JOHN KVANTAS
PORTFOLIO MANAGER
BB&T SMALL CAP VALUE FUND

COMPANY: Wintrust Financial
TICKER: WTFC (Nasdaq)
PRICE: $53.88 (as of 4 p.m. Friday)
52-WEEK RANGE: $45.00-$59.63
MARKET CAPITALIZATION: $1.29 billion

John Kvantas is a portfolio manager with the BB&T Small Cap Value Fund (BTVIX), with more than $68 million in assets under management. Wintrust Financial is a banking and financial services company based in Illinois. Mr. Kvantas spoke to David Dalley of The New York Sun about why he thinks it’s a good buy.

What does Wintrust do?

They’re a Chicago-based community bank with about 60 branches/offices in the metro Chicago area, and in Northeast Wisconsin. Their niche is to target the affluent market, and a lot of their branches are situated in some of the higher-income suburbs.

They recently made a number of acquisitions of other banks. They keep the actual branch exactly how it was (in name and appearance), and they keep the same people. But they consolidate the back office area. There are no bank branches called ‘Wintrust’ – that’s just the holding company.

Why do you like the company?

They have the seventh highest deposit market share in the Chicago area. It’s a very fragmented market, there are a lot of banks, and none have a huge market share. The top 10 players have just over 50%. That benefits Wintrust both in terms of competition and expansion opportunities.

They’ve done really well over the past few years. They’ve had double digit loan/deposit growth and their credit quality metrics are around industry averages. The yield curve is flat right now and that’s usually pretty tough on banks because margins become tight, but Wintrust has been able to keep their interest margins pretty stable. They have a well-managed balance sheet.

What got us interested were their recent fourth quarter results. Loan growth was less than expected and the stock was down about 7% over a couple days earlier this year. It got down to the low 50s (it had been up to as much as $62 not long before).We started buying at that point.

So you didn’t think that the lower growth report was serious?

Right now, the company is trading at about two-times book value, and for a pretty decent bank growing pretty nicely that’s cheap. The average over the past few years has been around 2 1/2 times, so it looked like it had just had a weak quarter, not something worth being concerned over. We decided it was a good time to get in.

What will propel growth going forward?

They’ll continue to open more branches in other parts of the metro Chicago area. They have 60 branches in the area so far and there’s plenty of room for them to expand. Growth won’t be an issue.

What do you think the stock is worth?

Conservatively, we value it at around $64.There’s no real time frame on that, we don’t try and guess. We just do our valuation work and determine a conservative figure. We hold stocks anywhere from three to five years, so we’re willing to wait.

What are the risks?

It’s a similar story to most other banks. The flattening yield curve is always a challenge, especially for smaller banks that don’t have as diverse an earnings stream. They’re very dependent on the net interest margin. But as I said, they’re handling that situation pretty well right now.