Wintrust Financial Earnings Call Insights: Growth Metrics and Expenses
Wintrust Financial Corp (NASDAQ:WTFC) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Stephen Scinicariello – UBS Securities: So as you look at the dislocated asset pipeline for 2013 the best gauge that you have how much do you think it is going to be tilted towards kind of these organic growth and how much tilted towards bolting on more of these platforms or business lines?
Edward J. Wehmer – President and CEO: I think you can look at our historical numbers as it relates to that. We are back to the – our pre-2006 kind of growth metrics, but we expect every bank – every bank charter to grow $70 million, $75 million a year which brings us to about $1 billion worth of organic growth in the system right now, maybe a little more and maybe a little bit less, tempered by our ability to generate earning assets. I would expect that everything on top of that would come through opportunities on the acquisition side either FDIC or unassisted. Again they are lined up like claims overall here again. So, we think that organic growth will be anywhere between $900 million and $1.2 billion, and everything else would be through acquisitions. So, on the niche side of things, we continue to look at earning asset platforms to diversify the balance sheet. We found a couple of nice ones that related to the retail-oriented. This is how the regulations affect us. We shied away from it. We figured that any retail oriented niche program where you can make any money it’s only a matter time before the (CFTB) comes down and tells you, you can’t do it and we’re not willing to take that risk. So, we’re looking more on the commercial side of things and we will continue to do that throughout the course of the year, because it’s really all going to boil down to the generation of earning assets. As indicated by this quarter, you can build a lot of liquidity and not make any money on it in this rate environment. So, you have to be able to be asset driven and generate earning assets and we would be very active in trying to diversify that platform, but continuing to grow throughout our franchise. We’ve got great – as I mentioned, we’ve got great momentum on the core loan side of the business. Our promotional guys are really hit the cover off the ball and have succeeded beyond my wildest dreams, when we embarked on this 2.5 years ago. The Wintrust name from not being known in Chicago three years ago by design is now, as my kids say, you’re welcome to the ’90s Mr. Banks and everybody is (indiscernible) I guess I should say on their context right now. But we have a great reputation in the market. We’ve got great momentum in the market. We’ve got great people. We’ve got a great plan to execute. So, being asset driven is critical to everything that we do here, and we will continue to do that in a diversified fashion. Hope I answered your question.
Stephen Scinicariello – UBS Securities: Definitely, it was great color. Then the only other one I had for you is, just given the massive amount of build in the liquidity management asset like you said, would just kind of climb in the ladder, but with these things approaching 16%, 17% of total asset, what’s kind of the right level and assuming it’s a little bit below that, as you look ahead, I mean, into this kind of repricing environment, do you kind of see, kind of that core, kind of 10-ish or less basis points or just repricing headwind that you don’t have to drill through as we look kind of going forward, just kind of trying to gauge kind of what you’re up against in terms of like a margin headwind?
Edward J. Wehmer – President and CEO: Well, margin headwinds are going to be there, and it’s so exacerbated by the rate environment that we’re in. It’s like we’re playing the football game constantly in the red zone, we don’t have a lot of field to play with here, but as I mentioned when I went through that quick example. It is going to be hard for the margin to go up without getting some niche assets – some FDIC related assets. But net interest income we think will flourish this year and without the commensurate increase in expenses. So, we believe that we can – we actually can help our metrics materially by – but the margin will be down doing it. So, you can focus on the margin or you can focus on absolute dollars and as employing the leverage that we have both into the system. Every one of our operating subsidiary has an objective this year to keep their expense growth on a same-store approach and not withstanding acquisitions is like less than 1%, 1% or less. That’s the goal this year. Everybody who got it that floats into their budget, so we can do that. Yeah, we might have – the margin is like everybody else is going to be under pressure, but the net interest income itself will drive and improve our metrics. So, that improved credit quality should bode well for us this year. We are also working very – Dave mentioned, we’ve been putting on a series of interest rate caps like and (indiscernible) them in going forward to continue to prepare the balance sheet for higher rates. I can’t fight nature here it is what it is, the market is what it is. But we can make more money this year, and we expect to. But we can’t prepare ourselves when rates go up and get that beach ball underwater effect. So, you can’t fight city hall but you can certainly work around and make more money.
Jon Arfstrom – RBC Capital Markets: The number of (indiscernible) on this call are at an all-time high, so I’m going to throw one back at you on expenses. I believe you’d use the term, wring the chamois in the past on expenses. Is it time to do that Ed or is this just trying to trim back the rate of growth and you may get more aggressive later? I just want to understand where you are in your thought process on expenses?
Edward J. Wehmer – President and CEO: Well, we have to get more out of what we have, John. That’s the issue. We will be divesting those second federal in February, that will be expenses. We do have a number of the deals that we did last year, but we’re coming up with conversion in subsequent quarters which allows us to cut expenses once that’s done. We’re not the type of guys that do massive risks but we try to do those things to make sure that through attrition we’re able to replace those people who would be displaced when we do these conversions so we can take advantage of that. So, we think there’s lots of places that can cut expenses that we can be very careful. We think that our expense base can support a lot more growth than we have. So, we just got to be really careful. Last year, we did a number of programs to maintain, to control and to reduce expenses. I think our expense ratios are pretty damn good right now, at each of the operating companies, but there’s a lot of leverage built in. So, I don’t know if I answered your question. Dave, you want to comment on this?
David A. Dykstra – SEVP and COO: I think what Ed said is correct. We do have two conversions with First United coming up in May and Hyde Park coming up in February, once we’re through that, that will help us integrate loans a little bit better and reduce some cost. There’s also leverage if you look in the premium finance side of the equation and for a little over a year now the market every month has hardened form a premium perspective, rates are higher than they were in the prior year month, and if we can take our average ticket size and increase it 10% or 20% and we’re really –we’ve come off the all-time lows until the market started hardened, but our average ticket size is around $22,000, bottom that around 20, but – and the last hard market was up around $40,000. So, if we can just go up 10% or 20% and get those numbers up 27,000 or 28,000 which is sort of long-term average for us, we can do all of that with no additional overhead and can put on $300,000, $400,000 or $500,000 or $1 million of additional loan. So, there is a lot of leverage built in the premium finance side, but we have to wait for that market to harden a little bit. Then on bank side, as Ed said we are there. Our efficient ratio as we talked before tend to be a little bit higher in periods of large mortgage originations because that business is a much higher efficiency ratio business than the banking business in general and also our wealth management operation, we have a fairly large wealth brokerage operation relative to other companies our size and that tends to operate at a higher loan efficiency ratio also, but we will continue to grow into this infrastructure and there’s plenty of growth opportunities as Ed said. Our plate has never been full with people wanting to talk to us right now?
Edward J. Wehmer – President and CEO: There are two things. We invest money before going into something. Our SBA program, we’ve got 16 people in our SBA department right now but we are just putting into place 13 months ago, 14 months ago. They have moved up to be I think one or two are in the state in terms of their production in SBA and we are making a hard push there, but that’s the type of leverage these investments that we made. Investments that we made in our downtown office where we have got 50 plus commercial officers and all the support people they are operating at about 50% capacity right now as they have built this portfolio. So, there is a lot of – that’s what I mean about capacity. We’ve made investments on the earning asset side and growing the business where we have a lot of capacity that we can grow without commensurate increases in expense and we will have some expense cuts coming from the – when we convert and do those other things that we can use also. So, it is – get driven home to every CEO – pretty much every time I talk to them which is you can understand how pleasant they find that.
Jon Arfstrom – RBC Capital Markets: Building for future growth, I understand that. Just the statement that’s kind of the wholly grown and that’s the one thing that I know that and you know (indiscernible) investors as the expense base, so I am happy to hear that because people want to see those returns come up? Then I guess that brings the second question is just on the credit cost. Couple of quarters ago you talked about a light at the end of the tunnel and you said you hope it is not a train, it doesn’t seem like that’s the case. Are you seeing anything out there on credit that upsets you or do you think that this is finally the time where the credit cost are going to start to come down?
Edward J. Wehmer – President and CEO: We hope for the latter, and that’s what we think is going to happen. We’ve been very aggressive and we’ve not kicked the can down the road in any way shape or form. You haven’t – not that there’s anything wrong with this, but you haven’t seen us after the result from the loan sale where we have to sell a bunch of loans at 50% of cost. We haven’t had to do that. We’ve dealt with our issues. We’re identifying them quickly, we kick them out. We haven’t played any games, not that anybody else is. All I’m saying is that we take them one at a time, we identify and we push them out. At his point in time, our non-performers are 1% and you could see if you could take a barometer, you would say, oh you released a lot of reserves. A lot of that stuff was pushed out. So, we are very hopeful that – we think that this $40 million pre-tax built in when we return to our normalized levels of charge-offs and credit costs. So, the sooner we get there the better, I think you’ve seen good progress year-over-year and hopefully this would be a very, very good year in that regard. We don’t see anything but you never know, Don, you never know what’s going to pop up and I don’t like to say it, because then people try to manage to it and I don’t want people to manage to it. I want to create – you got a problem, bring it up, let’s get it out of here. We’ve put a number out there, outside people trying to work around it manage to it and then we’re going to have – we might have problems down the road. That’s a management style that has people kicking the can down the road and that’s not what we do. We feel pretty good about where it’s going. We think we’re in pretty good shape in that regard, but that’s an upside for us and we feel good about that upside, that’s about all I can say.