Fitch Affirms Wintrust Financial at 'BBB/F2' Following Mid-Tier Regional Peer Review; Outlook Stable

Fitch Ratings has affirmed Wintrust Financial Corp.'s (WTFC) ratings at 'BBB/F2'. The Rating Outlook remains Stable. A full list of rating actions is provided at the end of this rating action commentary.

The rating action follows a periodic review of the mid-tier regional banking group, which includes BOK Financial Corp. (BOKF), Cathay General Bancorp (CATY), East West Bancorp, Inc. (EWBC), First Horizon National Corp. (FHN), First National of Nebraska, Inc. (FNNI), First Republic Bank (FRC), Fulton Financial Corp (FULT), People's United Financial Inc. (PBCT), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), Webster Financial Corp. (WBS), Wintrust Financial Corp (WTFC), and UMB Financial Corporation (UMB).

Company-specific rating rationales for the other banks are published separately.

KEY RATING DRIVERS - IDRs, VRs AND SENIOR DEBT

Today's affirmation reflects Fitch's view that WTFC remains a steady performer from an earnings perspective and that management has maintained its consistent, conservative risk appetite and strategy over recent periods. While asset growth remains fairly robust relative to peers due to the continued strategy of buying small community banks, Fitch observes that the company has maintained adequate capital ratios and has successfully integrated acquisitions, as it has done in the past. The Stable Outlook reflects Fitch's expectation that asset growth will continue to be supported by capital retention, and asset quality will remain strong relative to peers.

Fitch recognizes WTFC's relatively strong asset quality compared to similarly rated peers and believes it is a reflection of management's credit risk management philosophy. Nonperforming assets (NPAs) as a portion of loans and real estate owned (REO) have continued a downward march, dropping from 1.72% at fourth quarter 2013 (4Q'13) to 1.29% at 4Q'14. This level compares favorably to similarly rated peers. Fitch notes that the decrease has been accomplished with relatively little credit loss, at just 20 basis points (bps) for the entire year of 2014.

Fitch also views the company's premium finance loan book as generally positive given its size relative to the overall loan portfolio and the low credit losses generated out of it. Annualized normal net charge-offs (NCOs) related to WTFC's property and casualty (P&C) premium finance portfolio have averaged well-under 20bps over the last 15 quarters while the life insurance premium finance book has generated just 1bp of NCOs over the same time period, on average. These two portfolios continue to account for nearly one-third of WTFC's loan book.

Fitch believes that WTFC is constrained at its current rating given its tepid earnings performance relative to higher rated peers. The company's 2014 return on assets (ROA) of 81bps is lower than similarly and higher rated institutions. However, Fitch views WTFC's performance in the context of its lower overall risk profile and observes that earnings are adequate to generate capital that supports asset growth. Fitch expects earnings to continue to lag given its relatively higher cost structure and higher reliance on certificates of deposits (CDs) compared to peers. This expectation is incorporated into today's affirmation and the Stable Outlook.

Further constraining the company's ratings is its geographic concentration within its loan book. The vast majority of WTFC's core loan book (excluding premium finance loans) is located in the state of Illinois with much of it in the greater Chicagoland area. In general, Fitch views the Chicago market as densely populated by banks and economically challenged which could result in prolonged periods of tepid earnings and elevated nonperforming assets (NPAs) relative to historical levels. Fitch recognizes that WTFC has attempted to diversify its reliance on Chicago through acquisitions of a pair of community banks in southeastern Wisconsin and through the continued build-out of its mortgage banking operation. Still, today's rating action incorporates Fitch's view that the company will remain concentrated in and around the Chicagoland area due to its strategy and business model.

With a TCE ratio of 7.8% as of 4Q'14, capital is considered adequate relative to others in WTFC's peer group and relative to its overall risk profile. Regulatory capital ratios are also considered ample. Fitch notes that WTFC's rating not only reflects its ability to maintain an adequate capital base through the cycle, but its ability to maintain capital even with strong asset growth and its demonstrated ability to raise capital in the private and public markets. This was once again evidenced in mid-2014 when the company successfully executed a $140 million subordinated debt offering at reasonable market terms.

RATING SENSITIVITIES - IDRS, VRs AND SENIOR DEBT

Negative trends in earnings or a reversal in current asset quality trends (particularly in the premium finance book) leading to earnings and capital deterioration could prompt negative rating action. Furthermore, if growth (either through acquisition or organic) were to exceed Fitch's comfort level, and capital levels fell materially below their current levels, the rating or Outlook could be adversely impacted.

Fitch views WTFC's ratings as solidly placed at 'BBB'. However, if earnings performance were to improve to more in line with higher rated peers while management maintained its solid, conservative risk management practices and AQ trends maintained their positive course, Fitch could take positive rating action over the long term.

KEY RATING DRIVERS - HOLDING COMPANY

WTFC's IDR and VR are equalized with its operating subsidiaries (listed below), reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

RATING SENSITIVITIES - HOLDING COMPANY

Should WTFC's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely, though, for WTFC given the strength of the holding company liquidity profile.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

WTFC has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, WTFC is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

WTFC's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt and other hybrid capital issued by WTFC and by various issuing vehicles are all notched down from WTFC or its bank subsidiaries' VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of subordinated debt and other hybrid capital issued by WTFC and its subsidiaries are primarily sensitive to any change in WTFC's VR.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS

WTFC's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by WTFC and its subsidiaries are primarily sensitive to any change in WTFC's long- and short-term IDRs.

Fitch has affirmed the following ratings with a Stable Outlook:

Wintrust Financial Corporation

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Subordinated Debt at 'BBB-';

--Preferred Stock at 'B+';

--Support at '5';

--Support Rating Floor at 'NF'.

Lake Forest Bank and Trust Company

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating at 'NF'.

Hinsdale Bank and Trust Company

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Wintrust Bank

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Libertyville Bank and Trust Company

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Barrington Bank and Trust Company, NA

Long-Term IDR at 'BBB';

Short-Term IDR at 'F2';

Viability Rating at 'bbb';

Long-Term Deposits at 'BBB+';

Short-Term Deposits at 'F2';

Support at '5';

Support Rating Floor at 'NF'.

Crystal Lake Bank and Trust Company, NA

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Northbrook Bank and Trust Company

--Long-Term IDR at 'BBB';

Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Schaumburg Bank and Trust Company, NA

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Village Bank and Trust

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Beverly Bank and Trust Company, NA

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Town Bank

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Wheaton Bank and Trust

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

State Bank of the Lakes

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Old Plank Trail Community Bank, NA

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

St. Charles Bank and Trust Company

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Long-Term Deposits at 'BBB+';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating Floor at 'NF'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--U.S. Banking Quarterly comment: 4Q14 (Jan. 28, 2015)

--U.S. Banks: The Risks with Energy Slide (Jan. 16, 2015)

--U.S. Basel III and Dodd Frank Act Regulatory Guide (Nov. 21, 2014)

--'2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)' (Nov. 12, 2014);

--'U.S. Banks: Implications of an Interest Rate Shock Scenario' (Oct. 30, 2014)

--U.S. Banks: Liquidity and Deposit Funding (Aug. 08, 2013);

--U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) (June 18, 2013);

--U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? (July 11, 2013);

--'Index Trend Analysis - 4Q14 (Fitch Fundamentals Index Remains Neutral)' (January 2015);

--'Risk Radar Global 3Q14' (Sept. 15, 2014);

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' (Jan. 31, 2014);

--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles' (March 27, 2014);

--'Rating Considerations for U.S. Bank Holdco & Opcos' (Update on Position Outlined in 1Q14) (Dec. 1, 2014)

Applicable Criteria and Related Research:

Rating Considerations for U.S. Bank Holdco & Opcos (Update on Position Outlined in 1Q14)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=821068

U.S. Bank HoldCos & OpCos: Evolving Risk Profiles

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742096

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Risk Radar Global 3Q14

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=773568

U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In?

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712539

U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875

U.S. Banks: Liquidity and Deposit Funding

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196

U.S. Banks: Implications of an Interest Rate Shock Scenario

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=800748

2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=809228

U.S. Basel III and Dodd Frank Act Regulatory Guide (Applicability of New Bank Regulations in the U.S.)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=798848

U.S. Banks: The Risks with Energy Slide

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=854268

U.S. Banking Quarterly Comment: 4Q14 (All Eyes on Oil Prices and Interest Rates)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=849388

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978961

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