Wintrust Keeping Mind Open to Acquisition Activity

Chicago might be home for Wintrust Financial (WTFC), but Ed Wehmer, the company's chief executive, says he has never had a bad time in nearby Wisconsin.

The $18.2 billion-asset company has been busy building out Town Bank, its bank in Hartland, Wis. Wintrust  last week struck two branch deals that will add a total of 12 branches, $90 million in assets and $400 million in deposits.

"Town Bank runs from Milwaukee to Madison, and this fills in the space underneath it," Wehmer said in an interview Friday. "This gives us more bulkheads with opportunities to build and grow."

The deals fit well into the Wintrust's acquisition strategy. Wintrust had completed several deals that other companies of its size would overlook, based on a prevalent industry belief that smaller deals don't move the needle enough. They add up to real earnings growth over time, Wehmer says.

"They are not earth-shattering, but we don't mind doing the smaller deals," Wehmer says. "They are often having a hard time growing organically in this rate environment. We pick up the liquidity and put it to use."

Those underleveraged banks could be used as fuel for Wintrust's loan growth. On Tuesday the company reported that total loans were $13.1 billion on March 31, a 7% increase from Dec. 31.

The company's first-quarter earnings rose 8% from a year earlier, to $34.5 million. The loan growth pushed Wintrust's net interest income up nearly 11% from a year earlier, to $144 million. The net interest margin expanded 20 basis points, to 3.61%.

Wintrust's loan-loss provision fell from $15.7 million a year earlier to $1.9 million.

The top-line improvements were offset by a 20% reduction in fee income, driven primarily by mortgage banking, and a 9% increase in noninterest expenses.

The branch acquisitions would drop Wintrust's loan-to-deposit ratio from roughly 90% to 87%, Brad Milsaps, an analyst with Sandler O'Neill, wrote in a note to clients last week. That ratio is becoming more important to bankers and regulators due to caution for liquidity when interest rates rise. Bank deals driven by the desire to lower that ratio are on the rise, too.

Wintrust might also be more active in Wisconsin because pricing for deals is relatively higher in Chicago, Milsaps added.

The pricing for Wintrust's agreement to buy a branch from Triumph Bancorp was not disclosed. Talmer Bancorp (TLMR) said in a regulatory filing that Wintrust would pay "$13.5 million more than the net book value of the assets" for its 11 branches and $360 million in deposits.

Wintrust had pursued Talmer's franchise before. In 2010, Wintrust and Talmer, then known as First Michigan Bank, bid on the $750 million-asset First Banking Center in Burlington, Wis., after it was seized by regulators.

Data from the Federal Deposit Insurance Corp. show that Wintrust was willing to pay a higher deposit premium — it offered 1.1%, compared to First Michigan's offer of 0.5% — but First Michigan's discount to the assets was less severe. First Michigan also asked the FDIC for less coverage in one tranche of the loss-share arrangement.

Wintrust remains on the hunt for deals in Illinois and Wisconsin, Wehmer says. The dynamics are different in those states, though. The colorful CEO often talks about inbound calls his company receives from banks looking to pair with it. He gets fewer calls from Wisconsin, but deals in Chicago take longer to get struck, too.

"We continue to look at opportunities in Chicago," Wehmer says. "They are plentiful, but the gestation periods can be longer."

Popular (BPOP) in Puerto Rico is reportedly looking to sell its dozen branches in Chicago, but Wehmer declined to say whether Wintrust would have any interest in them.