# Wintrust Financial Corp: Form 10-Q for the period ended Mar 31, 2020

- Company: [Wintrust Financial Corp](/companies/wtfc.md) (CIK 1015328)
- Form: 10-Q
- Filed: 2020-05-05
- Accepted by EDGAR: May 4, 2020, 20:13 ET
- Period: 2020-03-31
- Accession: 0001015328-20-000120
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1015328/000101532820000120/wtfc-20200331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1015328/000101532820000120/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $43.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Interest expense | 3 months, 2020-01-01 to 2020-03-31 | $82.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-01-01 to 2020-03-31 | $24.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | $62.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-01-01 to 2020-03-31 | $1.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-01-01 to 2020-03-31 | $1.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-01-01 to 2020-03-31 | 58,195,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | −$379.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-01-01 to 2020-03-31 | $21.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2020-01-01 to 2020-03-31 | $18.2m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2020-01-01 to 2020-03-31 | $37.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2020-03-31 | $38.80bn | us-gaap:Assets |
| Total liabilities | at 2020-03-31 | $35.10bn | us-gaap:Liabilities |
| Short-term borrowings | at 2020-03-31 | $12.1m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2020-03-31 | $3.70bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 143,696 characters.

### MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

### CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition as of March 31, 2020 compared with December 31, 2019 and March 31, 2019, and the results of operations for the three month periods ended March 31, 2020 and March 31, 2019, should be read in conjunction with the unaudited consolidated financial statements and notes contained in this report and the risk factors discussed herein and under Item 1A of the Company’s 2019 Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties and, as such, future results could differ significantly from management’s current expectations. See the last section of this discussion for further information on forward-looking statements.

### Introduction

Wintrust is a financial holding company that provides traditional community banking services, primarily in the Chicago metropolitan area, southern Wisconsin and northwest Indiana, and operates other financing businesses on a national basis and in Canada through several non-bank business units. Additionally, Wintrust offers a full array of wealth management services primarily to customers in the Chicago metropolitan area, southern Wisconsin and northwest Indiana.

### Overview

### Impact of COVID-19

In March 2020, the outbreak of COVID-19 was recognized as a global pandemic by the World Health Organization, resulting in unprecedented uncertainty and volatility in world-wide financial markets. Governments' actions calling for shelter in place and social distancing have led to rapid changes in business revenues, increased unemployment, and have impacted consumer activity; all of which have impacted and may continue to impact the Company's current and future results.

The Company activated its pandemic response plan in early March, as well as applicable elements of its business continuity plan. In order to protect the health of our customers and employees, and in accordance with applicable government directives, we have modified certain of our business protocols to direct employees to work from home unless their role requires them to be on site, in which case we have implemented enhanced safety measures including social distancing, enhanced cleaning and sanitization, and certain personal protective equipment, as well as the closure of most branch lobbies and the use of our branch drive-up facilities to meet our customer’s banking needs unless specific services require lobby service by appointment.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was enacted. The CARES Act includes appropriations and other measures designed to address the impact of the COVID-19 pandemic, including the Paycheck Protection Program ("PPP"), which is designed to aid eligible small and medium-sized businesses through federally-guaranteed loans distributed through certain banks, under the administration of the Small Business Administration ("SBA"). As of April 30, 2020, the Company had secured authorization from the SBA to fund approximately 11,000 PPP loans totaling approximately $3.5 billion. See Part I, Item 1, note 19 “Subsequent Events” of this Form 10-Q for the fiscal quarter ended March 31, 2020. PPP loans are forgivable under certain circumstances, including the borrower’s use of certain loan proceeds to fund employee payroll during the eight-week period following disbursement of the borrower’s PPP loan. Although the SBA has issued some recent guidance regarding the reporting of PPP loans by lenders as a prerequisite to receipt of lenders’ loan processing fees, the SBA has not yet issued definitive guidance as to the administration of the loan forgiveness and guaranty process and there can be no assurances as to such process or the timing or receipt of loan processing fees or guaranty proceeds. The Company estimates loan processing fees, net of deferred origination costs and agency fees as allowed by law, to be approximately 2.50% to 2.75% of the final loan principal balance, which would be recognized to net interest income over the life of the loans or shorter if repaid prior to maturity.

All of our three primary business segments, community banking, specialty finance and wealth management, have been uniquely impacted and will likely continue to be impacted by the COVID-19 pandemic, requiring the implementation of certain responses as circumstances evolve. As non-exclusive examples of such impacts, our community banking business, including our mortgage business, has received and will continue to receive borrower requests for temporary payment relief including payment deferrals. Our insurance premium finance business is impacted by certain state legislation prohibiting cancelling of insurance policies for designated periods. Our wealth management business is impacted by factors including increased stock market volatility.

Given the significant uncertainty regarding future economic conditions, the Company has taken actions to help ensure that it has adequate liquidity and capital to manage through the COVID-19 pandemic, including the temporary suspension of our common stock repurchase program. We believe the Company has adequate liquidity and capital to effectively manage through the COVID-19 pandemic. However, we will continue to prudently evaluate and expand liquidity sources, including the possible utilization of the PPP liquidity facility, if necessary.

We continue to monitor the impact of COVID-19 closely; however, the extent to which the COVID-19 pandemic will impact our operations and financial conditions is highly uncertain. Please also refer to Part II, Item 1A, “Risk Factors” of this Form 10-Q for additional information.

### First Quarter Highlights

The Company recorded net income of $62.8 million for the first quarter of 2020 compared to $89.1 million in the first quarter of 2019. The results for the first quarter of 2020 demonstrate continued momentum on our operating strengths including steady loan and deposit growth, and increased revenue from mortgage banking and wealth management services, offset by increased provision for credit losses primarily related to the implementation of CECL and the economic conditions created by the COVID-19 pandemic. Net interest income decreased in the current period as a result of a decrease in net interest margin partially mitigated by continued loan growth in the first quarter of 2020 compared to the same period of 2019.

The Company increased its loan portfolio from $24.2 billion at March 31, 2019 and $26.8 billion at December 31, 2019 to $27.8 billion at March 31, 2020. The increase in the current period compared to the prior periods was primarily a result of the Company’s growth in the commercial, commercial real estate, commercial premium finance receivables and life insurance premium finance receivables portfolios. For more information regarding changes in the Company’s loan portfolio, see Financial Condition – Interest Earning Assets and Note 6 - Loans of the Consolidated Financial Statements in Item 1 of this report.

The Company recorded net interest income of $261.4 million in the first quarter of 2020 compared to $262.0 million in the first quarter of 2019. The nearly sustained level of net interest income recorded in the first quarter of 2020 compared to the first quarter of 2019 resulted primarily from a $3.1 billion increase in average loans, and a $1.9 billion increase in other earning assets, offset by a reduction in the yield on earning assets. This was partially offset by a $4.0 billion increase in the average balance of interest-bearing liabilities at a lower cost of funds, (see "Net Interest Income" for further detail).

Non-interest income totaled $113.2 million in the first quarter of 2020 compared to $81.7 million in the first quarter of 2019. This increase was primarily the result of higher mortgage banking revenue and wealth management revenue (see “Non-Interest Income” for further detail).

Non-interest expense totaled $234.6 million in the first quarter of 2020, increasing $20.3 million, or 9%, compared to the first quarter of 2019. The increase compared to the first quarter of 2019 was primarily attributable to higher salary and employee benefit costs caused by the addition of employees from acquisitions and increased staffing as the Company grows and increased equipment expense (see “Non-Interest Expense” for further detail).

Management considers the maintenance of adequate liquidity to be important to the management of risk. During the first quarter of 2020, the Company continued its practice of maintaining appropriate funding capacity to provide the Company with adequate liquidity for its ongoing operations. In this regard, the Company benefited from its strong deposit base, a liquid short-term investment portfolio and its access to funding from a variety of external funding sources. At March 31, 2020, the Company had approximately $2.3 billion in overnight liquid funds and interest-bearing deposits with banks. Total cash inflows by the Company during the first quarter of 2020 were offset by $204.3 million in cash collateral posted to unaffiliated derivative counterparties in which the Company held a net liability position in such derivative transactions as well as the origination of mortgage loans pending the ultimate sale of such loans into the secondary market following March 31, 2020.

### RESULTS OF OPERATIONS

### Earnings Summary

The Company’s key operating measures and growth rates for the three months ended March 31, 2020, as compared to the same period last year, are shown below:

*(Dollars in thousands, except per share data)*

|  | Three months ended March 31, 2020 | March 31, 2019 | Percentage (%) or Basis Point (bp) Change |
| --- | ---: | ---: | ---: |
| Net income | **$62,812** | $89,146 | (30)% |
| Pre-tax income, excluding provision for credit losses (non-GAAP) (2) | **140,044** | 129,269 | 8 |
| Pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP) (2) | **150,441** | 138,013 | 9 |
| Net income per common share—Diluted | **1.04** | 1.52 | (32) |
| Net revenue (1) | **374,685** | 343,643 | 9 |
| Net interest income | **261,443** | 261,986 | — |
| Net interest margin | **3.12%** | 3.70% | (58)bp |
| Net interest margin - fully taxable-equivalent (non-GAAP) (2) | **3.14** | 3.72 | (58) |
| Net overhead ratio (3) | **1.33** | 1.72 | (39) |
| Return on average assets | **0.69** | 1.16 | (47) |
| Return on average common equity | **6.82** | 11.09 | (427) |
| Return on average tangible common equity (non-GAAP) (2) | **8.73** | 14.14 | (541) |

| At end of period |  |  |  |
| --- | ---: | ---: | ---: |
| Total assets | **$38,799,847** | $32,358,621 | 20% |
| Total loans, excluding loans held-for-sale | **27,807,321** | 24,214,629 | 15 |
| Total loans, including loans held-for-sale | **28,464,255** | 24,463,186 | 16 |
| Total deposits | **31,461,660** | 26,804,742 | 17 |
| Total shareholders’ equity | **3,700,393** | 3,371,972 | 10 |
| Book value per common share (2) | **62.13** | 57.33 | 8 |
| Tangible common book value per share (2) | **50.18** | 46.38 | 8 |
| Market price per common share | **32.86** | 67.33 | (51) |
| Allowance for loan and unfunded lending-related commitment losses to total loans | **0.91%** | 0.66% | 25 bp |

#### (1) Net revenue is net interest income plus non-interest income.

*(2) See following section titled, “Supplementary Financial Measures/Ratios” for additional information on this performance measure/ratio.*

*(3) The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency.*

Certain returns, yields, performance ratios, and quarterly growth rates are “annualized” throughout this report to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance trends when compared to full-year or year-over-year amounts. For example, balance sheet growth rates are most often expressed in terms of an annual rate. As such, 5% growth during a quarter would represent an annualized growth rate of 20%.

### SUPPLEMENTAL FINANCIAL MEASURES/RATIOS

The accounting and reporting policies of Wintrust conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These include taxable-equivalent net interest income (including its individual components), taxable-equivalent net interest margin (including its individual components), the taxable-equivalent efficiency ratio, tangible common equity ratio, tangible book value per common share, return on average tangible common equity and pre-tax income, excluding provision for credit losses and pre-tax income, excluding provision for credit losses and MSR valuation adjustment. Management believes that these measures and ratios provide users of the Company’s financial information a more meaningful view of the performance of the Company's interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.

Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a fully taxable-equivalent basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity ratio and tangible book value per common share as useful measurements of the Company’s equity. The Company references the return on average tangible common equity as a measurement of profitability. Management considers (i) pre-tax income excluding provision for credit losses and (ii) pre-tax income excluding provision for credit losses and MSR valuation adjustment as useful measurements of the Company's core net income.

A reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures is shown below:

*(Dollars and shares in thousands)*

| Reconciliation of Non-GAAP Net Interest Margin and Efficiency Ratio | Three Months Ended March 31, 2020 | March 31, 2019 |
| --- | ---: | ---: |
| **(A) Interest Income (GAAP)** | **$344,067** | $333,970 |
| Taxable-equivalent adjustment: |  |  |
| - Loans | **860** | 1,034 |
| - Liquidity Management Assets | **551** | 565 |
| - Other Earning Assets | **2** | 2 |
| **(B) Interest Income (non-GAAP)** | **$345,480** | $335,571 |
| **(C) Interest Expense (GAAP)** | **82,624** | 71,984 |
| **(D) Net Interest Income (GAAP) (A minus C)** | **261,443** | 261,986 |
| **(E) Net Interest Income, fully taxable-equivalent (non-GAAP) (B minus C)** | **262,856** | 263,587 |
| **Net interest margin (GAAP)** | **3.12%** | 3.70% |
| **Net interest margin, fully taxable-equivalent (non-GAAP)** | **3.14** | 3.72 |
| (F) Non-interest income | **$113,242** | $81,657 |
| (G) (Losses) gains on investment securities, net | **(4,359)** | 1,364 |
| (H) Non-interest expense | **234,641** | 214,374 |
| **Efficiency ratio (H/(D+F-G))** | **61.90%** | 62.63% |
| **Efficiency ratio (non-GAAP) (H/(E+F-G))** | **61.67%** | 62.34% |
| **Reconciliation of Non-GAAP Tangible Common Equity ratio** |  |  |
| Total shareholders’ equity | **$3,700,393** | $3,371,972 |
| Less: Non-convertible preferred stock | **(125,000)** | (125,000) |
| Less: Intangible assets | **(687,626)** | (620,224) |
| (I) Total tangible common shareholders’ equity | **$2,887,767** | $2,626,748 |
| (J) Total assets | **$38,799,847** | $32,358,621 |
| Less: Intangible assets | **(687,626)** | (620,224) |
| (K) Total tangible assets | **$38,112,221** | $31,738,397 |
| **Common equity to assets ratio (GAAP) (L/J)** | **9.2%** | 10.0% |
| **Tangible common equity ratio (non-GAAP) (I/K)** | **7.6%** | 8.3% |
| **Reconciliation of tangible book value per share** |  |  |
| Total shareholders’ equity | **$3,700,393** | $3,371,972 |
| Less: Preferred stock | **(125,000)** | (125,000) |
| (L) Total common equity | **$3,575,393** | $3,246,972 |
| (M) Actual common shares outstanding | **57,545** | 56,639 |
| **Book value per common share (L/M)** | **$62.13** | $57.33 |
| **Tangible common book value per share (non-GAAP) (I/M)** | **$50.18** | $46.38 |

| Reconciliation of non-GAAP return on average tangible common equity |  |  |
| --- | ---: | ---: |
| (N) Net income applicable to common shares | **$60,762** | $87,096 |
| Add: Intangible asset amortization | **2,863** | 2,942 |
| Less: Tax effect of intangible asset amortization | **(799)** | (731) |
| After-tax intangible asset amortization | **2,064** | 2,211 |
| (O) Tangible net income applicable to common shares (non-GAAP) | **62,826** | 89,307 |
| Total average shareholders' equity | **3,710,169** | 3,309,078 |
| Less: Average preferred stock | **(125,000)** | (125,000) |
| (P) Total average common shareholders' equity | **3,585,169** | 3,184,078 |
| Less: Average intangible assets | **(690,777)** | (622,240) |
| (Q) Total average tangible common shareholders’ equity (non-GAAP) | **2,894,392** | 2,561,838 |
| **Return on average common equity, annualized (N/P)** | **6.82%** | 11.09% |
| **Return on average tangible common equity, annualized (non-GAAP) (O/Q)** | **8.73%** | 14.14% |

54

| Reconciliation of Non-GAAP Pre-Tax, Pre-Provision Income and Pre-Tax, Pre-Provision, Pre-MSR Adjustment Income: |  |  |
| --- | ---: | ---: |
| Income before taxes | **$87,083** | **$118,645** |
| Add: Provision for credit losses | **52,961** | **10,624** |
| **Pre-tax income, excluding provision for credit losses (non-GAAP)** | **$140,044** | $129,269 |
| Less: MSR valuation adjustment, net of (loss)/gain on derivative contract held as an economic hedge | **$(10,397)** | $(8,744) |
| **Pre-tax income, excluding provision for credit losses and MSR valuation adjustments (non-GAAP)** | **$150,441** | $138,013 |

### Critical Accounting Policies

The Company’s Consolidated Financial Statements are prepared in accordance with GAAP in the United States and prevailing practices of the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments, and as such have a greater possibility that changes in those estimates and assumptions could produce financial results that are materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event, are based on information available as of the date of the financial statements; accordingly, as information changes, the financial statements could reflect different estimates and assumptions. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views critical accounting policies to include the determination of the allowance for credit losses, including the allowance for loan losses and the allowance for losses on lending-related commitments, loans acquired with evidence of credit quality deterioration since origination, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be most subject to revision as new information becomes available. For a more detailed discussion on these critical accounting policies, see “Summary of Critical Accounting Policies” beginning on page 53 of the Company’s 2019 Form 10-K.

The COVID-19 pandemic, specifically the uncertainty related to the ultimate magnitude of impact on the economy and banking industry, is expected to impact many of the estimates, assumptions, and judgments noted above that are used by management. This could result in volatility in the related accounting estimates, which will directly impact the Company's financial results. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operation -Overview section of this report for additional discussion of the impact of the COVID-19 pandemic.

### Net Income

Net income for the quarter ended March 31, 2020 totaled $62.8 million, a decrease of $26.3 million, or 30%, compared to the quarter ended March 31, 2019. On a per share basis, net income for the first quarter of 2020 totaled $1.04 per diluted common share compared to $1.52 for the first quarter of 2019.

The most significant factors impacting net income for the first quarter of 2020 as compared to the same period in the prior year include increased mortgage banking revenue, partially offset by an increase in the provision for credit losses as a result of the adoption of CECL and economic conditions created by the COVID–19 pandemic as well as increased salaries and employee benefits expense. See "Net Interest Income", "Non-interest Income", "Non-interest Expense" and "Loan Portfolio and Asset Quality" for further detail.

### Net Interest Income

The primary source of the Company’s revenue is net interest income. Net interest income is the difference between interest income and fees on earnings assets, such as loans and securities, and interest expense on the liabilities to fund those assets, including interest bearing deposits and other borrowings. The amount of net interest income is affected by both changes in the level of interest rates, and the amount and composition of earning assets and interest bearing liabilities.

#### Quarter Ended March 31, 2020 compared to the Quarters Ended December 31, 2019 and March 31, 2019

The following table presents a summary of the Company’s average balances, net interest income and related net interest margins, including a calculation on a fully taxable equivalent basis, for the first quarter of 2020 as compared to the fourth quarter of 2019 (sequential quarters) and first quarter of 2019 (linked quarters):

*(Dollars in thousands)*

|  | Average Balance for three months ended, Mar 31, 2020 | Dec 31, 2019 | Mar 31, 2019 | Interest for three months ended, Mar 31, 2020 | Dec 31, 2019 | Mar 31, 2019 | Yield/Rate for three months ended, Mar 31, 2020 | Dec 31, 2019 | Mar 31, 2019 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing deposits with banks and cash equivalents(1) | **$1,418,809** | $2,206,251 | $897,629 | **$4,854** | $9,361 | $5,300 | **1.38%** | 1.68% | 2.39% |
| Investment securities (2) | **4,780,709** | 3,909,699 | 3,630,577 | **33,018** | 28,184 | 28,521 | **2.78** | 2.86 | 3.19 |
| FHLB and FRB stock | **114,829** | 94,843 | 94,882 | **1,577** | 1,328 | 1,355 | **5.52** | 5.55 | 5.79 |
| Liquidity management assets(3)(8) | **$6,314,347** | $6,210,793 | $4,623,088 | **$39,449** | $38,873 | $35,176 | **2.51%** | 2.48% | 3.09% |
| Other earning assets(3)(4)(8) | **19,166** | 18,353 | 13,591 | **167** | 176 | 165 | **3.50** | 3.83 | 4.91 |
| Mortgage loans held-for-sale | **403,262** | 381,878 | 188,190 | **3,165** | 3,201 | 2,209 | **3.16** | 3.33 | 4.76 |
| Loans, net of unearned income(3)(5)(8) | **26,936,728** | 26,137,722 | 23,880,916 | **302,699** | 308,947 | 298,021 | **4.52** | 4.69 | 5.06 |
| Total earning assets(8) | **$33,673,503** | $32,748,746 | $28,705,785 | **$345,480** | $351,197 | $335,571 | **4.13%** | 4.25% | 4.74% |
| Allowance for loan losses | **(176,291)** | (167,759) | (157,782) |  |  |  |  |  |  |
| Cash and due from banks | **321,982** | 316,631 | 283,019 |  |  |  |  |  |  |
| Other assets | **2,806,296** | 2,747,572 | 2,385,149 |  |  |  |  |  |  |
| Total assets | **$36,625,490** | $35,645,190 | $31,216,171 |  |  |  |  |  |  |
| NOW and interest bearing demand deposits | **$3,113,733** | $3,016,991 | $2,803,338 | **$3,665** | $4,622 | $4,613 | **0.47%** | 0.61% | 0.67% |
| Wealth management deposits | **2,838,719** | 2,934,292 | 2,614,035 | **6,935** | 7,867 | 7,000 | **0.98** | 1.06 | 1.09 |
| Money market accounts | **7,990,775** | 7,647,635 | 5,915,525 | **22,363** | 25,603 | 19,460 | **1.13** | 1.33 | 1.33 |
| Savings accounts | **3,189,835** | 3,028,763 | 2,715,422 | **5,790** | 6,145 | 4,249 | **0.73** | 0.80 | 0.63 |
| Time deposits | **5,526,407** | 5,682,449 | 5,267,796 | **28,682** | 30,487 | 25,654 | **2.09** | 2.13 | 1.98 |
| Interest-bearing deposits | **$22,659,469** | $22,310,130 | $19,316,116 | **$67,435** | $74,724 | $60,976 | **1.20%** | 1.33% | 1.29% |
| Federal Home Loan Bank advances | **951,613** | 596,594 | 594,335 | **3,360** | 1,461 | 2,450 | **1.42** | 0.97 | 1.67 |
| Other borrowings | **469,577** | 415,092 | 465,571 | **3,546** | 3,273 | 3,633 | **3.04** | 3.13 | 3.16 |
| Subordinated notes | **436,119** | 436,025 | 139,217 | **5,472** | 5,504 | 1,775 | **5.02** | 5.05 | 5.10 |
| Junior subordinated debentures | **253,566** | 253,566 | 253,566 | **2,811** | 2,890 | 3,150 | **4.39** | 4.46 | 4.97 |
| Total interest-bearing liabilities | **$24,770,344** | $24,011,407 | $20,768,805 | **$82,624** | $87,852 | $71,984 | **1.34%** | 1.45% | 1.40% |
| Non-interest bearing deposits | **7,235,177** | 7,128,166 | 6,444,378 |  |  |  |  |  |  |
| Other liabilities | **909,800** | 883,433 | 693,910 |  |  |  |  |  |  |
| Equity | **3,710,169** | 3,622,184 | 3,309,078 |  |  |  |  |  |  |
| Total liabilities and shareholders’ equity | **$36,625,490** | $35,645,190 | $31,216,171 |  |  |  |  |  |  |
| Interest rate spread(6)(8) |  |  |  |  |  |  | **2.79%** | 2.80% | 3.34% |
| Less: Fully tax-equivalent adjustment |  |  |  | **(1,413)** | (1,466) | (1,601) | **(0.02)** | (0.02) | (0.02) |
| Net free funds/contribution(7) | **$8,903,159** | $8,737,339 | $7,936,980 |  |  |  | **0.35** | 0.39 | 0.38 |
| Net interest income/ margin (GAAP)(8) |  |  |  | **$261,443** | $261,879 | $261,986 | **3.12%** | 3.17% | 3.70% |
| Fully taxable-equivalent adjustment |  |  |  | **1,413** | 1,466 | 1,601 | **0.02** | 0.02 | 0.02 |
| Net interest income/margin, fully taxable-equivalent (non-GAAP)(8) |  |  |  | **$262,856** | $263,345 | $263,587 | **3.14%** | 3.19% | 3.72% |

*(1) Includes interest-bearing deposits with banks, federal funds sold and securities purchased under resale agreements.*

*(2) Investment securities includes investment securities classified as available-for-sale and held-to-maturity, and equity securities with readily determinable fair values. Equity securities without readily determinable fair values are included within other assets.*

*(3) Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on the marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019 were $1.4 million, $1.5 million and $1.6 million, respectively.*

*(4) Other earning assets include brokerage customer receivables and trading account securities.*

#### (5) Loans, net of unearned income, include non-accrual loans.

*(6) Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.*

*(7) Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.*

*(8) See “Supplemental Financial Measures/Ratios” for additional information on this performance ratio.*

For the first quarter of 2020, net interest income totaled $261.4 million, a decrease of $0.4 million as compared to the fourth quarter of 2019, and a decrease of $543,000 as compared to the first quarter of 2019. Net interest margin was 3.12% (3.14% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2020 compared to 3.17% (3.19% on a fully taxable-equivalent basis, non-GAAP) during the fourth quarter of 2019, and 3.70% (3.72% on a fully taxable-equivalent basis, non-GAAP) during the first quarter of 2019.

#### Analysis of Changes in Net Interest Income (GAAP)

The following table presents an analysis of the changes in the Company’s net interest income comparing the three month periods ended March 31, 2020 to December 31, 2019 and March 31, 2019. The reconciliations set forth the changes in the GAAP-derived net interest income as a result of changes in volumes, changes in rates and differing number of days in each period:

*(In thousands)*

|  | First Quarter of 2020 Compared to Fourth Quarter of 2019 | First Quarter of 2020 Compared to First Quarter of 2019 |
| --- | ---: | ---: |
| Net interest income (GAAP) for comparative period | $261,879 | $261,986 |
| Change due to mix and growth of earning assets and interest-bearing liabilities (volume) | 5,504 | 34,620 |
| Change due to interest rate fluctuations (rate) | (3,062) | (38,042) |
| Change due to number of days in each period | (2,878) | 2,879 |
| Net interest income (GAAP) for the period ended March 31, 2020 | $261,443 | $261,443 |
| Fully taxable-equivalent adjustment | 1,413 | 1,413 |
| Net interest income, fully taxable-equivalent (non-GAAP) | $262,856 | $262,856 |

### Non-interest Income

The following table presents non-interest income by category for the periods presented:

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2020 | March 31, 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Brokerage | **$5,281** | $4,516 | $765 | 17% |
| Trust and asset management | **20,660** | 19,461 | 1,199 | 6 |
| Total wealth management | **25,941** | 23,977 | 1,964 | 8 |
| Mortgage banking | **48,326** | 18,158 | 30,168 | NM |
| Service charges on deposit accounts | **11,265** | 8,848 | 2,417 | 27 |
| (Losses) gains on investment securities, net | **(4,359)** | 1,364 | (5,723) | NM |
| Fees from covered call options | **2,292** | 1,784 | 508 | 28 |
| Trading (losses) gains, net | **(451)** | (171) | (280) | NM |
| Operating lease income, net | **11,984** | 10,796 | 1,188 | 11 |
| Other: |  |  |  |  |
| Interest rate swap fees | **6,066** | 2,831 | 3,235 | NM |
| BOLI | **(1,284)** | 1,591 | (2,875) | NM |
| Administrative services | **1,112** | 1,030 | 82 | 8 |
| Foreign currency remeasurement (losses) gains | **(151)** | 464 | (615) | NM |
| Early pay-offs of capital leases | **74** | 5 | 69 | NM |
| Miscellaneous | **12,427** | 10,980 | 1,447 | 13 |
| Total Other | **18,244** | 16,901 | 1,343 | 8 |
| **Total Non-interest Income** | **$113,242** | $81,657 | $31,585 | 39% |

#### NM - Not meaningful.

Notable contributions to the change in non-interest income are as follows:

Wealth management revenue increased in the first quarter of 2020 as compared to the first quarter of 2019 due to increased asset management fees and brokerage commissions. Wealth management revenue is comprised of the trust and asset management revenue of The Chicago Trust Company and Great Lakes Advisors, the brokerage commissions, managed money fees and insurance product commissions at Wintrust Investments and fees from tax-deferred like-kind exchange services provided by the Chicago Deferred Exchange Company.

Service charges on deposits increased in the first quarter of 2020 as compared to the first quarter of 2019 due to increased account analysis fees.

The net losses recognized on investment securities in the first quarter of 2020 were a result of unrealized losses on market

sensitive securities held by the Company.

Other non-interest income increased in the first quarter of 2020 as compared to the first quarter of 2019 due to increased interest rate swap fees, partially offset by market losses on BOLI investments related to non-qualified deferred compensation accounts recorded in BOLI income.

Mortgage banking revenue increased in the first quarter of 2020 as compared to the first quarter of 2019 as a result of recognizing $17.4 million of derivative income associated with mandatory commitments to fund originations for sale and higher production revenue. Mortgage loans originated for sale totaled $1.2 billion in the first quarter of 2020 as compared to $678.5 million in the first quarter of 2019. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. Mortgage revenue is also impacted by changes in the fair value of MSRs. The Company records MSRs at fair value on a recurring basis.

During the first quarter of 2020, the fair value of the mortgage servicing rights portfolio decreased due to a negative fair value adjustment of $14.6 million as well as a reduction in value of $7.0 million due to payoffs and paydowns of the existing portfolio, partially offset by the gain on interest rate swaps held as an economic hedge of $4.2 million and the capitalization of MSRs in the current period of $9.4 million. Starting in 2019, the Company purchased options and entered into interest rate swaps to economically hedge a portion of the fair value changes recorded in earnings related to its MSRs portfolio. There were no such options outstanding as of March 31, 2020. As of March 31, 2020, the Company held four interest rate swaps with an aggregate notional value of $55.0 million for such purpose of economically hedging a portion of the fair value adjustment related to its mortgage servicing rights portfolio.

The table below presents additional selected information regarding mortgage banking for the respective periods.

*(Dollars in thousands)*

| Originations: | Three Months Ended March 31, 2020 | March 31, 2019 |
| --- | ---: | ---: |
| Retail originations | **$773,144** | $365,602 |
| Correspondent originations | **—** | 148,100 |
| Veterans First originations | **442,957** | 164,762 |
| Total originations for sale (A) | **$1,216,101** | $678,464 |
| Originations for investment | **73,727** | 93,689 |
| Total originations | **$1,289,828** | $772,153 |
| Purchases as a percentage of originations for sale | **37%** | 67% |
| Refinances as a percentage of originations for sale | **63** | 33 |
| Total | **100%** | 100% |
| **Mandatory commitments to fund originations for sale(1)** | **$1,375,162** | $285,917 |
| **Production Margin:** |  |  |
| Production revenue (B) (2) | **$31,964** | $16,942 |
| Production margin (B/A) | **2.63%** | 2.50% |
| **Mortgage Servicing:** |  |  |
| Loans serviced for others (C) | **$8,314,634** | $7,014,269 |
| MSRs, at fair value (D) | **73,504** | 71,022 |
| Percentage of MSRs to loans serviced for others (D/C) | **0.88%** | 1.01% |
| Servicing income | **$7,031** | $5,460 |
| **Components of Mortgage Banking Revenue:** |  |  |
| MSR current period capitalization | **9,447** | 6,580 |
| MSR collection of expected cash flow - paydowns | **(547)** | (505) |
| MSR collection of expected cash flow - payoffs | **(6,477)** | (1,492) |
| Valuation: |  |  |
| MSR changes in fair value model assumptions | **(14,557)** | (8,744) |
| Gain on derivative contract held as an economic hedge, net | **4,160** | — |
| MSR valuation adjustment, net of gain on derivative contract held as an economic hedge | **(10,397)** | (8,744) |

*(1) Certain volume adjusted for the estimated pull-through rate of the loan, which represents the Company’s best estimate of the likelihood that a committed loan will ultimately fund.*

*(2) Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on loans sold and fees from originations, processing and other related activities, and excludes servicing fees, changes in the fair value of servicing rights. Excludes changes to the mortgage recourse obligation, derivative income from interest rate lock commitments and other non-production revenue.*

The Company has typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its portfolio for liquidity and other purposes. Management has entered into these transactions with the goal of economically hedging security positions and enhancing its overall return on its investment portfolio by using fees generated from these options to compensate for net interest margin compression. These option transactions are designed to mitigate overall interest rate risk and do not qualify as hedges pursuant to accounting guidance. There were no outstanding call option contracts at March 31, 2020 and March 31, 2019.

### Non-interest Expense

The following table presents non-interest expense by category for the periods presented:

*(Dollars in thousands)*

| Salaries and employee benefits: | Three months ended March 31, 2020 | March 31, 2019 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Salaries | **$81,286** | $74,037 | $7,249 | 10% |
| Commissions and incentive compensation | **31,575** | 31,599 | (24) | 0 |
| Benefits | **23,901** | 20,087 | 3,814 | 19 |
| Total salaries and employee benefits | **136,762** | 125,723 | 11,039 | 9 |
| Equipment | **14,834** | 11,770 | 3,064 | 26 |
| Operating lease equipment depreciation | **9,260** | 8,319 | 941 | 11 |
| Occupancy, net | **17,547** | 16,245 | 1,302 | 8 |
| Data processing | **8,373** | 7,525 | 848 | 11 |
| Advertising and marketing | **10,862** | 9,858 | 1,004 | 10 |
| Professional fees | **6,721** | 5,556 | 1,165 | 21 |
| Amortization of other intangible assets | **2,863** | 2,942 | (79) | (3) |
| FDIC insurance | **4,135** | 3,576 | 559 | 16 |
| OREO expense, net | **(876)** | 632 | (1,508) | NM |
| Other: |  |  |  |  |
| Commissions—3rd party brokers | **865** | 718 | 147 | 20 |
| Postage | **1,949** | 2,450 | (501) | (20) |
| Miscellaneous | **21,346** | 19,060 | 2,286 | 12 |
| Total other | **24,160** | 22,228 | 1,932 | 9 |
| **Total Non-interest Expense** | **$234,641** | $214,374 | $20,267 | 9% |

#### NM - Not meaningful.

Notable contributions to the change in non-interest expense are as follows:

Salaries and employee benefits expense increased in the first quarter of 2020 compared to the first quarter of 2019 primarily as a result of the addition of employees from acquisitions, increased staffing as the Company grows and higher employee benefits.

Equipment expense increased in the first quarter of 2020 compared to the first quarter of 2019 as a result of higher software license fees, software and computer depreciation expense.

Other miscellaneous expense increased in the first quarter of 2020 compared to the first quarter of 2019 as a result of various other expenses. Miscellaneous expense includes ATM expenses, correspondent bank charges, directors' fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses, operating losses and lending origination costs that are not deferred.

### Income Taxes

The Company recorded income tax expense of $24.3 million in the first quarter of 2020 compared to $29.5 million in the first quarter of 2019. The effective tax rates were 27.87% in the first quarter of 2020 compared to 24.86% in the first quarter of 2019.

The effective tax rates in these quarterly periods were significantly impacted by the tax benefits related to share-based compensation. In the first quarter of 2020, the actual tax benefits were $486,000 lower than the expected tax benefits and in the first quarter of 2019, the actual tax benefits exceeded the expected tax benefits by $1.6 million. Actual tax benefits are based on the Company's stock price when stock options are exercised or restricted share and performance-­based stock awards are vested, while the expected tax benefits from these awards are based on the fair value of the awards when they are granted. The impact of the difference in tax benefit from share based awards is expected to be higher in the first quarter of each year when the majority of the Company's shared-based awards vest, and will fluctuate throughout the year based on the Company's stock price and timing of employee stock option exercises and vesting of other share-based awards.

### Operating Segment Results

As described in Note 14 to the Consolidated Financial Statements in Item 1, the Company’s operations consist of three primary segments: community banking, specialty finance and wealth management. The Company’s profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its community banking segment. For purposes of internal segment profitability, management allocates certain intersegment and parent company balances. Management allocates a portion of revenues to the specialty finance segment related to loans and leases originated by the specialty finance segment and sold or assigned to the community banking segment. Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates a portion of the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. Finally, expenses incurred at the Wintrust parent company are allocated to each segment based on each segment's risk-weighted assets.

The community banking segment’s net interest income for the quarter ended March 31, 2020 totaled $206.8 million as compared to $211.4 million for the same period in 2019, a decrease of $4.6 million, or 2%. The decrease in the three month period is primarily attributable to compression of the net interest margin attributable to the decrease in interest rates in the environment. The community banking segment’s non-interest income totaled $81.0 million in the first quarter of 2020, an increase of $32.7 million, or 68%, when compared to the first quarter of 2019 total of $48.3 million. The increase is primarily the result of increased mortgage banking revenue from significantly increased mortgage originations during the current period. The community banking segment’s net income for the quarter ended March 31, 2020 totaled $34.6 million, a decrease of $25.7 million as compared to net income in the first quarter of 2019 of $60.3 million. The decrease in net income is primarily attributable to higher provision for credit losses in the first quarter of 2020 due to the implementation of CECL and the economic conditions created by the COVID-19 pandemic. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operation -Overview section of this report for additional discussion of the impact of the COVID-19 pandemic.

The specialty finance segment's net interest income totaled $40.7 million for the quarter ended March 31, 2020, compared to $37.7 million for the same period in 2019, an increase of $3.0 million, or 8%. The increase is primarily attributable to growth in earning assets on the premium finance receivables portfolios. The specialty finance segment’s non-interest income totaled $21.3 million and $19.6 million for the three month periods ended March 31, 2020 and 2019, respectively. The increase in non-interest income in the current year period is primarily the result of higher originations and increased balances related to the commercial premium finance portfolio and growth in business from the Company's leasing division. Our commercial premium finance operations, life insurance finance operations, lease financing operations and accounts receivable finance operations accounted for 35%, 38%, 23% and 4%, respectively, of the total revenues of our specialty finance business for the three month period ended March 31, 2020. The net income of the specialty finance segment for the quarter ended March 31, 2020 totaled $22.1 million as compared to $21.8 million for the quarter ended March 31, 2019.

The wealth management segment reported net interest income of $7.8 million for the first quarter of 2020 compared to $7.5 million in the same quarter of 2019, an increase of $290,000, or 4%. Net interest income for this segment is primarily comprised of an allocation of the net interest income earned by the community banking segment on non-interest bearing and interest-bearing wealth management customer account balances on deposit at the banks. Wealth management customer account balances on deposit at the banks averaged $1.8 billion and $1.7 billion in the first three months of 2020 and 2019, respectively. This segment recorded non-interest income of $24.1 million for the first quarter of 2020 compared to $25.0 million for the first quarter of 2019. Distribution of wealth management services through each bank continues to be a focus of the Company. The Company is committed to growing the wealth management segment in order to better service its customers and create a more diversified revenue stream. The wealth management segment’s net income totaled $6.1 million for the first quarter of 2020 compared to $7.0 million for the first quarter of 2019.

### Financial Condition

Total assets were $38.8 billion at March 31, 2020, representing an increase of $6.4 billion, or 20%, when compared to March 31, 2019 and an increase of approximately $2.2 billion, or 24% on an annualized basis, when compared to December 31, 2019. Total funding, which includes deposits, all notes and advances, including secured borrowings and the junior subordinated debentures, was $33.8 billion at March 31, 2020, $31.9 billion at December 31, 2019, and $28.1 billion at March 31, 2019. See Notes 5, 6, 10, 11 and 12 of the Consolidated Financial Statements presented under Item 1 of this report for additional period-end detail on the Company’s interest-earning assets and funding liabilities.

### Interest-Earning Assets

The following table sets forth, by category, the composition of average earning asset balances and the relative percentage of total average earning assets for the periods presented:

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2020 Balance | Percent | December 31, 2019 Balance | Percent | March 31, 2019 Balance | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage loans held-for-sale | **$403,262** | **1%** | $381,878 | 1% | $188,190 | 1% |
| Loans, net of unearned income |  |  |  |  |  |  |
| Commercial | **$8,414,315** | **25%** | $8,126,776 | 25% | $7,854,451 | 27% |
| Commercial real estate | **8,125,827** | **24** | 7,819,665 | 24 | 6,963,852 | 24 |
| Home equity | **499,369** | **1** | 520,877 | 2 | 540,121 | 2 |
| Residential real estate | **1,243,031** | **4** | 1,188,477 | 4 | 938,364 | 3 |
| Premium finance receivables | **8,591,980** | **26** | 8,360,630 | 25 | 7,468,706 | 26 |
| Other loans | **62,206** | **—** | 121,297 | — | 115,422 | 1 |
| Total average loans (1) | **$26,936,728** | **80%** | $26,137,722 | 80% | $23,880,916 | 83% |
| Liquidity management assets (2) | **6,314,347** | **19** | 6,210,793 | 19 | 4,623,088 | 16 |
| Other earning assets (3) | **19,166** | **—** | 18,353 | — | 13,591 | — |
| Total average earning assets | **$33,673,503** | **100%** | $32,748,746 | 100% | $28,705,785 | 100% |
| Total average assets | **$36,625,490** |  | $35,645,190 |  | $31,216,171 |  |
| Total average earning assets to total average assets |  | **92%** |  | 92% |  | 92% |

#### (1) Includes non-accrual loans.

*(2) Liquidity management assets include investment securities, other securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.*

*(3) Other earning assets include brokerage customer receivables and trading account securities.*

*Mortgage loans held-for-sale.* Average mortgage loans held-for-sale totaled $403.3 million in the first quarter 2020, compared to $381.9 million in the fourth quarter of 2019 and $188.2 million in the first quarter 2019. By selling residential mortgage loans into the secondary market, the Company eliminates the interest-rate risk associated with these loans, as they are predominantly long-term fixed rate loans, and provides a source of non-interest revenue.

*Loans, net of unearned income.* Average total loans, net of unearned income, totaled $26.9 billion in the first quarter of 2020, increasing $3.1 billion, or 13%, from the first quarter of 2019 and $799.0 million, or 12% on an annualized basis, from the fourth quarter of 2019. Combined, the commercial and commercial real estate loan categories comprised 61% of the average loan portfolio in both the first quarter of 2020 and fourth quarter of 2019 as compared to 62% in the first quarter of 2019. Growth realized in these categories for the first quarter of 2020 as compared to the sequential and prior year periods is primarily attributable to increased business development efforts. Additionally, growth realized in the first quarter 2020 as compared to the first quarter 2019 was partially attributable to the acquisition of ROC, SBC and STC in 2019.

Home equity loan portfolio averaged $499.4 million in the first quarter of 2020, and decreased $40.8 million, or 8% from the average balance of $540.1 million in same period of 2019. The Company has been actively managing its home equity portfolio to ensure that diligent pricing, appraisal and other underwriting activities continue to exist.

Residential real estate loans averaged $1.2 billion in the first quarter of 2020, and increased $304.7 million, or 32% from the average balance of $938.4 million in same period of 2019. Additionally, compared to the quarter ended December 31, 2019, the average balance increased $54.6 million, or 18% on an annualized basis. The Company's residential real estate portfolio predominantly includes one- to four-family adjustable rate mortgage loans that have repricing terms generally from one to three years, construction loans to individuals and bridge financing loans for qualifying customers.

Average premium finance receivables totaled $8.6 billion in the first quarter of 2020, and accounted for 32% of the Company’s average total loans. The increase during the first quarter of 2020 compared to both the fourth quarter of 2019 and the first quarter of 2019 was the result of continued originations within the portfolio due to the effective marketing and customer servicing. Approximately $2.5 billion of premium finance receivables were originated in the first quarter of 2020 compared to $2.1 billion during the same period of 2019. Premium finance receivables consist of a commercial portfolio and a life portfolio comprising approximately 40% and 60%, respectively, of the average total balance of premium finance receivables for the first quarter of 2020, and 39% and 61%, respectively, for the first quarter of 2019.

Other loans represent a wide variety of personal and consumer loans to individuals. Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk due to the type and nature of the collateral.

Total average loans for the first three months of 2020 increased $3.1 billion or 13% over the previous year period. Similar to the quarterly discussion above, approximately $559.9 million of this increase relates to the commercial portfolio, $1.2 billion of this increase relates to the commercial real estate portfolio and $1.1 billion of this increase relates to the premium finance receivables portfolio.

*Liquidity management assets.* Funds that are not utilized for loan originations are used to purchase investment securities and short term money market investments, to sell as federal funds and to maintain in interest bearing deposits with banks. The balances of these assets can fluctuate based on management’s ongoing effort to manage liquidity and for asset liability management purposes. In response to the COVID-19 pandemic, the Company will continue to prudently evaluate and expand liquidity sources, including the management of availability with the FHLB and FRB and utilization of the revolving credit facility with unaffiliated banks. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operation - Overview and - Liquidity sections of this report for additional discussion of the impact of the COVID-19 pandemic.

*Other earning assets.* Other earning assets include brokerage customer receivables and trading account securities. In the normal course of business, Wintrust Investments activities involve the execution, settlement, and financing of various securities transactions. Wintrust Investments customer securities activities are transacted on either a cash or margin basis. In margin transactions, Wintrust Investments, under an agreement with an out-sourced securities firm, extends credit to its customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in customer’s accounts. In connection with these activities, Wintrust Investments executes and the out-sourced firm clears customer transactions relating to the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose Wintrust Investments to off-balance-sheet risk, particularly in volatile trading markets, in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event a customer fails to satisfy its obligations, Wintrust Investments under the agreement with the outsourced securities firm, may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer’s obligations. Wintrust Investments seeks to control the risks associated with its customers’ activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. Wintrust Investments monitors required margin levels daily and, pursuant to such guidelines, requires customers to deposit additional collateral or to reduce positions when necessary.

### LOAN PORTFOLIO AND ASSET QUALITY

### Loan Portfolio

The following table shows the Company’s loan portfolio by category as of the dates shown:

*(In thousands)*

|  | March 31, 2020 Amount | % of Total | December 31, 2019 Amount | % of Total | March 31, 2019 Amount | % of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial | **$9,025,886** | **32%** | $8,285,920 | 31% | $7,994,191 | 33% |
| Commercial real estate | **8,185,531** | **29** | 8,020,276 | 30 | 6,973,505 | 29 |
| Home equity | **494,655** | **2** | 513,066 | 2 | 528,448 | 2 |
| Residential real estate | **1,377,389** | **5** | 1,354,221 | 5 | 1,053,524 | 4 |
| Premium finance receivables—commercial | **3,465,055** | **13** | 3,442,027 | 13 | 2,988,788 | 12 |
| Premium finance receivables—life insurance | **5,221,639** | **19** | 5,074,602 | 19 | 4,555,369 | 19 |
| Consumer and other | **37,166** | **0** | 110,178 | 0 | 120,804 | 1 |
| Total loans, net of unearned income | **$27,807,321** | **100%** | $26,800,290 | 100% | $24,214,629 | 100% |

*Commercial and commercial real estate loans.* Our commercial and commercial real estate loan portfolios are comprised primarily of commercial real estate loans and lines of credit for working capital purposes. The table below sets forth information regarding the types and amounts of our loans within these portfolios as of March 31, 2020 and 2019:

*(Dollars in thousands)*

| Commercial: | As of March 31, 2020 Balance | % of Total Balance | Allowance For Credit Losses Allocation | As of March 31, 2019 Balance | % of Total Balance | Allowance For Credit Losses Allocation |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial, industrial, and other | **$9,025,886** | **52.4%** | **$107,346** | $7,994,191 | 53.4% | $74,638 |
| **Commercial Real Estate:** |  |  |  |  |  |  |
| Construction and development | **1,301,353** | **7.6** | **$33,862** | 956,694 | 6.4 | 13,336 |
| Non-construction | **6,884,178** | **40.0** | **78,934** | 6,016,811 | 40.2 | 45,924 |
| **Total commercial real estate** | **$8,185,531** | **47.6%** | **$112,796** | $6,973,505 | 46.6% | $59,260 |
| **Total commercial and commercial real estate** | **$17,211,417** | **100.0%** | **$220,142** | $14,967,696 | 100.0% | $133,898 |
| Commercial real estate - collateral location by state: |  |  |  |  |  |  |
| Illinois | **$6,171,606** | **75.4%** |  | $5,331,784 | 76.5% |  |
| Wisconsin | **793,145** | **9.7** |  | 758,097 | 10.9 |  |
| **Total primary markets** | **$6,964,751** | **85.1%** |  | $6,089,881 | 87.4% |  |
| Indiana | **249,680** | **3.1** |  | 175,350 | 2.5 |  |
| Florida | **126,786** | **1.5** |  | 55,528 | 0.8 |  |
| Arizona | **72,214** | **0.9** |  | 61,375 | 0.9 |  |
| California | **63,883** | **0.8** |  | 67,545 | 1.0 |  |
| Other | **708,217** | **8.6** |  | 523,826 | 7.4 |  |
| **Total commercial real estate** | **$8,185,531** | **100.0%** |  | $6,973,505 | 100.0% |  |

We make commercial loans for many purposes, including working capital lines, which are generally renewable annually and supported by business assets, personal guarantees and additional collateral. Commercial business lending is generally considered to involve a slightly higher degree of risk than traditional consumer bank lending. Primarily as a result of the adoption of CECL and changes in economic conditions related to COVID-19, our allowance for credit losses in our commercial loan portfolio increased to $107.3 million as of March 31, 2020 compared to $74.6 million as of March 31, 2019.

Our commercial real estate loans are generally secured by a first mortgage lien and assignment of rents on the property. Since most of our bank branches are located in the Chicago metropolitan area and southern Wisconsin, 85.1% of our commercial real estate loan portfolio is located in this region as of March 31, 2020. We have been able to effectively manage our total non-performing commercial real estate loans. As of March 31, 2020, our allowance for credit losses related to this portfolio is $112.8 million compared to $59.3 million as of March 31, 2019. Similar to the commercial loan portfolio, the increase in the allowance for credit losses is primarily due to the adoption of CECL and changes in economic conditions related to COVID-19.

The Company also participates in mortgage warehouse lending, which is included above within commercial, industrial and other, by providing interim funding to unaffiliated mortgage bankers to finance residential mortgages originated by such bankers for sale into the secondary market. The Company’s loans to the mortgage bankers are secured by the business assets of the mortgage companies as well as the specific mortgage loans funded by the Company, after they have been pre-approved for purchase by third party end lenders. The Company may also provide interim financing for packages of mortgage loans on a bulk basis in circumstances where the mortgage bankers desire to competitively bid on a number of mortgages for sale as a package in the secondary market. Amounts advanced with respect to any particular mortgage loan are usually required to be repaid within 21 days.

*Home equity loans.* Our home equity loans and lines of credit are originated by each of our banks in their local markets where we have a strong understanding of the underlying real estate value. Our banks monitor and manage these loans, and we conduct an automated review of all home equity loans and lines of credit at least twice per year. This review collects current credit performance for each home equity borrower and identifies situations where the credit strength of the borrower is declining, or where there are events that may influence repayment, such as tax liens or judgments. Our banks use this information to manage loans that may be higher risk and to determine whether to obtain additional credit information or updated property valuations.

The rates we offer on new home equity lending are based on several factors, including appraisals and valuation due diligence, in order to reflect inherent risk, and we place additional scrutiny on larger home equity requests. In a limited number of cases, we issue home equity credit together with first mortgage financing, and requests for such financing are evaluated on a combined basis. It is not our practice to advance more than 85% of the appraised value of the underlying asset, which ratio we refer to as the loan-to-value ratio, or LTV ratio, and a majority of the credit we previously extended, when issued, had an LTV ratio of less than 80%.

Our home equity loan portfolio has performed well in light of the ongoing volatility in the overall residential real estate market.

*Residential real estate.* Our residential real estate portfolio predominantly includes one- to four-family adjustable rate mortgages, construction loans to individuals and bridge financing loans for qualifying customers. As of March 31, 2020, our residential loan portfolio totaled $1.4 billion, or 5% of our total outstanding loans.

Our adjustable rate mortgages relate to properties located principally in the Chicago metropolitan area and southern Wisconsin or vacation homes owned by local residents. These adjustable rate mortgages are often non-agency conforming. Adjustable rate mortgage loans decrease the interest rate risk we face on our mortgage portfolio. However, this risk is not eliminated due to the fact that such loans generally provide for periodic and lifetime limits on the interest rate adjustments among other features. Additionally, adjustable rate mortgages may pose a higher risk of delinquency and default because they require borrowers to make larger payments when interest rates rise. As of March 31, 2020, $19.0 million of our residential real estate mortgages, or 1.4% of our residential real estate loan portfolio were classified as nonaccrual, $605,000 were 90 or more days past due and still accruing (less than 0.1%), $29.3 million were 30 to 89 days past due (2.1%) and $1.3 billion were current (96.4%). We believe that since our loan portfolio consists primarily of locally originated loans, and since the majority of our borrowers are longer-term customers with lower LTV ratios, we face a relatively low risk of borrower default and delinquency.

While we generally do not originate loans for our own portfolio with long-term fixed rates due to interest rate risk considerations, we can accommodate customer requests for fixed rate loans by originating such loans and then selling them into the secondary market, for which we receive fee income. We may also selectively retain certain of these loans within the banks’ own portfolios where they are non-agency conforming, or where the terms of the loans make them favorable to retain. A portion of the loans we sold into the secondary market were sold with the servicing of those loans retained. The amount of loans serviced for others as of March 31, 2020 and 2019 was $8.3 billion and $7.0 billion, respectively. All other mortgage loans sold into the secondary market were sold without the retention of servicing rights.

The Government National Mortgage Association ("GNMA") optional repurchase programs allow financial institutions acting as servicers to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution was the original transferor of such loans. At the option of the servicer and without prior authorization from GNMA, the servicer may repurchase such delinquent loans for an amount equal to the remaining principal balance of the loan. Under FASB ASC Topic 860, “Transfers and Servicing,” this buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When the Company is deemed to have regained effective control over these loans under the unconditional repurchase option and the expected benefit of the potential repurchase is more than trivial, the loans can no longer be reported as sold and must be brought back onto the balance sheet as loans, regardless of whether the Company intends to exercise the buy-back option. These loans are reported as loans held-for-investment, part of the residential real estate portfolio, with the offsetting liability being reported in accrued interest payable and other liabilities. Rebooked GNMA loans held-for-investment amounted to $132.7 million at March 31, 2020, compared to $89.8 million balance at March 31, 2019.

It is not our current practice to underwrite, and we have no plans to underwrite, subprime, Alt A, no or little documentation loans, or option ARM loans. As of March 31, 2020, approximately $977,000 of our mortgage loans consist of interest-only loans.

*Premium finance receivables – commercial.* FIRST Insurance Funding and FIFC Canada originated approximately $2.2 billion in commercial insurance premium finance receivables in the first quarter of 2020 as compared to $1.9 billion of originations in the first quarter of 2019. FIRST Insurance Funding and FIFC Canada make loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are originated by working through independent medium and large insurance agents and brokers located throughout the United States and Canada. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance.

This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. Because of the indirect nature of this lending through third party agents and brokers and because the borrowers are located nationwide and in Canada, this segment is more susceptible to third party fraud than relationship lending. The Company performs ongoing credit and other reviews of the agents and brokers, and performs various internal audit steps to mitigate against the risk of any fraud. The majority of these loans are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments.

*Premium finance receivables—life insurance.* Wintrust Life Finance originated approximately $290.9 million in life insurance premium finance receivables in the first quarter of 2020 as compared to $244.1 million of originations in the first quarter of 2019. The Company continues to experience increased competition and pricing pressure within the current market. These loans are originated directly with the borrowers with assistance from life insurance carriers, independent insurance agents, financial advisors and legal counsel. The life insurance policy is the primary form of collateral. In addition, these loans often are secured with a letter of credit, marketable securities or certificates of deposit. In some cases, Wintrust Life Finance may make a loan that has a partially unsecured position.

*Consumer and other.* Included in the consumer and other loan category is a wide variety of personal and consumer loans to individuals. The banks originate consumer loans in order to provide a wider range of financial services to their customers. Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk than mortgage loans due to the type and nature of the collateral.

#### Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table classifies the loan portfolio at March 31, 2020 by date at which the loans reprice or mature, and the type of rate exposure:

*(In thousands)*

| As of March 31, 2020 Commercial | One year or less | From one to five years Total | Over five years |  |
| --- | ---: | ---: | ---: | ---: |
| Fixed rate | **$295,238** | **$1,747,321** | **$808,067** | **$2,850,626** |
| Variable rate | **6,153,781** | **21,347** | **132** | **6,175,260** |
| Total commercial | **$6,449,019** | **$1,768,668** | **$808,199** | **$9,025,886** |
| Commercial real estate |  |  |  |  |
| Fixed rate | **518,259** | **2,242,979** | **434,901** | **3,196,139** |
| Variable rate | **4,952,584** | **36,808** | **—** | **4,989,392** |
| Total commercial real estate | **$5,470,843** | **$2,279,787** | **$434,901** | **$8,185,531** |
| Home equity |  |  |  |  |
| Fixed rate | **24,813** | **4,070** | **570** | **29,453** |
| Variable rate | **465,202** | **—** | **—** | **465,202** |
| Total home equity | **$490,015** | **$4,070** | **$570** | **$494,655** |
| Residential real estate |  |  |  |  |
| Fixed rate | **40,814** | **15,607** | **398,189** | **454,610** |
| Variable rate | **90,205** | **338,495** | **494,079** | **922,779** |
| Total residential real estate | **$131,019** | **$354,102** | **$892,268** | **$1,377,389** |
| Premium finance receivables - commercial |  |  |  |  |
| Fixed rate | **3,378,077** | **86,978** | **—** | **3,465,055** |
| Variable rate | **—** | **—** | **—** | **—** |
| Total premium finance receivables - commercial | **$3,378,077** | **$86,978** | **$—** | **$3,465,055** |
| Premium finance receivables - life insurance |  |  |  |  |
| Fixed rate | **16,164** | **142,886** | **23,785** | **182,835** |
| Variable rate | **5,038,804** | **—** | **—** | **5,038,804** |
| Total premium finance receivables - life insurance | **$5,054,968** | **$142,886** | **$23,785** | **$5,221,639** |
| Consumer and other |  |  |  |  |
| Fixed rate | **8,478** | **8,304** | **1,669** | **18,451** |
| Variable rate | **18,715** | **—** | **—** | **18,715** |
| Total consumer and other | **$27,193** | **$8,304** | **$1,669** | **$37,166** |
| Total per category |  |  |  |  |
| Fixed rate | **4,281,843** | **4,248,145** | **1,667,181** | **10,197,169** |
| Variable rate | **16,719,291** | **396,650** | **494,211** | **17,610,152** |
| Total loans, net of unearned income | **$21,001,134** | **$4,644,795** | **$2,161,392** | **$27,807,321** |
| **Variable Rate Loan Pricing by Index:** |  |  |  |  |
| Prime |  |  |  | **$2,431,566** |
| One- month LIBOR |  |  |  | **8,888,190** |
| Three- month LIBOR |  |  |  | **332,833** |
| Twelve- month LIBOR |  |  |  | **5,696,796** |
| Other |  |  |  | **260,767** |
| Total variable rate |  |  |  | **$17,610,152** |

67

### Past Due Loans and Non-Performing Assets

Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, the Company operates a credit risk rating system under which our credit management personnel assign a credit risk rating to each loan at the time of origination and review loans on a regular basis to determine each loan’s credit risk rating on a scale of 1 through 10 with higher scores indicating higher risk. The credit risk rating structure used is shown below:

|  |  |
| --- | --- |
| 1 Rating — | Minimal Risk (Loss Potential – none or extremely low) (Superior asset quality, excellent liquidity, minimal leverage) |
| 2 Rating — | Modest Risk (Loss Potential demonstrably low) (Very good asset quality and liquidity, strong leverage capacity) |
| 3 Rating — | Average Risk (Loss Potential low but no longer refutable) (Mostly satisfactory asset quality and liquidity, good leverage capacity) |
| 4 Rating — | Above Average Risk (Loss Potential variable, but some potential for deterioration) (Acceptable asset quality, little excess liquidity, modest leverage capacity) |
| 5 Rating — | Management Attention Risk (Loss Potential moderate if corrective action not taken) (Generally acceptable asset quality, somewhat strained liquidity, minimal leverage capacity) |
| 6 Rating — | Special Mention (Loss Potential moderate if corrective action not taken) (Assets in this category are currently protected, potentially weak, but not to the point of substandard classification) |
| 7 Rating — | Substandard Accrual (Loss Potential distinct possibility that the bank may sustain some loss, but no discernable impairment) (Must have well defined weaknesses that jeopardize the liquidation of the debt) |
| 8 Rating — | Substandard Non-accrual (Loss Potential well documented probability of loss, including potential impairment) (Must have well defined weaknesses that jeopardize the liquidation of the debt) |
| 9 Rating — | Doubtful (Loss Potential extremely high) (These assets have all the weaknesses in those classified “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly improbable) |
| 10 Rating — | Loss (fully charged-off) (Loans in this category are considered fully uncollectible.) |

Each loan officer is responsible for monitoring his or her loan portfolio, recommending a credit risk rating for each loan in his or her portfolio and ensuring the credit risk ratings are appropriate. These credit risk ratings are then ratified by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors including a borrower’s financial strength, cash flow coverage, collateral protection and guarantees. A third party loan review firm independently reviews a significant portion of the loan portfolio at each of the Company’s subsidiary banks to evaluate the appropriateness of the management-assigned credit risk ratings. These ratings are subject to further review at each of our bank subsidiaries by the applicable regulatory authority, including the FRB of Chicago and the OCC, and are also reviewed by our internal audit staff.

The Company’s Problem Loan Reporting system includes all loans with credit risk ratings of 6 through 9. This system is designed to provide an on-going detailed tracking mechanism for each problem loan. Once management determines that a loan has deteriorated to a point where it has a credit risk rating of 6 or worse, the Company’s Managed Asset Division performs an overall credit and collateral review. As part of this review, all underlying collateral is identified and the valuation methodology is analyzed and tracked. As a result of this initial review by the Company’s Managed Asset Division, the credit risk rating is reviewed and a portion of the outstanding loan balance may be deemed uncollectible and, as a result, no longer share similar risk characteristics as its related pool. If that is the case, the individual loan is considered collateral dependent loan and individually assessed for an allowance for credit loss. The Company’s individual assessment utilizes an independent re-appraisal of the collateral (unless such a third-party evaluation is not possible due to the unique nature of the collateral, such as a closely-held business or thinly traded securities). In the case of commercial real estate collateral, an independent third party appraisal is ordered by the Company’s Real Estate Services Group to determine if there has been any change in the underlying collateral value. These independent appraisals are reviewed by the Real Estate Services Group and sometimes by independent third party valuation experts and may be adjusted depending upon market conditions.

Through the credit risk rating process, loans are reviewed to determine if they are performing in accordance with the original contractual terms. If the borrower has failed to comply with the original contractual terms, further action may be required by the Company, including a downgrade in the credit risk rating, movement to non-accrual status or a charge-off. If the Company determines that a loan amount or portion thereof is uncollectible the loan’s credit risk rating is immediately downgraded to an 8 or 9 and the uncollectible amount is charged-off. Any loan that has a partial charge-off continues to be assigned a credit risk rating of an 8 or 9 for the duration of time that a balance remains outstanding. The Company undertakes a thorough and ongoing analysis to determine if additional impairment and/or charge-offs are appropriate and to begin a workout plan for the credit to minimize actual losses. In determining the appropriate charge-off for collateral-dependent loans, the Company considers the results of appraisals for the associated collateral.

The Company’s approach to workout plans and restructuring loans is built on the credit-risk rating process. A modification of a loan with an existing credit risk rating of 6 or worse or a modification of any other credit, which will result in a restructured credit risk rating of 6 or worse must be reviewed for TDR classification. In that event, our Managed Assets Division conducts an overall credit and collateral review. A modification of a loan is considered to be a TDR if both (1) the borrower is experiencing financial difficulty and (2) for economic or legal reasons, the bank grants a concession to a borrower that it would not otherwise consider. The modification of a loan where the credit risk rating is 5 or better both before and after such modification is not considered to be a TDR. Based on the Company’s credit risk rating system, it considers that borrowers whose credit risk rating is 5 or better are not experiencing financial difficulties and therefore, are not considered TDRs.

TDRs are individually assessed at the time of the modification and on a quarterly basis to measure an allowance for credit loss. The carrying amount of the loan is compared to the expected payments to be received, discounted at the loan's original rate, or for collateral dependent loans, to the fair value of the collateral. Any shortfall is recorded as a reserve.

For non-TDR loans, if based on current information and events, it is probable that the Company will be unable to collect all amounts due to it according to the contractual terms of the loan agreement, a loan is individually assessed for measuring the allowance for credit losses and if necessary, a reserve is established. In determining the appropriate reserve for collateral-dependent loans, the Company considers the results of appraisals for the associated collateral.

#### Non-performing Assets

The following table sets forth the Company's non-performing assets and TDRs performing under the contractual terms of the loan agreement as of the dates shown. Prior to January 1, 2020, PCI loans were aggregated into pools by common risk characteristics for accounting purposes, including recognition of interest income on a pool basis. As a result of the implementation of CECL, beginning in the first quarter of 2020, PCI loans transitioned to a classification of PCD loans, which no longer maintains the prior pools and related accounting concepts. Recognition of interest income on PCD loans is considered at the individual asset level following the Company's accrual policies, instead of based upon the entire pool of loans. Due to the first quarter of 2020 adoption of CECL, the Company included $35.4 million in non-performing PCD loans in total non-performing loans as of March 31, 2020.

*(Dollars in thousands)*

| Loans past due greater than 90 days and still accruing (1): | March 31, 2020 | December 31, 2019 | March 31, 2019 |
| --- | ---: | ---: | ---: |
| Commercial | **$1,241** | $— | $— |
| Commercial real estate | **516** | — | — |
| Home equity | **—** | — | — |
| Residential real estate | **605** | — | 30 |
| Premium finance receivables—commercial | **16,505** | 11,517 | 6,558 |
| Premium finance receivables—life insurance | **—** | — | 168 |
| Consumer and other | **78** | 163 | 218 |
| Total loans past due greater than 90 days and still accruing | **18,945** | 11,680 | 6,974 |
| **Non-accrual loans (2):** |  |  |  |
| Commercial | **49,916** | 37,224 | 55,792 |
| Commercial real estate | **62,830** | 26,113 | 15,933 |
| Home equity | **7,243** | 7,363 | 7,885 |
| Residential real estate | **18,965** | 13,797 | 15,879 |
| Premium finance receivables—commercial | **21,058** | 20,590 | 14,797 |
| Premium finance receivables—life insurance | **—** | 590 | — |
| Consumer and other | **403** | 231 | 326 |
| Total non-accrual loans | **160,415** | 105,908 | 110,612 |
| **Total non-performing loans(3):** |  |  |  |
| Commercial | **51,157** | 37,224 | 55,792 |
| Commercial real estate | **63,346** | 26,113 | 15,933 |
| Home equity | **7,243** | 7,363 | 7,885 |
| Residential real estate | **19,570** | 13,797 | 15,909 |
| Premium finance receivables—commercial | **37,563** | 32,107 | 21,355 |
| Premium finance receivables—life insurance | **—** | 590 | 168 |
| Consumer and other | **481** | 394 | 544 |
| Total non-performing loans | **$179,360** | $117,588 | $117,586 |
| Other real estate owned | **2,701** | 5,208 | 9,154 |
| Other real estate owned—from acquisitions | **8,325** | 9,963 | 12,366 |
| Other repossessed assets | **—** | 4 | 270 |
| Total non-performing assets | **$190,386** | $132,763 | $139,376 |
| Accruing TDRs not included within non-performing assets | **47,049** | 36,725 | 48,305 |
| **Total non-performing loans by category as a percent of its own respective category’s period-end balance:** |  |  |  |
| Commercial | **0.57%** | 0.45% | 0.70% |
| Commercial real estate | **0.77** | 0.33 | 0.23 |
| Home equity | **1.46** | 1.44 | 1.49 |
| Residential real estate | **1.42** | 1.02 | 1.51 |
| Premium finance receivables—commercial | **1.08** | 0.93 | 0.71 |
| Premium finance receivables—life insurance | **0.00** | 0.01 | 0.00 |
| Consumer and other | **1.29** | 0.36 | 0.45 |
| Total non-performing loans | **0.65%** | 0.44% | 0.49% |
| **Total non-performing assets, as a percentage of total assets** | **0.49%** | 0.36% | 0.43% |
| **Allowance for loan losses as a percentage of total non-performing loans** | **120.46%** | 133.37% | 134.55% |

*(1) As of the dates shown no TDRs were past due greater than 90 days and still accruing interest.*

*(2) Non-accrual loans included TDRs totaling $36.6 million, $27.1 million, and $40.1 million as of March 31, 2020, December 31, 2019, and March 31, 2019, respectively.*

*(3) Includes PCD loans. As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020.*

Management is pursuing the resolution of all credits in this category. At this time, management believes reserves are appropriate to absorb losses that are expected upon the ultimate resolution of these credits. While the ultimate effect of the COVID-19 pandemic on non-performing assets is currently unknown, significant increases may occur in subsequent periods. Management will continue to actively review and monitor its loan portfolios, in an effort to identify problem credits in a timely manner. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operation -Overview section of this report for additional discussion of the impact of the COVID-19 pandemic.

#### Loan Portfolio Aging

The tables below show the aging of the Company’s loan portfolio at March 31, 2020 and December 31, 2019:

*(Dollars in thousands)*

| As of March 31, 2020 Loan Balances: Commercial | Nonaccrual | 90+ days and still accruing | 60-89 days past due | 30-59 days past due | Current | Total Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial, industrial and other | **$49,916** | **$1,241** | **$8,873** | **$86,129** | **$8,879,727** | **$9,025,886** |
| Commercial real estate |  |  |  |  |  |  |
| Construction and development | **7,422** | **147** | **1,859** | **16,938** | **1,274,987** | **1,301,353** |
| Non-construction | **55,408** | **369** | **8,353** | **58,130** | **6,761,918** | **6,884,178** |
| Home equity | **7,243** | **—** | **214** | **2,096** | **485,102** | **494,655** |
| Residential real estate | **18,965** | **605** | **345** | **28,983** | **1,328,491** | **1,377,389** |
| Premium finance receivables |  |  |  |  |  |  |
| Commercial insurance loans | **21,058** | **16,505** | **10,327** | **32,811** | **3,384,354** | **3,465,055** |
| Life insurance loans | **—** | **—** | **2,403** | **37,374** | **5,181,862** | **5,221,639** |
| Consumer and other | **403** | **78** | **625** | **207** | **35,853** | **37,166** |
| Total loans, net of unearned income | **$160,415** | **$18,945** | **$32,999** | **$262,668** | **$27,332,294** | **$27,807,321** |

*(Dollars in thousands)*

| As of December 31, 2019 Loan Balances:(1) Commercial | Nonaccrual | 90+ days and still accruing | 60-89 days past due | 30-59 days past due | Current | Total Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial, industrial and other | $37,224 | $1,855 | $3,275 | $77,324 | $8,166,242 | $8,285,920 |
| Commercial real estate |  |  |  |  |  |  |
| Construction and development | 2,112 | 3,514 | 5,292 | 48,964 | 1,223,567 | 1,283,449 |
| Non-construction | 24,001 | 11,432 | 26,254 | 48,603 | 6,626,537 | 6,736,827 |
| Home equity | 7,363 | — | 454 | 3,533 | 501,716 | 513,066 |
| Residential real estate | 13,797 | 5,771 | 3,089 | 18,041 | 1,313,523 | 1,354,221 |
| Premium finance receivables |  |  |  |  |  |  |
| Commercial insurance loans | 20,590 | 11,517 | 12,119 | 18,783 | 3,379,018 | 3,442,027 |
| Life insurance loans | 590 | — | — | 32,559 | 5,041,453 | 5,074,602 |
| Consumer and other | 231 | 287 | 40 | 344 | 109,276 | 110,178 |
| Total loans, net of unearned income | $105,908 | $34,376 | $50,523 | $248,151 | $26,361,332 | $26,800,290 |

*(1) Includes PCD loans and, for periods prior to the adoption of ASU 2016-13, purchased credit impaired ("PCI") loans. PCI loans represented loans acquired with evidence of credit quality deterioration since origination, in accordance with ASC 310-30. Loan agings disclosed in comparative periods are based upon contractually required payments. As a result of the adoption of ASU 2016-13, the Company transitioned all previously classified PCI loans to PCD loans effective January 1, 2020.*

As of March 31, 2020, $33.0 million of all loans, or 0.1%, were 60 to 89 days past due and $262.7 million of all loans or 0.9%, were 30 to 59 days (or one payment) past due. As of December 31, 2019, $50.5 million of all loans or 0.2%, were 60 to 89 days past due and $248.2 million, or 0.9%, were 30 to 59 days (or one payment) past due. Many of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis.

The Company's home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at March 31, 2020 that were current with regard to the contractual terms of the loan agreement represent 98.1% of the total home equity portfolio. Residential real estate loans at March 31, 2020 that were current with regards to the contractual terms of the loan agreements comprise 96.4% of total residential real estate loans outstanding.

#### Non-performing Loans Rollforward

The table below presents a summary of non-performing loans for the periods presented:

*(In thousands)*

|  | Three Months Ended March 31, 2020 | March 31, 2019 |
| --- | ---: | ---: |
| Balance at beginning of period | **$117,588** | $113,234 |
| Additions, net | **32,195** | 24,030 |
| Additions from the adoption of ASU 2016-13 | **37,285** | — |
| Return to performing status | **(486)** | (14,077) |
| Payments received | **(7,949)** | (4,024) |
| Transfer to OREO and other repossessed assets | **(1,297)** | (82) |
| Charge-offs | **(2,551)** | (3,992) |
| Net change for niche loans (1) | **4,575** | 2,497 |
| **Balance at end of period** | **$179,360** | $117,586 |

*(1) This includes activity for premium finance receivables and indirect consumer loans.*

Prior to January 1, 2020, PCI loans were excluded from non-performing loans as they continued to earn interest income from the related accretable yield, independent of performance with contractual terms of the loan. As a result of the adoption of ASU 2016-13 effective January 1, 2020, the Company transitioned all previously classified PCI loans to PCD loans, which no longer maintain the prior pools and related accounting concepts. Specifically, recognition of interest income on PCD loans is considered at the individual asset level following the Company's accrual policies, instead of based upon the entire pool of loans. As such, after adoption, the Company includes PCD loans in total non-performing loans.

### Allowance for Credit Losses

The allowance for credit losses, specifically the allowance for loans losses and the allowance for unfunded commitment losses, represents management’s estimate of lifetime expected credit losses in the loan portfolio. The allowance for credit losses is determined quarterly using a methodology that incorporates important risk characteristics of each loan, as described below under “How We Determine the Allowance for Credit Losses” in this Item 2. This process is subject to review at each of our bank subsidiaries by the applicable regulatory authority, including the FRB of Chicago, and the OCC.

Management determined that the allowance for credit losses was appropriate at March 31, 2020, and that the loan portfolio is well diversified and well secured, without undue concentration in any specific risk area. While this process involves a high degree of management judgment, the allowance for credit losses is based on a comprehensive, well documented, and consistently applied analysis of the Company’s loan portfolio. This analysis takes into consideration all available information existing as of the financial statement date, including environmental factors such as economic, industry, geographical and political factors. The relative level of allowance for credit losses is reviewed and compared to industry peers. This review encompasses levels of total non-performing loans, portfolio mix, portfolio concentrations, current geographic risks, overall levels of net charge-offs and expectations of future forecasts. Historical trending of both the Company’s results and the industry peers is also reviewed to analyze comparative significance.

#### Allowance for Credit Losses

The following table summarizes the activity in our allowance for credit losses, specifically related to loans and unfunded lending-related commitments, during the periods indicated.

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2020 | March 31, 2019 |
| --- | ---: | ---: |
| **Allowance for credit losses at beginning of period** | **$158,461** | $154,164 |
| **Cumulative effect adjustment from the adoption of ASU 2016-13** | **47,344** | — |
| **Provision for credit losses** | **52,965** | 10,624 |
| **Other adjustments** | **(73)** | (27) |
| **Charge-offs:** |  |  |
| Commercial | **2,153** | 503 |
| Commercial real estate | **570** | 3,734 |
| Home equity | **1,001** | 88 |
| Residential real estate | **401** | 3 |
| Premium finance receivables | **3,184** | 2,210 |
| Consumer and other | **128** | 102 |
| Total charge-offs | **7,437** | 6,640 |
| **Recoveries:** |  |  |
| Commercial | **384** | 318 |
| Commercial real estate | **263** | 480 |
| Home equity | **294** | 62 |
| Residential real estate | **60** | 29 |
| Premium finance receivables | **1,110** | 556 |
| Consumer and other | **41** | 56 |
| Total recoveries | **2,152** | 1,501 |
| **Net charge-offs** | **(5,285)** | (5,139) |
| **Allowance for credit losses at period end** | **$253,412** | $159,622 |
| **Annualized net charge-offs by category as a percentage of its own respective category’s average:** |  |  |
| Commercial | **0.08%** | 0.01% |
| Commercial real estate | **0.02** | 0.19 |
| Home equity | **0.57** | 0.02 |
| Residential real estate | **0.11** | (0.01) |
| Premium finance receivables | **0.10** | 0.23 |
| Consumer and other | **0.56** | 0.16 |
| Total loans, net of unearned income | **0.08%** | 0.09% |
| **Net charge-offs as a percentage of the provision for credit losses** | **9.98%** | 48.37% |
| **Loans at period-end** | **$27,807,321** | $24,214,629 |
| **Allowance for loan losses as a percentage of loans at period end** | **0.78%** | 0.65% |
| **Allowance for loan and unfunded loan-related commitment losses as a percentage of loans at period end** | **0.91%** | 0.66% |

The allowance for credit losses, as related to loans and lending-related commitments, is comprised of an allowance for loan losses, which is determined with respect to loans that we have originated, and an allowance for unfunded commitment losses. A separate allowance for held-to-maturity securities losses is measured related to such debt securities portfolio. Our allowance for unfunded commitment losses is determined with respect to funds that we have committed to lend but for which funds have not yet been disbursed and is computed using a methodology similar to that used to determine the allowance for loan losses. The allowance for unfunded lending-related commitments totaled $37.4 million and $1.4 million as of March 31, 2020 and March 31, 2019, respectively.

Additions to the allowance for credit losses are charged to earnings through the provision for credit losses. Charge-offs represent the amount of loans that have been determined to be uncollectible during a given period, and are deducted from the allowance for credit losses, and recoveries represent the amount of collections received from loans that had previously been charged off, and are credited to the allowance for credit losses. See Note 7 of the Consolidated Financial Statements presented under Item 1 of this report for further discussion of activity within the allowance for credit losses during the period and the relationship with respective loan balances for each loan category and the total loan portfolio.

#### How We Determine the Allowance for Credit Losses

The allowance for credit losses is measured on a collective or pooled basis by loans that share similar risk characteristics. If the loan no longer exhibits risk characteristics similar to that of a pool, typically due to credit deterioration of the related borrower, the Company analyzes the loan for purposes of individually assessing a specific allowance for credit loss as part of the Problem Loan Reporting system review. A separate reserve is collectively measured for loans continuing to share risk characteristics and, as a result, remaining in the pools. See Note 7 of the Consolidated Financial Statements presented under Item 1 of this report for further discussion of the allowance for credit losses measurement process.

#### Collective Measurement

The allowance for credit losses is measured on a collective or pooled basis when similar risk characteristics exist, based upon the segmentation discussed above. The Company utilizes modeling methodologies that estimate lifetime credit loss rates on each pool, including methodologies estimating the probability of default and loss given default on specific segments. Historical credit loss history is adjusted for reasonable and supportable forecasts developed by the Company on a quantitative or qualitative basis. Reasonable and supportable forecasts consider the macro-economic factors that are most relevant to evaluating and predicting expected credit losses in the Company's financial assets. Currently, the Company utilizes an eight quarter forecast period using a single macro-economic scenario provided by a third-party and reviewed within the Company's governance structure. For periods beyond the ability to develop reasonable and supportable forecasts, the Company reverts to historical loss rates at an input level, straight-line over a four quarter reversion period. Expected credit losses are measured over the contractual term of the financial asset with consideration of expected prepayments. Expected extensions, renewals or modifications of the financial asset are only considered when either 1) the expected extension, renewal or modification is contained within the existing agreement and are not unconditionally cancelable, or 2) the expected extension, renewal or modification is reasonably expected to result in a troubled debt restructuring ("TDR"). The methodologies discussed above are applied to both current asset balances on the Company's Consolidated Statements of Condition and off-balance sheet commitments (i.e. unfunded lending-related commitments).

#### Individual Assessment

Loans with a credit risk rating of a 6 through 9 are reviewed on a monthly basis to determine if (a) an amount is deemed uncollectible (a charge-off) or (b) it is probable that the Company will be unable to collect amounts due in accordance with the original contractual terms of the loan. In cases in which collectability is not probable, the loan is considered to no longer exhibit shared risk characteristics of a pool and as a result, is individually assessed for allowance for credit losses measurement purposes. If a loan is individually assessed, the carrying amount of the loan is compared to the expected payments to be received, discounted at the loan’s original rate, or for foreclosure-probable and collateral dependent loans, to the fair value of the collateral less the estimated cost to sell, when appropriate under accounting rules. Any shortfall is recorded as a specific reserve within the allowance for credit losses.

#### Home Equity, Residential Real Estate and Consumer Loans

The determination of the appropriate allowance for loan losses for home equity, residential real estate and consumer loans differs from the process used for commercial and commercial real estate loans. These portfolios utilize the weighted-average remaining maturity ("WARM") methodology. The WARM methodology is an assumption-based approach that utilizes historical loss and prepayment information as the basis to estimate prepayment and credit adjusted contractual cash flows. The Company considers a qualitative factor to adjust historical information for current conditions and reasonable and supportable forecasts. The same credit risk rating system and Problem Loan Reporting systems are used. The only significant difference is in how the credit risk ratings are assigned to these loans.

The home equity loan portfolio is reviewed on a loan by loan basis by analyzing current FICO scores of the borrowers, line availability, recent line usage, an approaching maturity and the aging status of the loan. Certain of these factors, or combination of these factors, may cause a portion of the credit risk ratings of home equity loans across all banks to be downgraded. Similar to commercial and commercial real estate loans, once a home equity loan’s credit risk rating is downgraded to a 6 through 9, the Company’s Managed Asset Division reviews and advises the subsidiary banks as to collateral valuations and as to the ultimate resolution of the credits that deteriorate to a non-accrual status to minimize losses.

Residential real estate loans that are downgraded to a credit risk rating of 6 through 9 also enter the problem loan reporting system and have the underlying collateral evaluated by the Managed Assets Division.

#### Premium Finance Receivables

The determination of the appropriate allowance for credit losses for premium finance receivables is an assumption-based approach focusing on historical loss rates in the portfolio, adjusted qualitatively for current conditions and reasonable and supportable forecasts.

#### Methodology in Assessing Impairment and Charge-off Amounts

In determining the amount of reserves or charge-offs associated with collateral dependent loans, the Company values the loan generally by starting with a valuation obtained from an appraisal of the underlying collateral and then deducting estimated selling costs, if appropriate, to arrive at a net appraised value. We obtain the appraisals of the underlying collateral typically on an annual basis from one of a pre-approved list of independent, third party appraisal firms. Types of appraisal valuations include “as-is,” “as-complete,” “as-stabilized,” bulk, fair market, liquidation and “retail sellout” values.

In many cases, the Company simultaneously values the underlying collateral by marketing the property to market participants interested in purchasing properties of the same type. If the Company receives offers or indications of interest, we will analyze the price and review market conditions to assess whether in light of such information the appraised value overstates the likely price and that a lower price would be a better assessment of the market value of the property and would enable us to liquidate the collateral. Additionally, the Company takes into account the strength of any guarantees or other credit enhancements, and the ability of the borrower to provide value related to those guarantees in determining the ultimate charge-off or reserve associated with any individually assessed loans. Accordingly, the Company may charge-off a loan to a value below the net appraised value if it believes that an expeditious liquidation is desirable in the circumstance and it has legitimate offers or other indications of interest to support a value that is less than the net appraised value. Alternatively, the Company may carry a loan at a value that is in excess of the appraised value if the Company has a guarantee from a borrower or other credit enhancements that the Company believes has realizable value. In evaluating the strength of any guarantee, the Company evaluates the financial wherewithal of the guarantor, the guarantor’s reputation, and the guarantor’s willingness and desire to work with the Company. The Company then conducts a review of the strength of a guarantee on a frequency established as the circumstances and conditions of the borrower warrant.

In circumstances where the Company has received an appraisal but has no third party offers or indications of interest, the Company may enlist the input of realtors in the local market as to the highest valuation that the realtor believes would result in a liquidation of the property given a reasonable marketing period of approximately 90 days. To the extent that the realtors’ indication of market clearing price under such scenario is less than the net appraised valuation, the Company may take a charge-off on the loan to a valuation that is less than the net appraised valuation.

The Company may also charge-off a loan below the net appraised valuation if the Company holds a junior mortgage position in a piece of collateral whereby the risk to acquiring control of the property through the purchase of the senior mortgage position is deemed to potentially increase the risk of loss upon liquidation due to the amount of time to ultimately market the property and the volatile market conditions. In such cases, the Company may abandon its junior mortgage and charge-off the loan balance in full.

In other cases, the Company may allow the borrower to conduct a “short sale,” which is a sale where the Company allows the borrower to sell the property at a value less than the amount of the loan. Many times, it is possible for the current owner to receive a better price than if the property is marketed by a financial institution which the market place perceives to have a greater desire to liquidate the property at a lower price. To the extent that we allow a short sale at a price below the value indicated by an appraisal, we may take a charge-off beyond the value that an appraisal would have indicated.

Other market conditions may require a reserve to bring the carrying value of the loan below the net appraised valuation such as litigation surrounding the borrower and/or property securing our loan or other market conditions impacting the value of the collateral.

Having determined the net value based on the factors such as those noted above and compared that value to the book value of the loan, the Company arrives at a charge-off amount or a specific reserve included in the allowance for loan losses. In summary, for collateral dependent loans, appraisals are used as the fair value starting point in the estimate of net value. Estimated costs to sell are deducted from the appraised value, when appropriate under current accounting rules, to arrive at the net appraised value. Although an external appraisal is the primary source of valuation utilized for charge-offs on collateral dependent loans, alternative sources of valuation may become available between appraisal dates. As a result, we may utilize values obtained through these alternative sources, which include purchase and sale agreements, legitimate indications of interest, negotiated short sales, realtor price opinions, sale of the note or support from guarantors, as the basis for charge-offs. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. In addition, if an appraisal is not deemed current, a discount to appraised value may be utilized. Any adjustments from appraised value to net value are detailed and justified in an impairment analysis, which is reviewed and approved by the Company’s Managed Assets Division.

#### TDRs

At March 31, 2020, the Company had $83.6 million in loans modified in TDRs. The $83.6 million in TDRs represents 263 credits in which economic concessions were granted to certain borrowers to better align the terms of their loans with their current ability to pay. The balance increased from $63.8 million representing 255 credits at December 31, 2019 and decreased slightly from $88.4 million representing 163 credits at March 31, 2019.

Concessions were granted on a case-by-case basis working with these borrowers to find modified terms that would assist them in retaining their businesses or their homes and attempt to keep these loans in an accruing status for the Company. Typical concessions include reduction of the interest rate on the loan to a rate considered lower than market and other modification of terms including forgiveness of a portion of the loan balance, extension of the maturity date, and/or modifications from principal and interest payments to interest-only payments for a certain period. See Note 7 of the Consolidated Financial Statements in Item 1 of this report for further discussion regarding the effectiveness of these modifications in keeping the modified loans current based upon contractual terms.

Subsequent to its restructuring, any TDR that becomes nonaccrual or more than 90 days past-due and still accruing interest will be included in the Company’s non-performing loans. Each TDR was individually assessed when measuring the allowance for credit losses at March 31, 2020 and approximately $7.8 million was appropriately reserved for through the Company’s normal reserving methodology in the Company’s allowance for credit losses. Additionally, at March 31, 2020, the Company was committed to lend an additional $132,000 of funds to borrowers under the contractual terms of TDRs.

On March 22, 2020, interagency guidance was issued titled "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus" that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effect of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act (50 U.S.C 1601 et seq.) terminates. Accordingly, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The modifications that were completed in the three months ended March 31, 2020 were not material.

The table below presents a summary of restructured loans for the respective periods, presented by loan category and accrual status:

*(In thousands)*

| Accruing TDRs: | March 31, 2020 | December 31, 2019 | March 31, 2019 |
| --- | ---: | ---: | ---: |
| Commercial | **$6,500** | $4,905 | $19,650 |
| Commercial real estate | **18,043** | 9,754 | 14,123 |
| Residential real estate and other | **22,506** | 22,066 | 14,532 |
| Total accruing TDRs | **$47,049** | $36,725 | $48,305 |
| **Non-accrual TDRs: (1)** |  |  |  |
| Commercial | **$17,206** | $13,834 | $34,390 |
| Commercial real estate | **14,420** | 7,119 | 1,517 |
| Residential real estate and other | **4,962** | 6,158 | 4,150 |
| Total non-accrual TDRs | **$36,588** | $27,111 | $40,057 |
| **Total TDRs:** |  |  |  |
| Commercial | **$23,706** | $18,739 | $54,040 |
| Commercial real estate | **32,463** | 16,873 | 15,640 |
| Residential real estate and other | **27,468** | 28,224 | 18,682 |
| Total TDRs | **$83,637** | $63,836 | $88,362 |

#### (1) Included in total non-performing loans.

#### TDR Rollforward

The tables below present a summary of TDRs as of March 31, 2020 and March 31, 2019, and shows the changes in the balance during those periods:

| Three Months Ended March 31, 2020 (In thousands) | Commercial | Commercial Real Estate | Residential Real Estate and Other | Total |
| --- | ---: | ---: | ---: | ---: |
| Balance at beginning of period | **$18,739** | **$16,873** | **$28,224** | **$63,836** |
| Additions during the period | **5,602** | **16,053** | **2,142** | **23,797** |
| Reductions: |  |  |  |  |
| Charge-offs | **—** | **—** | **(345)** | **(345)** |
| Transferred to OREO and other repossessed assets | **—** | **—** | **(945)** | **(945)** |
| Removal of TDR loan status (1) | **—** | **—** | **—** | **—** |
| Payments received | **(635)** | **(463)** | **(1,608)** | **(2,706)** |
| **Balance at period end** | **$23,706** | **$32,463** | **$27,468** | **$83,637** |

| Three Months Ended March 31, 2019 (In thousands) | Commercial | Commercial Real Estate | Residential Real Estate and Other | Total |
| --- | ---: | ---: | ---: | ---: |
| Balance at beginning of period | $36,319 | $15,447 | $14,336 | $66,102 |
| Additions during the period | 18,930 | 302 | 4,486 | 23,718 |
| Reductions: |  |  |  |  |
| Charge-offs | — | — | — | — |
| Transferred to OREO and other repossessed assets | — | — | — | — |
| Removal of TDR loan status (1) | — | — | — | — |
| Payments received | (1,209) | (109) | (140) | (1,458) |
| **Balance at period end** | $54,040 | $15,640 | $18,682 | $88,362 |

*(1) Loan was previously classified as a TDR and subsequently performed in compliance with the loan's modified terms for a period of six months (including over a calendar year-end) at a modified interest rate which represented a market rate at the time of restructuring. Per our TDR policy, the TDR classification is removed.*

#### Other Real Estate Owned ("OREO")

In certain circumstances, the Company is required to take action against the real estate collateral of specific loans. The Company uses foreclosure only as a last resort for dealing with borrowers experiencing financial hardships. The Company employs extensive contact and restructuring procedures to attempt to find other solutions for our borrowers. The tables below present a summary of other real estate owned and shows the activity for the respective periods and the balance for each property type:

*(In thousands)*

|  | Three Months Ended March 31, 2020 | March 31, 2019 |
| --- | ---: | ---: |
| Balance at beginning of period | **$15,171** | $24,820 |
| Disposal/resolved | **(4,793)** | (2,758) |
| Transfers in at fair value, less costs to sell | **954** | 32 |
| Fair value adjustments | **(306)** | (574) |
| Balance at end of period | **$11,026** | $21,520 |

*(In thousands)*

|  | Period End March 31, 2020 | December 31, 2019 | March 31, 2019 |
| --- | ---: | ---: | ---: |
| Residential real estate | **$1,684** | $1,016 | $3,037 |
| Residential real estate development | **—** | 810 | 1,139 |
| Commercial real estate | **9,342** | 13,345 | 17,344 |
| Total | **$11,026** | $15,171 | $21,520 |

77

### Deposits

Total deposits at March 31, 2020 were $31.5 billion, an increase of $4.7 billion, or 17%, compared to total deposits at March 31, 2019. See Note 10 to the Consolidated Financial Statements in Item 1 of this report for a summary of period end deposit balances.

The following table sets forth, by category, the maturity of time certificates of deposit as of March 31, 2020:

| Time Certificates of Deposit Maturity/Re-pricing Analysis As of March 31, 2020 (Dollars in thousands) | CDARs & Brokered Certificates of Deposit (1) | MaxSafe Certificates of Deposit (1) | Variable Rate Certificates of Deposit (2) | Other Fixed Rate Certificates of Deposit (1) | Total Time Certificates of Deposits | Weighted-Average Rate of Maturing Time Certificates of Deposit (3) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| 1-3 months | $1,424 | $22,260 | $66,464 | $1,270,123 | **$1,360,271** | **2.00%** |
| 4-6 months | 1,686 | 23,324 | — | 627,255 | **652,265** | **1.88** |
| 7-9 months | 609 | 20,482 | — | 506,943 | **528,034** | **1.70** |
| 10-12 months | — | 9,319 | — | 762,874 | **772,193** | **1.98** |
| 13-18 months | 1,401 | 18,348 | — | 1,503,823 | **1,523,572** | **2.31** |
| 19-24 months | — | 6,631 | — | 368,831 | **375,462** | **2.00** |
| 24+ months | 88 | 2,794 | — | 175,100 | **177,982** | **1.75** |
| Total | $5,208 | $103,158 | $66,464 | $5,214,949 | **$5,389,779** | **2.03%** |

*(1) This category of certificates of deposit is shown by contractual maturity date.*

*(2) This category includes variable rate certificates of deposit and savings certificates with the majority repricing on at least a monthly basis.*

*(3) Weighted-average rate excludes the impact of purchase accounting fair value adjustments.*

The following table sets forth, by category, the composition of average deposit balances and the relative percentage of total average deposits for the periods presented:

*(Dollars in thousands)*

|  | Three Months Ended March 31, 2020 Balance | Percent | December 31, 2019 Balance | Percent | March 31, 2019 Balance | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Non-interest bearing | **$7,235,177** | **24%** | $7,128,166 | 25% | $6,444,378 | 25% |
| NOW and interest bearing demand deposits | **3,113,733** | **11** | 3,016,991 | 10 | 2,803,338 | 11 |
| Wealth management deposits | **2,838,719** | **9** | 2,934,292 | 10 | 2,614,035 | 10 |
| Money market | **7,990,775** | **27** | 7,647,635 | 26 | 5,915,525 | 23 |
| Savings | **3,189,835** | **11** | 3,028,763 | 10 | 2,715,422 | 11 |
| Time certificates of deposit | **5,526,407** | **18** | 5,682,449 | 19 | 5,267,796 | 20 |
| Total average deposits | **$29,894,646** | **100%** | $29,438,296 | 100% | $25,760,494 | 100% |

Total average deposits for the first quarter of 2020 were $29.9 billion, an increase of $4.1 billion, or 16%, from the first quarter of 2019. The increase in average deposits is primarily attributable to the various acquisitions and branch openings along with additional deposits associated with relationships from marketing efforts.

Wealth management deposits are funds from the brokerage customers of Wintrust Investments, CDEC, trust and asset management customers of the Company and brokerage customers from unaffiliated companies which have been placed into deposit accounts of the banks (“wealth management deposits” in the table above). Wealth Management deposits consist primarily of money market accounts. Consistent with reasonable interest rate risk parameters, these funds have generally been invested in loan production of the banks as well as other investments suitable for banks.

#### Brokered Deposits

While the Company obtains a portion of its total deposits through brokered deposits, the Company does so primarily as an asset-liability management tool to assist in the management of interest rate risk, and the Company does not consider brokered deposits to be a vital component of its current liquidity resources. Historically, brokered deposits have represented a small component of the Company’s total deposits outstanding, as set forth in the table below:

*(Dollars in thousands)*

|  | March 31, 2020 | 2019 | December 31, 2019 | 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Total deposits | **$31,461,660** | $26,804,742 | $30,107,138 | $26,094,678 | $23,183,347 |
| Brokered deposits | **2,181,090** | 1,622,842 | 1,011,404 | 1,071,562 | 1,445,306 |
| Brokered deposits as a percentage of total deposits | **6.9%** | 6.1% | 3.4% | 4.1% | 6.2% |

Brokered deposits include certificates of deposit obtained through deposit brokers, deposits received through the Certificate of Deposit Account Registry Program (“CDARS”), and wealth management deposits of brokerage customers from unaffiliated companies which have been placed into deposit accounts of the banks.

### Other Funding Sources

Although deposits are the Company’s primary source of funding its interest-earning assets, the Company’s ability to manage the types and terms of deposits is somewhat limited by customer preferences and market competition. As a result, in addition to deposits and the issuance of equity securities and the retention of earnings, the Company uses several other funding sources to support its growth. These sources include short-term borrowings, notes payable, FHLB advances, subordinated debt, secured borrowings and junior subordinated debentures. The Company evaluates the terms and unique characteristics of each source, as well as its asset-liability management position, in determining the use of such funding sources.

The following table sets forth, by category, the composition of the average balances of other funding sources for the quarterly periods presented:

*(In thousands)*

|  | Three Months Ended March 31, 2020 | December 31, 2019 | March 31, 2019 |
| --- | ---: | ---: | ---: |
| FHLB advances | **$951,613** | $596,594 | $594,335 |
| Other borrowings: |  |  |  |
| Notes payable | **127,978** | 128,319 | 144,284 |
| Short-term borrowings | **45,089** | 14,801 | 111,413 |
| Secured borrowings | **250,054** | 225,416 | 162,367 |
| Other | **46,456** | 46,556 | 47,507 |
| Total other borrowings | **$469,577** | $415,092 | $465,571 |
| Subordinated notes | **436,119** | 436,025 | 139,217 |
| Junior subordinated debentures | **253,566** | 253,566 | 253,566 |
| Total other funding sources | **$2,110,875** | $1,701,277 | $1,452,689 |

FHLB advances provide the banks with access to fixed rate funds which are useful in mitigating interest rate risk and achieving an acceptable interest rate spread on fixed rate loans or securities. Additionally, the banks have the ability to borrow shorter-term, overnight funding from the FHLB for other general purposes. FHLB advances to the banks totaled $1.2 billion at March 31, 2020, compared to $674.9 million at December 31, 2019 and $576.4 million at March 31, 2019.

Notes payable balances as of March 31, 2020 and December 31, 2019 represent the balances on a $200.0 million loan agreement with unaffiliated banks consisting of a $50.0 million revolving credit facility and a $150.0 million term facility. Both loan facilities are available for corporate purposes such as to provide capital to fund continued growth at existing bank subsidiaries, possible future acquisitions and for other general corporate matters. At March 31, 2020 and December 31, 2019, the Company had a balance under the term facility of $117.7 million and $123.1 million, respectively. The Company was contractually required to borrow the entire amount of the term facility on September 18, 2018 and all such borrowings must be repaid by September 18, 2023. At March 31, 2020, the Company had a $50.0 million outstanding balance under the Revolving Credit Facility.

Short-term borrowings include securities sold under repurchase agreements and federal funds purchased. These borrowings totaled $12.1 million at March 31, 2020 compared to $20.5 million at December 31, 2019 and $16.2 million at March 31, 2019. Securities sold under repurchase agreements represent sweep accounts for certain customers in connection with master repurchase agreements at the banks. This funding category typically fluctuates based on customer preferences and daily liquidity needs of the banks, their customers and the banks’ operating subsidiaries.

The average balance of secured borrowings primarily represents a third party Canadian transaction ("Canadian Secured Borrowing"). Under the Canadian Secured Borrowing, in December 2014, the Company, through its subsidiary, FIFC Canada, sold an undivided co-ownership interest in all receivables owed to FIFC Canada to an unrelated third party in exchange for a cash payment of approximately C$150 million pursuant to a receivables purchase agreement (“Receivables Purchase Agreement”). The Receivables Purchase Agreement was amended in December 2015, effectively extending the maturity date from December 15, 2015 to December 15, 2017. Additionally, at that time, the unrelated third party paid an additional C$10 million, which increased the total payments to C$160 million. The Receivables Purchase Agreement was again amended in December 2017, effectively extending the maturity date from December 15, 2017 to December 16, 2019. Additionally, in December 2017, the unrelated third party paid an additional C$10 million, which increased the total payments to C$170 million. In June 2018, the unrelated third party paid an additional C$20 million, which increased the total payments to C$190 million. The Receivables Purchase Agreement was again amended in February 2019, effectively extending the maturity date from December 16, 2019 to December 15, 2020. Additionally, in February 2019, the unrelated third party paid an additional C$20 million, which increased the total payments to C$210 million. In May 2019, the unrelated third party paid an additional C$70 million, which increased the total payments to C$280 million. In January 2020, the unrelated third party paid an additional C$40 million, which increased the total payments to C$320 million, and the Receivables Purchase Agreement was amended to effectively extend the maturity date from December 15, 2020 to December 15, 2021. These transactions were not considered sales of receivables and, as such, related proceeds received are reflected on the Company’s Consolidated Statements of Condition as a secured borrowing owed to the unrelated third party and translated to the Company’s reporting currency as of the respective date. The translated balance of the Canadian Secured Borrowing under the Receivables Purchase Agreement totaled $227.4 million at March 31, 2020 compared to $215.5 million at December 31, 2019 and $157.2 million at March 31, 2019. At March 31, 2020, the interest rate of the Canadian Secured Borrowing was 2.5544%. The remaining balance within secured borrowings at March 31, 2020 represents other sold interests in certain loans by the Company that were not considered sales and, as such, related proceeds received are reflected on the Company’s Consolidated Statements of Condition as a secured borrowing owed to the various unrelated third parties.

Other borrowings at March 31, 2020 include a fixed-rate promissory note issued by the Company in June 2017 ("Fixed-Rate Promissory Note") related to and secured by two office buildings owned by the Company. At March 31, 2020, the Fixed-Rate Promissory Note had a balance of $66.3 million compared to $46.4 million at December 31, 2019 and $47.4 million at March 31, 2019. Under the Fixed-Rate Promissory Note, the Company makes monthly principal payments and pays interest at a fixed rate until maturity. An amendment to the Fixed-Rate Promissory Note was executed on and effective as of March 31, 2020. The amendment increased the principal amount to $66.4 million, reduced the interest rate to 3.00% and extended the maturity date to March 31, 2025.

At March 31, 2020, the Company had outstanding subordinated notes totaling $436.2 million compared to $436.1 million and $139.2 million outstanding at December 31, 2019 and March 31, 2019, respectively. During the second quarter of 2019, the Company issued $300.0 million of subordinated notes, receiving $296.7 million in net proceeds. The notes have a stated interest rate of 4.85% and mature in June 2029. In 2014, the Company issued $140.0 million of subordinated notes receiving $139.1 million in net proceeds. These notes have a stated interest rate of 5.00% and mature in June 2024. Subordinated notes are stated at par adjusted for unamortized costs paid related to the different issuances of such debt.

The Company had $253.6 million of junior subordinated debentures outstanding as of March 31, 2020, December 31, 2019 and March 31, 2019. The amounts reflected on the balance sheet represent the junior subordinated debentures issued to eleven trusts by the Company and equal the amount of the preferred and common securities issued by the trusts. At March 31, 2020, the Company included $245.5 million of the junior subordinated debentures, net of common securities, in Tier 2 regulatory capital.

In response to the COVID-19 pandemic, the Company will continue to manage funding sources discussed above, including the utilization of availability with the FHLB and FRB and the revolving credit facility with unaffiliated banks, to access needed liquidity in a timely manner. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operation - Overview and - Liquidity sections of this report for additional discussion of the impact of the COVID-19 pandemic.

See Notes 11 and 12 of the Consolidated Financial Statements presented under Item 1 of this report for details of period end balances and other information for these various funding sources.

### Shareholders’ Equity

The following tables reflect various consolidated measures of capital as of the dates presented and the capital guidelines established by the FRB for a bank holding company:

|  | March 31, 2020 | December 31, 2019 | March 31, 2019 |
| --- | ---: | ---: | ---: |
| Tier 1 leverage ratio | **8.5%** | 8.7% | 9.1% |
| Risk-based capital ratios: |  |  |  |
| Tier 1 capital ratio | **9.3** | 9.6 | 9.8 |
| Common equity tier 1 capital ratio | **8.9** | 9.2 | 9.3 |
| Total capital ratio | **11.9** | 12.2 | 11.7 |
| Other ratio: |  |  |  |
| Total average equity-to-total average assets(1) | **10.1** | 10.2 | 10.6 |

#### (1) Based on quarterly average balances.

|  | Minimum Capital Requirements | Well Capitalized |
| --- | ---: | ---: |
| Leverage ratio | 4.0% | 5.0% |
| Tier 1 capital to risk-weighted assets | 6.0 | 8.0 |
| Common equity Tier 1 capital to risk-weighted assets | 4.5 | 6.5 |
| Total capital to risk-weighted assets | 8.0 | 10.0 |

The Company’s principal sources of funds at the holding company level are dividends from its subsidiaries, borrowings under its loan agreement with unaffiliated banks and proceeds from the issuances of subordinated debt and additional equity. Refer to Notes 11, 12 and 18 of the Consolidated Financial Statements in Item 1 for further information on these various funding sources. Management is committed to maintaining the Company’s capital levels above the “Well Capitalized” levels established by the FRB for bank holding companies.

The Company’s Board of Directors approves dividends from time to time, however, the ability to declare a dividend is limited by the Company's financial condition, the terms of the Company's Series D preferred stock, the terms of the Company’s Trust Preferred Securities offerings and under certain financial covenants in the Company’s revolving and term facilities. In January 2020 the Company declared a quarterly cash dividend of $0.28 per common share. In January, April, July and October of 2019, the Company declared a quarterly cash dividend of $0.25 per common share.

In response to the COVID-19 pandemic, the Company continues to leverage its capital management framework to assess and monitor risk when making capital decisions. The Company will continuously evaluate the adequacy of capital as a result of the uncertainty from the COVID-19 pandemic. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operation - Overview section of this report for additional discussion of the impact of the COVID-19 pandemic.

See Note 18 of the Consolidated Financial Statements presented under Item 1 of this report for details on the Company’s issuance of Series D preferred stock in June 2015. The Company hereby incorporates by reference Note 18 of the Consolidated Financial Statements presented under Item 1 of this report in its entirety.

### LIQUIDITY

Wintrust manages the liquidity position of its banking operations to ensure that sufficient funds are available to meet customers’ needs for loans and deposit withdrawals. The management process includes the utilization of stress testing processes and other aspects of the Company's liquidity management framework to assess and monitor risk, and inform decision making. The liquidity to meet the demands of customers is provided by maturing assets, liquid assets that can be converted to cash and the ability to attract funds from external sources. Liquid assets refer to money market assets such as Federal funds sold and interest bearing deposits with banks, as well as available-for-sale debt securities and equity securities with readily determinable fair values which are not pledged to secure public funds. In addition, trade date receivables represent certain sales or calls of available-for-sale securities that await cash settlement, typically in the month following the trade date.

In accordance with the liquidity management noted above, deposit growth and increases in borrowings from various sources have resulted in accumulating liquidity assets in recent periods. In the first quarter of 2020, we increased our liquid assets to ensure that we have the balance sheet strength to serve our clients through the COVID-19 pandemic. As a result, the Company believes that it has sufficient funds and access to funds to effectively manage through the COVID-19 pandemic as well as meet its working capital and other needs. The Company will continue to prudently evaluate and expand liquidity sources, including the management of availability with the FHLB and FRB and utilization of the revolving credit facility with unaffiliated banks. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operation -Interest-Earning Assets, -Deposits, -Other Funding Sources and -Shareholders’ Equity sections of this report for additional information regarding the Company’s liquidity position. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operation -Overview section of this report for additional discussion of the impact of the COVID-19 pandemic.

### INFLATION

A banking organization’s assets and liabilities are primarily monetary. Changes in the rate of inflation do not have as great an impact on the financial condition of a bank as do changes in interest rates. Moreover, interest rates do not necessarily change at the same percentage as inflation. Accordingly, changes in inflation are not expected to have a material impact on the Company. An analysis of the Company’s asset and liability structure provides the best indication of how the organization is positioned to respond to changing interest rates. See “Quantitative and Qualitative Disclosures About Market Risk” section of this report for additional information.

### FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, such as the potential impacts of the COVID-19 pandemic, and which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2019 Annual Report on Form 10-K and in any of the Company’s subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and management’s long-term performance goals, as well as statements relating to the anticipated effects on financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:

- the severity, magnitude and duration of the COVID-19 pandemic and the direct and indirect impact of such pandemic, as well as responses to the pandemic by the government, business and consumers, on our operations and personnel, commercial activity and demand across our business and our customers’ businesses;
- the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect the Company’s liquidity and capital positions, impair the ability of our borrowers to repay outstanding loans, impair collateral values and further increase our allowance for credit losses;
- the impact of the COVID-19 pandemic on our financial results, including possible lost revenue and increased expenses (including the cost of capital), as well as possible goodwill impairment charges;
- economic conditions that affect the economy, housing prices, the job market and other factors that may adversely affect the Company’s liquidity and the performance of its loan portfolios, particularly in the markets in which it operates;
- negative effects suffered by us or our customers resulting from changes in U.S. trade policies;
- the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses;
- estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period;
- the financial success and economic viability of the borrowers of our commercial loans;
- commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin;
- the extent of commercial and consumer delinquencies and declines in real estate values, which may require further increases in the Company’s allowance for loan losses;
- inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio;
- changes in the level and volatility of interest rates, the capital markets and other market indices (including developments and volatility arising from or related to the COVID-19 pandemic) that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities;
- competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services), which may result in loss of market share and reduced income from deposits, loans, advisory fees and income from other products;
- failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of the Company’s recent or future acquisitions;
- unexpected difficulties and losses related to FDIC-assisted acquisitions;
- harm to the Company’s reputation;
- any negative perception of the Company’s financial strength;
- ability of the Company to raise additional capital on acceptable terms when needed;
- disruption in capital markets, which may lower fair values for the Company’s investment portfolio;
- ability of the Company to use technology to provide products and services that will satisfy customer demands and create efficiencies in operations and to manage risks associated therewith;
- failure or breaches of our security systems or infrastructure, or those of third parties;
- security breaches, including denial of service attacks, hacking, social engineering attacks, malware intrusion or data corruption attempts and identity theft;
- adverse effects on our information technology systems resulting from failures, human error or cyberattacks;
- adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors;
- increased costs as a result of protecting our customers from the impact of stolen debit card information;
- accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions;
- ability of the Company to attract and retain senior management experienced in the banking and financial services industries;
- environmental liability risk associated with lending activities;
- the impact of any claims or legal actions to which the Company is subject, including any effect on our reputation;
- losses incurred in connection with repurchases and indemnification payments related to mortgages and increases in reserves associated therewith;
- the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;
- the soundness of other financial institutions;
- the expenses and delayed returns inherent in opening new branches and de novo banks;
- examinations and challenges by tax authorities, and any unanticipated impact of the Tax Act;
- changes in accounting standards, rules and interpretations such as the new CECL standard and related changes to address the impact of COVID-19, and the impact on the Company’s financial statements;
- the ability of the Company to receive dividends from its subsidiaries;
- uncertainty about the discontinued use of LIBOR and transition to an alternative rate;
- a decrease in the Company’s capital ratios, including as a result of declines in the value of its loan portfolios, or otherwise;
- legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies, including those changes that are in response to the COVID-19 pandemic, including without limitation the CARES Act and the rules and regulations that may be promulgated thereunder;
- a lowering of our credit rating;
- changes in U.S. monetary policy and changes to the Federal Reserve’s balance sheet, including changes in response to the COVID-19 pandemic or otherwise;
- regulatory restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business;
- increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the regulatory environment;
- the impact of heightened capital requirements;
- increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC;
- delinquencies or fraud with respect to the Company’s premium finance business;
- credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans;
- the Company’s ability to comply with covenants under its credit facility; and
- fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation.

Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. The Company undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events after the date of this report. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases.

## Market risk

As filed, 6,057 characters.

### QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As an ongoing part of its financial strategy, the Company attempts to manage the impact of fluctuations in market interest rates on net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. Asset-liability management policies are established and monitored by management in conjunction with the boards of directors of the banks, subject to general oversight by the Risk Management Committee of the Company’s Board of Directors. The policies establish guidelines for acceptable limits on the sensitivity of the market value of assets and liabilities to changes in interest rates.

Interest rate risk arises when the maturity or re-pricing periods and interest rate indices of the interest earning assets, interest bearing liabilities, and derivative financial instruments are different. It is the risk that changes in the level of market interest rates will result in disproportionate changes in the value of, and the net earnings generated from, the Company’s interest earning assets, interest bearing liabilities and derivative financial instruments. The Company continuously monitors not only the organization’s current net interest margin, but also the historical trends of these margins. In addition, management attempts to identify potential adverse changes in net interest income in future years as a result of interest rate fluctuations by performing simulation analysis of various interest rate environments. If a potential adverse change in net interest margin and/or net income is identified, management would take appropriate actions with its asset-liability structure to mitigate these potentially adverse situations.

Since the Company’s primary source of interest bearing liabilities is from customer deposits, the Company’s ability to manage the types and terms of such deposits is somewhat limited by customer preferences and local competition in the market areas in which the banks operate. The rates, terms and interest rate indices of the Company’s interest earning assets result primarily from the Company’s strategy of investing in loans and securities that permit the Company to limit its exposure to interest rate risk, together with credit risk, while at the same time achieving an acceptable interest rate spread.

The Company’s exposure to interest rate risk is reviewed on a regular basis by management and the Risk Management Committees of the boards of directors of the banks and the Company. The objective of the review is to measure the effect on net income and to adjust balance sheet and derivative financial instruments to minimize the inherent risk while at the same time maximizing net interest income.

The following interest rate scenarios display the percentage change in net interest income over a one-year time horizon assuming increases of 100 and 200 basis points and decreases of 100 basis points. The Static Shock Scenario results incorporate actual cash flows and repricing characteristics for balance sheet instruments following an instantaneous, parallel change in market rates based upon a static (i.e. no growth or constant) balance sheet. Conversely, the Ramp Scenario results incorporate management’s projections of future volume and pricing of each of the product lines following a gradual, parallel change in market rates over twelve months. Actual results may differ from these simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The interest rate sensitivity for both the Static Shock and Ramp Scenarios at March 31, 2020, December 31, 2019 and March 31, 2019 is as follows:

| Static Shock Scenarios | +200 Basis Points | +100 Basis Points | -100 Basis Points |
| --- | ---: | ---: | ---: |
| **March 31, 2020** | **22.5%** | **10.6%** | **(9.4)%** |
| December 31, 2019 | 18.6 | 9.7 | (10.9) |
| March 31, 2019 | 14.9 | 7.8 | (8.5) |

| Ramp Scenarios | +200 Basis Points | +100 Basis Points | -100 Basis Points |
| --- | ---: | ---: | ---: |
| **March 31, 2020** | **7.7%** | **3.7%** | **(3.8)%** |
| December 31, 2019 | 9.3 | 4.8 | (5.0) |
| March 31, 2019 | 6.7 | 3.5 | (3.3) |

One method utilized by financial institutions, including the Company, to manage interest rate risk is to enter into derivative financial instruments. Derivative financial instruments include interest rate swaps, interest rate caps, floors and collars, futures, forwards, option contracts and other financial instruments with similar characteristics. Additionally, the Company enters into commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors. See Note 15 of the Consolidated Financial Statements in Item 1 of this report for further information on the Company’s derivative financial instruments.

During the first three months of 2020 and 2019, the Company entered into certain covered call option transactions related to certain securities held by the Company. The Company uses these option transactions (rather than entering into other derivative interest rate contracts, such as interest rate floors) to economically hedge positions and compensate for net interest margin compression by increasing the total return associated with the related securities through fees generated from these options. Although the revenue received from these options is recorded as non-interest income rather than interest income, the increased return attributable to the related securities from these options contributes to the Company’s overall profitability. The Company’s exposure to interest rate risk may be impacted by these transactions. To further mitigate this risk, the Company may acquire fixed rate term debt or use financial derivative instruments. There were no covered call options outstanding as of March 31, 2020 and 2019.

## Controls and procedures

As filed, 1,139 characters.

### CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer carried out an evaluation under their supervision, with the participation of other members of management as they deemed appropriate, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as contemplated by Exchange Act Rule 13a-15. Based upon, and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective, in all material respects, in timely alerting them to material information relating to the Company (and its consolidated subsidiaries) required to be included in the periodic reports the Company is required to file and submit to the SEC under the Exchange Act.

There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the period that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 10,595 characters.

The following constitute material changes from the risk factors set forth under Part I, Item 1A “Risk Factors” in the Company’s Form 10-K for the fiscal year ended December 31, 2019.

***The COVID-19 pandemic is adversely affecting us and our customers, employees and third-party service providers, and the adverse impact on our business, financial condition, results of operations and cash flows could be material.***

The COVID-19 pandemic has negatively impacted us and many of our customers, and could continue to affect significantly more households and businesses in our geographic area as well as the overall domestic and global economy. U.S. federal, state and foreign governments have taken actions to address the pandemic, including travel bans, school and business closures and “shelter in place” orders. These actions, together with responses to the pandemic by businesses and individuals, have resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led to loss of revenues and a rapid increase in unemployment, material decreases in business valuations, disruption of global supply chains, market downturns and volatility, changes in consumer behavior and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future. These changes may have a significant adverse effect on the markets in which we conduct our business, the demand for our products and services, and our ability to operate in the normal course.

We have increased our allowance for loan losses in response to the COVID-19 pandemic. The effects of the pandemic could cause us to recognize heightened credit losses in our loan portfolio and additional increases in our allowance for loan losses. Certain portions of our lending portfolio are particularly vulnerable to the COVID-19 pandemic, including commercial and industrial and commercial real estate loans. Until the effects of the pandemic subside, we could experience additional draws on lines of credit, downward pressure on deposits, and increased loan delinquencies. The effects of COVID-19 may impair the value of collateral securing our loans, especially commercial and residential real estate loans. Further, a significantly larger amount of delinquent mortgage loans may result in us having to repurchase or substitute loans that we have sold in the secondary market.

Market interest rates have declined significantly during the pandemic. The lower interest rate environment has negatively affected our interest rate margin and, especially if prolonged, could adversely affect our net interest income and profitability. The sharp deterioration in the U.S. economy has negatively affected the value of our market sensitive investment securities portfolio. Further, the pandemic could cause us to recognize impairment of our goodwill and other financial assets, may increase our cost of capital, may prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements, and could result in a downgrade in our credit ratings. The economic recession caused by the COVID-19 pandemic, especially if prolonged, may have a material adverse effect on our business, financial condition and results of operations.

To protect the health and safety of our employees and communities, many of our employees are working remotely. We may experience increased costs of operations or other operational difficulties, including increased cybersecurity risk, due to the remote working environments of our employees. We may also experience additional operational risk due to difficulties experienced by our vendors. The effects of the pandemic and measures taken in response may subject us to increased risk of litigation and governmental and regulatory scrutiny.

Given the ongoing and dynamic nature of the circumstances, it is not possible to accurately predict the extent, severity or duration of the pandemic or when normal economic and operating conditions will resume. Even after the pandemic has subsided, we may continue to experience adverse impacts to our business as a result of the virus’s impact on the domestic and global economy. Accordingly, the extent to which the COVID-19 pandemic may affect our business, financial condition, results of operations and cash flows (including without limitation our liquidity, regulatory capital ratios and credit ratings) is highly uncertain, unpredictable and depends on factors including, among other things, new information that may emerge regarding the COVID-19 pandemic, the duration and severity of the pandemic and responses to the pandemic by the government, businesses and consumers.

Material risks relating to our business that are heightened due to the COVID-19 pandemic are listed in in Part I, Item 1A, “Risk Factors,” in the Company’s Form 10-K for the fiscal year ended December 31, 2019 under the headings:

- ***Deterioration in economic conditions may materially adversely affect the financial services industry and our business, financial condition, results of operations and cash flows.***
- ***Since our business is concentrated in the Chicago metropolitan and southern Wisconsin market areas, economic declines in the economy of this region could adversely affect our business.***
- ***If our allowance for loan losses is not sufficient to absorb losses that may occur in our loan portfolio, our financial condition and liquidity could suffer.***
- ***A significant portion of our loan portfolio is comprised of commercial loans, the repayment of which is largely dependent upon the financial success and economic viability of the borrower.***
- ***A substantial portion of our loan portfolio is secured by real estate, in particular commercial real estate. Deterioration in the real estate markets could lead to additional losses, which could have a material adverse effect on our financial condition and results of operations.***
- ***Events impacting collateral consisting of real property could lead to additional losses which could have a material adverse effect on our financial condition and results of operations.***
- ***Any inaccurate assumptions in our analytical and forecasting models could cause us to miscalculate our projected revenue, capital, liquidity or losses, which could adversely affect our financial condition.***
- ***Changes in prevailing interest rates could adversely affect our net interest income, which is our largest source of income.***
- ***Our liquidity position may be negatively impacted if economic conditions do not continue to improve or if they decline.***
- ***Damage to our reputation may harm our business.***
- ***An actual or perceived reduction in our financial strength may cause others to reduce or cease doing business with us, which could result in a decrease in our net interest income and fee revenues.***
- ***If our credit rating is lowered, our financing costs could increase.***
- ***If our growth requires us to raise additional capital, that capital may not be available when it is needed or the cost of that capital may be very high.***
- ***Disruption in the financial markets could result in lower fair values for our investment securities portfolio.***
- ***Our controls and procedures may fail or be circumvented.***
- ***Our operational or security systems or infrastructure, or those of third parties, could fail or be breached, which could disrupt our business and adversely impact our results of operations, liquidity and financial condition, as well as cause legal or reputational harm.***
- ***We face security risks, including denial of service attacks, hacking, social engineering attacks targeting our colleagues and customers, malware intrusion and data corruption attempts, in addition to the resulting identity theft that could result in the disclosure of confidential information, all of which could adversely affect our business or reputation, and create significant legal and financial exposure.***
- ***Our vendors may be responsible for failures that adversely affect our operations.***
- ***We are subject to claims and legal actions that could negatively affect our results of operations or financial condition.***
- ***Losses incurred in connection with actual or projected repurchases and indemnification payments related to mortgages that we have sold into the secondary market may exceed our financial statement reserves and we may be required to increase such reserves in the future. Increases to our reserves and losses incurred in connection with actual loan repurchases and indemnification payments could have a material adverse effect on our business, financial condition, results of operations or cash flows.***
- ***We may be adversely impacted by the soundness of other financial institutions.***
- ***Changes in accounting policies or accounting standards could materially adversely affect how we report our financial results and financial condition.***
- ***We are a bank holding company, and our sources of funds, including to pay dividends, are limited.***
- ***Our business could be adversely affected by the occurrence of extraordinary events, such as acts of war, terrorist attacks, natural disasters and public health threats.***
- ***If we fail to meet our regulatory capital ratios, we may be forced to raise capital or sell assets.***
- ***Changes in the United States’ monetary policy may restrict our ability to conduct our business in a profitable manner.***
- ***Legislative and regulatory actions taken now or in the future regarding the financial services industry may significantly increase our costs or limit our ability to conduct our business in a profitable manner.***
- ***Our premium finance business may involve a higher risk of delinquency or collection than our other lending operations, and could expose us to losses.***
- ***Widespread financial difficulties or credit downgrades among commercial and life insurance providers could lessen the value of the collateral securing our premium finance loans and impair the financial condition and liquidity of FIRST Insurance Funding, Wintrust Life Finance and FIFC Canada.***

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening the other risks described in Part I, Item 1A, “Risk Factors,” in the Company’s Form 10-K for the fiscal year ended December 31, 2019 as well as any subsequent filing with the SEC. If the pandemic is prolonged, the adverse impacts and heightened risks noted above could worsen.

Filed May 5, 2020.
Source: SEC EDGAR, the filing index for accession 0001015328-20-000120. Last ingested by Listed: Nov 5, 2026, 14:04 ET. No prices; not investment advice.