My name is David Long. I'm one of the five bank analysts here at Raymond James, and welcome to the Raymond James' 46th Annual Institutional Investors Conference. This morning, we are excited to welcome Wintrust Financial, which has become a staple at the conference. Wintrust, ticker WTFC, is a $65 billion bank headquartered in the Chicago MSA. H as a market cap now of just about $9 billion. Joining us for a discussion today will be Vice Chairman and Chief Operating Officer Dave Dykstra. Also on site is CFO David Stoehr. Wintrust has grown to become the largest commercial bank headquartered in Chicago, continuing to take market share while also maintaining stringent underwriting standards. With that said, I'm going to turn it over to Dave Dykstra for some opening comments before we get into a discussion about what's going on with the bank today.
You're on a good roll there. You can keep going.
I know the story well enough. You want me to?
Yeah. No, thanks. Thanks for having us again. We always enjoy this conference, so we appreciate being here. So, as Dave said, we're a $65 billion bank headquartered in Chicago. Our banking franchise is really mainly centered in Chicago, Milwaukee, West Michigan, and the Grand Rapids/Holland area, and a few locations down in West Florida, where we sort of followed our customers down there. But besides our retail banking franchise, we have a national footprint in some specialty lending businesses, one of the largest premium finance, insurance premium finance companies in North America doing business in all 50 states and Canada. We also have a leasing business, nationwide franchise franchise lending business, and a few other speciality lending businesses that we do. It provides diversification to our credit portfolio. But our our main advantage right now is our position in Chicago.
As Dave said, we're the largest locally headquartered bank in Chicago at $65 billion. The next largest bank is roughly $10 billion. It's headquartered in Chicago. So, from a competition perspective, we used to compete against other mid-sized banks, Private bank, MB Financial, and First Midwest , and they've all been acquired by out of out-of-state or out-of-country banks. And so the runway is sort of clear for us to be Chicago's bank, and that's how we look at ourselves as the bank to handle Chicago's business. And that positioning has worked well for us and is one of the reasons that we've had great loan growth over the last couple of years.
Great. Great start to the discussion. Dave, following the election from November, seems to be a lot of optimism in the air. What are you hearing from your commercial clients, and are you seeing any changes in their behavior?
Yeah, I think I think it is optimistic. You know, I think right after the election, a favorite term out there was animal spirits, and people thought maybe the you know the lending spigot was just going to turn on full force immediately. Our pipelines were always pretty full. I think there were some people that sort of sat on the sidelines. They were worried that if possibly Harris had won the election, that tax rates might have gone up, and that made some of them nervous, and just uncertainty made people nervous. I think when the when the prospect of higher taxes went away, and I think some people thought less regulation going forward under the Trump administration, I think that that created optimism, and and I still think we see that optimism. There's certainly some uncertainty out there with tariffs and the like, although we'll see how that all plays out.
But generally speaking, I'd say it's more optimistic than it was pre-election. Again, our pipelines have been pretty good, and so on the margin, we think it's beneficial to us, and we'll see how it all plays out. But I think there's more positives than negatives out there right now from our customers' perspective.
Sure. Sure. You've recently reiterated your loan guidance of mid to high single digits. We're a couple of months into the quarter. Any thoughts on loan growth as we're looking out for the rest of the year? I know on your call back in January, you talked about a little bit more competition. Are you seeing such an increase in the competition?
Yeah. Well, I would say we're still firmly in the camp of mid to high single-digit loan growth for the year. Again, the pipelines are good. Our position is good. Some of our niche businesses, like premium finance, are still good. So we're still very optimistic that we can do that. We think West Michigan, as that market we just got into through the Macatawa acquisition, is going to be beneficial to us. So you you put you know you put all of our business lines into the mix, and you talk to the people on the lines, and and they're very optimistic about what we can do. And you know we were double-digit loan growth last year, which was a fantastic result for us. And the pipelines are still strong, so we're pretty optimistic we can get there. Competition, you know, it's always competitive. Again, our position in Chicago is good.
You know you're seeing a little bit of extra competition here and there. It's not widespread, but you know we're in a competitive industry, right? So you're going to see that. Our our concern on the call wasn't sort of forecast that, boy, we're seeing a tsunami of competition coming in. We were just sort of saying we're just watching because there's so many banks that haven't had our type of positioning in Chicago and through our niches that they haven't seen as much loan growth. And we were just a little concerned that quarter after quarter after quarter, if they're not seeing loan growth, well, eventually they say, boy, we got to go get some and then try to go bid on loans at smaller spreads. And so we weren't saying we saw that as a widespread problem.
We just said it was something we were watching to see if it actually translated into new competition going forward. So we're just being honest about some concerns that we had. You know the banking industry goes in waves. Sometimes it gets competitive and uncompetitive. And we were just saying we're seeing or we're worried about that that could evolve over time. We weren't trying to indicate that we saw that that was a major problem right now.
Sure.
So, still very committed to the mid to high single digits for the year.
And then how does the premium finance side of the portfolio factor into that? Will that be in that same range? What's going on in that busines market s? I know it's been a pretty hard for the premium finances. Is that still holding up?
Yeah. So what Dave's referring to is we're in the insurance premium finance business. So we finance insurance premiums mainly for commercial customers. We also do some insurance premium finance on life insurance policies for generally high-net-worth individuals. And both of those businesses are doing well. The insurance market, premiums went up quite a bit over the last few years, and we call that a hard market when premiums are going up. What we see is that the market is still hard. It's just probably the premiums are going up at a slower pace than they have in the past. So still, I think what we kind of refer to it now is it's a firm market. You know so the premiums are not declining, really. They're still going up, but going up at a slower pace. So we think that that's still going to be a very good business for us.
The industry has consolidated you know over the over the last few years, and there's three really big players in the US right now and Canada, and we're one of those three, and so as there's been disruption and consolidation, that has really benefited us because most insurance agents, that's where we source our business, want multiple sources of premium finance providers, and so if we're one of the top three, we usually get a shot at the business of the larger agents.
Sure. Great. You know as we're thinking about competition, are you seeing any participation or an increase in participation from non-bank lenders at this point?
Yeah. Private private credit, there's a lot of money in the system, and that's good and bad. It creates competition, but it also creates opportunities that if you see any credit that starts to have some problems from our view, or maybe it's getting a little bit more difficult than we'd like, you know there's usually sources out in the marketplace that if we get ahead of it early enough, we can we can encourage that borrower to go elsewhere and find financing elsewhere. And there's financing out in the marketplace for that to happen. But you know private credit has a fair amount of liquidity, and but we're generally seeing them more in the levered deals where they'll provide more leverage. And the larger deals, they they they don't want to do all the million-dollar deals. They just generally want to stay at the higher end of the range.
And so some competition at the high end of the market. But but we've seen that in the past. It's maybe a little bit more prevalent, but it's not it's not really impacting us because we really aren't doing deals where we are doing highly levered deals. And that's more where they're playing. But you're seeing them participate in the market.
Got it. What's going on in the commercial real estate market within the Chicago MSA?
You know, everyone's cautious on commercial real estate, right, and and the biggest [worry] I think people generally have concern on is the office space, and in Chicago, you know you read the headlines, or if you watch some of the news, you'll see a lot of the larger downtown older footprint sort of buildings, the older buildings. You know some of them have gone into foreclosure, and and you know they've turned the keys over to the lenders. Most of those lenders aren't mid-sized banks, and most of them aren't banks at all. They're the non-bank sector. We aren't a downtown big office building lender, so our average office loan is about $1.5 million, and it's very granular, mostly suburban. We just never were large high-rise condo or high-rise office building lenders.
But so Chicago sometimes gets a bad rap, and people look at it and say, well, the commercial real estate market's really bad because look at these foreclosures in downtown Chicago. But it's generally, it's almost a tale of two cities. If you're in the West Loop, it's a very good real estate market. It has moved out where there's newer buildings and more restaurants closer to the train station. And and and that market is very hot, and rents are high and stable, and vacancies are very low. If you go over to the you now the older part of the downtown area in the world, where it's the older office buildings, that's where there's stress. So you can be a half a mile apart, and you can have a great market and a bad market.
But for us, if if we watch it because if it has pressure on rents, that may have a ripple effect out into the suburban areas because there's just more supply. But it's not impacting us directly as a lender because we're just not doing that type of lending.
Sure. Sure. Okay. Overall, credit trends still seem to be normalizing. How are you thinking about the long-term net charge-off rate for Wintrust, and how does that impact the spreads that you're willing to underwrite at?
Yeah. You know, we've always thought over time that we historically have underwritten to sort of 20-30 basis points of credit losses. We have done better than that. I mean, that's just sort of how we how we think about the credit losses. Last year, we had 21 basis points. So before that, when rates were low and the market was so flush with liquidity, our charge-off rates were lower. But so, we sort of thought that the credit had normalized, as you said, but we sort of we sort of characterize it more as stabilized. It normalized, and it's now stable. I actually think you know last quarter, I think we had a higher level of actual upgrades of credits and downgrades of credit. and if you were sitting with me last year, I would have been more cautious on credit than I am today.
The credit to the market feels a little bit better today than it did a year ago, so it seems to have normalized, and you know we're hopeful that you know that is the case. We're in a risk business, and you know you have some losses all the time, but we do think that they will be, they will be. We look at the environment as stable right now.
Yeah. Yeah. We talked a little bit about commercial real estate and office specifically. We talked about the premium finance business. Are there any other segments out there that you think carry higher risk than what the street may be thinking, or are there any segments that regulators are focusing on in their discussions with you?
Yeah. Well, I think commercial real estate broadly. I think the regulators are worried about this nationwide, not just Chicago. I think just nationwide. I think they're focused on that because the higher rates put pressure on prices and debt service. But for us, the other the area that we saw some stress in last year, and we think we're that stress is generally over, that we've worked our way through, it was the transportation sector. And so sort of the last mile over the road, sort of trucking, saw some stress. It did really well during the pandemic and built up, but there was stress over the last couple of years. So we saw a little bit of increased charge-offs in our premium finance business where we're financing the transportation sector and a little bit in our leasing area. But we think we've really worked that through the process now.
We've tightened up our credit standards on the premium finance side and dealt with any issues that are out there. And that sector seems to be recovering a little bit. So that was one we were worried about more last year. We're still keeping our eye on, but we think we're generally through that process. The rest, you know knock on wood, seems to be going okay. And we're doing deep dives into the portfolio consistently to see if there's any trends, and we just don't see anything systemic out there right now.
Got it. Great. Great. Sticking with the balance sheet, on the deposit side of the equation, how is competition right now? Does it remain rational?
Chicago, Milwaukee, and Grand Rapids now, I think they're all rational markets. Our biggest market is Chicago. And if you think about that market, again, we're 7%-8% of the market share in Chicago, and we're the no. of largest bank headquartered in the Chicago area with that market share. The three that are bigger than us are Chase, BMO, and Bank of America. and none of those are really being aggressive with rates are very rational. And generally, the smaller community banks don't have loan growth. So there's really no need for them to go out and raise deposits if they don't have any place to invest them. The small banks really don't want to cannibalize their low-cost funding base by going out and being aggressive on deposit rates. so, the market is very rational right now. So, I don't see that changing either.
So our position in it is solid and growing, but through rational pricing.
Sure. What about the mix of deposits? How do you see that shifting throughout 2025?
I think it's going to be fairly stable. You know DDAs, Non-Interest-Bearing Deposits, we're basically 21% all of last year. First, second, third quarter, or all end of the quarter at 21%. Fourth quarter was 22%, but on average, it was at 21%. And so I look at it. It seems like the businesses have right-sized their cash balances to keeping what they need and investing the rest at higher rates, but keeping their operating accounts very stable. And so we've been growing our deposits, but we've also been growing our non-interest-bearing consistently by bringing in new middle-market customers and bringing in their operating accounts. So it you know it seems like you know four quarters is maybe a trend you know in a row that keeping at 21% seems like that seems to be the bottom. And so we'll work hard to continue to bring in middle-market businesses to grow that, but we're also growing the interest-bearing side.
So I think the mix will be very similar.
Got it. Got it. Let's shift to the net interest margin. You've talked about a roughly 3.50%, 3.50% NIM. It's where you've been kind of maintaining that outlook here, probably a stable NIM throughout the year. What are your assumptions underneath that to get to that stable NIM throughout the year?
Well you know, If you look at our disclosures for net interest margin and up and down scenarios, if rates go up 100 or down 100, we're relatively neutral. So when rates rose quickly, we were very patient in investing. So we didn't start investing in securities in the 1% handles long-term when rates were zero. It was very tempting to do that because we had $6-$7 billion at the Fed earning seven basis points. But you just knew rates had to go up sometime. And so we were patient. And so when rates did rise rapidly, our margin got into the high threes. And as it was getting to that position, we said, "We really need to protect the downside now." And so we got roughly $7 billion of interest rate swaps on the book to help protect the downside. And our balance sheet is fairly variable.
Its 70%-80% of our loans mature within a year or reprice within a year. And and you know we only have 20% of our CDs that are fixed rate on the liability side. And so the the both sides of the balance sheet are fairly variable. And so we can manage an up and down. And if rates come down, we're historically been slightly asset sensitive, but by putting the derivatives in place, we've sort of neutralized that now. And so we're happy with the 3.50 margin over a long period of time. We would be happy with that in a number of different rate environments. So we think if rates go up 25, 50, 75 basis points or down 25, 50, 75 basis points, we think we can hold the margin stable. We just think we've got the right mix on the balance sheet.
Getting out of an inverted curve, I think, is helpful to have you know the three to five-year end of the curve not being inverted because we do do some fixed rate lending off of that part of the curve, and getting the spreads off of a higher yield is better for us. So that provides some benefit here, even as rates have come down a little bit recently. So I always tell people we throw in all of our different asset classes and our liabilities, and we have the rates go up and down and twisted. And every time we mix up that pot of chili, each scoop that comes out is around three and a half. So you know unless something dramatic happens, if you had another pandemic and rates went to zero, we really think 350 is something we can hold on to for the foreseeable future here.
Sure. And as a growth-oriented bank, you know like you said earlier, loan growth was over 10% last year. On your new business, your new deposits, new loans, what type of spread is coming in on that growth?
It's right around 3.50.
Still 3.50.
We're getting the new, if you throw in the incremental deposit costs with special rates and just normal growth, it's coming on in the low threes. And asset yields of all types were coming on in the upper sixes, and that's about a three and a half margin.
Gotcha. Gotcha. Let's talk about operating expenses. On your call, you talked about another year of mid-single digit growth. Can you just clarify that your outlook for expenses in 2025?
Yeah. So you know the you have to put it in context. We're talking about growing the balance sheet mid to high single digits, and last year were double digits. So you know probably at the higher end of that range for the full year, given the current conditions, it seems very doable. So in my view, if you can get high single digit loan growth and balance sheet growth, and you can keep your expense growth 4% or 5% mid-single digits, you can get operating leverage out of that. And as a growth company, we've always invested in growth. I mean, if you historically look at us, we started as a de novo bank at zero in 1991, and we're $65 billion now. So we've always had steady, stable, but safe loan and deposit growth, and we've invested in the franchise. And you have to invest in the infrastructure to grow that franchise.
And so we think if we can get that operating leverage out of the system by growing the revenues faster than that expense growth and build the franchise at the same time, you bring those customers in, you can sell them other products and services and continue to solidify the franchise value. So if we don't get that mid to high single digit loan growth, then we don't think we'll have that expense growth. We do think there's leverage we can pull, so we don't have as much expense growth. But investing in the franchise is something we've done for 30 years, and it's paid dividends for us. So we're sticking with the model. The model, we've grown our tangible book value every year since we've been a public company, tangible book value per share.
And over the last one, two, three, five, 10 years, we've outperformed the KRX with total shareholders' return. So we think the model works, and we're builders. So we like to build, but if you build, you have to also spend money.
Sure. Now, you mentioned the entry into West Michigan with Macatawa. That deal has been closed now for a few months. How is that thing progressing?
It's going very well. I mean, the integration, we're sort of kindred spirits ypu know. We started as a de novo bank in the early 1990s. They started as a de novo bank in the mid-1990s, and so we both started up as de novo banks trying to fill a void in our markets, and so we both sort of do banking the same way, and so it was a perfect cultural fit for us. It's a great market. It's the 49th largest MSA in the country, not quite as big as our Milwaukee market, but not much smaller, and so it's a growing market. There's wealth in that market. They, as a smaller bank, didn't have as many tools in their tool belt from a lending perspective, so we have a lot we have a lot more lending products we can bring to that market. And they were very conservative lenders.
You know when we did due diligence on them, they were a public company. Their disclosure in the 10-Q. And we can get growth within that market. So again, it's going as planned. They're a fantastic team out there. I think they're excited to grow in that market and get the additional resources we provide them. So we're very optimistic. So going as planned, I would say.
Got it. Now, maybe I should ask this first, given the level of interest that we have from investors right now in M&A. But on the M&A side, we're expecting a wave to come through. At least some people are. How do you see Wintrust playing in the next in M&A over the coming couple of years?
Oh, well, as you know, I mean, we've been very acquisitive over our life. I mean, we've done dozens and dozens of deals and bank deals and non-bank deals and wealth deals and asset classes. And our first choice is to grow organically. We think we do that well. And M&A is just something to do if it fits strategically, culturally, and financially. We'll do those. We never plan on them in a budget and say, "We have to go get a deal." We don't say, "We have to do this to get growth." We only do them if they make sense to us. So we look all the time, but we only do them if they make sense. We pass on way more deals than we do. So I think we will be active in looking, and we'll have to see you know you know what makes sense out there.
Chatter is picking up among investment bankers calling me and asking us if we have an interest in a bank of this type of geography or size or business makeup. So they're testing the waters to see what interest is out there, and a few more of those calls now than we've seen in the past. So I expect 2025 to be more active. A lot of these small banks have succession issues where they don't have somebody that can step in. It's really costly to invest in technology and growing the regulatory compliance infrastructure and the information security infrastructure and the digital products that you need to be competitive, and they either need to go big, just stay stable where they're at, and not really grow, or they got to sell.
I think a lot of them look at it now and say, "Well, the bank multiples are pretty good. The regulatory approval process seems pretty good. And you know the economy seems pretty good. So maybe this is the time to at least think about it." So I think I think we'll see a lot of at-bats. I'm not sure how many we'll take a swing at, but I think we'll see a number of at-bats this year.
Do you see any holes in your own footprint or any geographies that you really would like to get to? And then the flip side, any geographies that you just have no interest in?
Well from as you know, we do business in all 50 states from a lending perspective. So if there's a lending opportunity, I think we would look anywhere if it made sense. From a retail banking perspective, we sort of like to have concentric circles. We like to build out from where we're at. And so we have Chicago, Milwaukee. We went to Grand Rapids. So there's a little hole in Northwest Indiana, which we've been filling in with de novo branches. But if we could get an acquisition in that Northwest Indiana area, that would fill that hole. That would be interesting to us. Other than that, it would just sort of be concentric out. And you know eventually, I guess if you drew the line you know from Indianapolis to St. Louis to Minneapolis, everything in between there we'd eventually get to. But we try to stay closer to home initially.
We just think we know those markets better. And if you have opportunities for your staff to be promoted, you know sometimes if it's a concentric market that's close, maybe they have to drive 45 minutes to get to their new location for an opportunity, but they don't have to move their family three states over. So you know we think that creates opportunities for staff too.
Got it. Got it. Excellent. Well, Dave, thank you very much for the discussion today. Those of you that are interested, we're going to continue the discussion downstairs in room Cordova 5. Thank you very much.