -- we think our exposure there is very, very modest.

Yes. Okay. Last couple of topics here. Kind of near to medium-term capital priorities, when could capital return maybe be part of the story for Wintrust. I know you've always been a growth bank and the dividend has been lower and you've raised capital periodically, but it seems like you're almost getting to the point.

We think we've turned the corner. The last several years, our CET1 ratio was in the 9s. And we talked about that wanting that to be higher. And -- but with the margin at 350 and even with mid- to high single-digit loan growth, we produce capital. And so it's been a steady climb to 10:30 right now -- we'll add capital in the first quarter. Second quarter, I think our loan growth will probably put us neutral or even maybe use a little capital, but then we'll be back up for the remainder of the year. So I would anticipate absent something strange happening that will be well north of 10.5% or between 10.5% and 11% in the second half of the year. And that appears to be sort of the more norm number where you see some people coming down from in the 11s, talking about kind of 11 or the mid-10s being the right number. So at that point, we'll evaluate what makes the most sense, and we have buyback authorizations in place, and we'll do the right thing for our shareholders.

Yes. Okay. Maybe good. M&A topic. Any updated thoughts on M&A? I know Macatawa was kind of unique asset, but how are you thinking about that?

Well, we've done a lot of M&A in the last 15, 18 years. Some of it FDIC assisted, some branches, some banks, some businesses. I would say we'll be disciplined. We've seen more activity kind of on the smaller side, which on the very small side is tough for us as we've grown, it's harder to move the needle. But we look for strategic fit, cultural fit, and then we have to be doing the right thing for our shareholders. So growth for growth's sake is not enough. And as much as some of the investment bank community has kind of been forming at the mouth. We're not saying it.

Yes. I read an article on SNL that says investment bankers say, the time to do a deal is now.

It' always the time. They're an investment bank.

Any last questions before we wrap up? Okay. Thanks a lot, Tim.

Thank you, Jon. Appreciate it.

Yes.