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Wintrust shopping for mortgage originators, closed to inflated deal prices

Wintrust Financial Corp. remains open to whole-bank deals but said the time may be right for acquiring mortgage origination assets or talent, according to comments made by management during the bank's fourth-quarter 2016 and full-year 2016 earnings call Jan. 19.

The bank announced fourth-quarter 2016 net income of $54.6 million, or 94 cents per diluted common share. That compared to net income of $53.1 million or 92 cents per diluted common share in the quarter prior and $35.5 million or 64 cents per diluted common share a year ago. The bank announced that net income for 2016 was $206.9 million or $3.66 per diluted common share, compared to net income of $156.7 million or $2.93 per diluted common share in 2015.

Wintrust management seemed open to bank acquisitions but swore to exercise price discipline in the recent run-up of bank stock prices. The increase in share prices following the November 2016 presidential election has played a notable role in at least two bank deals, including the pending sale of Chicagoland peer PrivateBancorp Inc. to Canadian Imperial Bank of Commerce. The increase in share price experienced by PrivateBancorp closed the premium price gap that Canadian Imperial Bank of Commerce offered for the bank, leading to a delay in the shareholder vote. But at the same time as share prices have increased and potentially put pressure on deal premiums, a changing regulatory environment may convince some would-be sellers to stay in the game rather than partner with banks like Wintrust, an analyst on the call observed.

One executive joked that seller expectations for deal prices seem to increase as Wintrust's own stock increases. He said the bank remains committed to doing accretive deals to avoid dilution and enhance its tangible book value.

The executive said the probability of a larger-bank acquisition has not changed, and the strategy of acquiring community institutions continues to work. An executive said federal regulators tend to become more involved when a bank does multiple deals, which in part led to a rationing of activity, but that they had not heard anything about "cracking down" on consolidators.

One type of acquisition the bank is considering is the addition of mortgage originators, following the December 2016 increase in interest rates and the related, expected decline in mortgage applications. COO David Dykstra said producer pipelines tend to fall following interest rate increases, making originators "a little bit more willing" to enter acquisition talks. He said the industry is predicting mortgage production volume may fall 35% to 40%.

"We actively are talking to producers in the market at all times. And likewise we are talking to a few other firms about potentially acquiring their assets and their people and their locations," he said. "We're actively looking on both of those fronts."

He said the bank has very little outlook on mortgage activity, other than expecting refinances to fall, because new applications that would be impacted by the recent interest rate increase have yet to be completed. Wintrust's pipeline has held up against peers because the bank does not originate many wholesale loans, and the resale market tends to perform better when mortgage rates rise and demand falls, Dykstra said.

He had little to say about 2017 outlook, but added that there is a "real possibility" of "material positive effects" for the bank stemming from an interest rate increase and regulatory and corporate tax relief.