Though its latest acquisition deal is its biggest ever, Wintrust Financial Corp. of Lake Forest, Ill., is not looking for even bigger targets, its chief executive says.
The $8 billion-asset multibank holding company typically buys small banking companies that are less than 10 years old and need more capital to keep growing. But on Monday it announced that it had agreed to pay $114 million for Hinsbrook Bancshares Inc. of Willowbrook, Ill., which was founded in 1987 and has nearly $500 million of assets.
Edward J. Wehmer, who is also Wintrust’s president, said it does not have much appetite for companies bigger than Hinsbrook.
“You never say never,” Mr. Wehmer said late Monday, “but practically speaking, as the deals get bigger it gets harder for us to match culture and to match the economics.”
Wintrust, which operates 13 community banks in the Chicago area, has been an active acquirer. It has bought five since December 2003 and paid less than $50 million for all but one — the $439 million-asset Antioch Holding Co. of Antioch, Ill., which it bought for $95 million.
Mr. Wehmer said it decided to buy Hinsbrook because it is a stellar performer in markets complementary to Wintrust’s. (Hinsbrook’s five branches are in the suburbs west of Chicago.)
Hinsbrook reported a 1.57% return on assets for the first nine months of the year, a 18.35% return on equity, and an efficiency ratio of 41.28%. All three were significantly better than average for commercial banks in its asset class, according to Federal Deposit Insurance Corp. statistics.
Mr. Wehmer said large banks cost too much — Wintrust is paying about 3.01 times book value for Hinsbrook — and bigger companies can typically outbid his.
Acquired operations must also be small enough to integrate easily without disrupting earnings, he said.
“Most of the deals we have, we can just bolt them on and keep them running by offering them a higher lending limit,” Mr. Wehmer said. “We’re actually an attractive buyer to anyone who wants to keep working and continue to build their business.”
Buying start-up banks and letting them operate independently has worked out well for Wintrust. Its assets have more than doubled since the end of 2002, and its net income for the first nine months of this year, $62.2 million, nearly equaled the full-year total for 2004.
Its stock has also become an investor favorite. It closed at $58.04 Tuesday, and is up about 85% since the end of 2002.
And there is no shortage of targets in the Chicago area, one of the most active in the country for start-up banks. Five have opened in there the average year since 2000; the largest of them — apart from those Wintrust owns — has about $400 million of assets.
Ronald J. Peterson, an analyst with Moors & Cabot Inc. in Chicago, said Wintrust’s strategy would continue to be effective as start-up banks consider selling after they reach a size at which they need more capital, as Wintrust’s previous acquisitions did.
“Some of these smaller, de novo banks have hit the wall, and either they have to go to their shareholders for more capital or they have to find a partner,” Mr. Peterson said. “Sometimes it is easier to find a partner rather than go back and ask your shareholders for more capital.”
