# Wintrust Financial Corp: Form 10-Q for the period ended Jun 30, 2023

- Company: [Wintrust Financial Corp](/companies/wtfc.md) (CIK 1015328)
- Form: 10-Q
- Filed: 2023-08-09
- Accepted by EDGAR: Aug 8, 2023, 17:45 ET
- Period: 2023-06-30
- Accession: 0001015328-23-000164
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1015328/000101532823000164/wtfc-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1015328/000101532823000164/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $560.6m | us-gaap:Revenues |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $1.13bn | us-gaap:Revenues |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $249.6m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $431.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $56.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $120.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $154.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $334.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $2.38 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $5.18 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $2.41 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $5.26 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 62,094,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 62,005,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $408.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $9.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $62.8m | us-gaap:PaymentsOfDividends |
| Total assets | at 2023-06-30 | $54.29bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $49.24bn | us-gaap:Liabilities |
| Short-term borrowings | at 2023-06-30 | $17.8m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-06-30 | $5.04bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 113,116 characters.

### MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

### CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition of Wintrust Financial Corporation and its subsidiaries (collectively, “Wintrust” or the “Company”) as of June 30, 2023 compared with December 31, 2022 and June 30, 2022, and the results of operations for the three and six month periods ended June 30, 2023 and June 30, 2022, should be read in conjunction with the unaudited consolidated financial statements and notes contained in this report and the risk factors discussed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”) and in Part II, Item 1A, of this Form 10-Q. 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 and offers a full array of wealth management services, primarily to customers 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.

### Overview

### Second Quarter Highlights

The Company recorded net income of $154.8 million for the second quarter of 2023 compared to $94.5 million in the second quarter of 2022. The results for the second quarter of 2023 demonstrate the Company’s ability to navigate industry disruptions during the period due to the Company’s strong deposit franchise and balanced business model. Other key drivers included continued expansion of net interest income as a result of benefiting from the recent rise in interest rates contributing to historically high net income and continued good credit quality metrics. Comprehensive income includes 1) net income as presented on the Company’s Consolidated Statements of Income and 2) other comprehensive income or loss from unrealized gains and losses on the Company’s available-for-sale investment securities portfolios and derivative contracts designated as cash flow hedges as well as foreign currency translation adjustments. Comprehensive income totaled $48.1 million for the second quarter of 2023 compared to $32.5 million for the second quarter of 2022.

The Company increased its loan portfolio from $37.1 billion at June 30, 2022 and $39.2 billion at December 31, 2022 to $41.0 billion at June 30, 2023. The increase in the current period compared to the prior periods was primarily a result of organic growth in several portfolios, including the commercial, industrial and other, commercial real estate, residential real estate loans held for investment and property and casualty insurance premium finance 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 $447.5 million in the second quarter of 2023 compared to $337.8 million in the second quarter of 2022. This increase in net interest income recorded in the second quarter of 2023 compared to the second quarter of 2022 resulted primarily from growth in earning assets, specifically a $4.2 billion increase in average loans, and a significant increase in net interest margin. Net interest margin of 3.64% (3.66% on a fully taxable-equivalent basis, non-GAAP) in the second quarter of 2023 compared favorably to 2.92% (2.93% on a fully taxable-equivalent basis, non-GAAP) in the second quarter of 2022, primarily due to higher yields on earning assets, most notably loans held-for-investment, as market interest rates increased (see “Net Interest Income” for further detail).

Non-interest income totaled $113.0 million in the second quarter of 2023 compared to $102.9 million in the second quarter of 2022. The Company recognized no losses on investment securities in the second quarter of 2023 compared to $7.8 million net losses in the second quarter of 2022 partially offset by lower mortgage banking revenues in the second quarter of 2023 compared to the second quarter of 2022 related to declining origination volumes as a result of rising interest rates reducing refinance incentives for borrowers (see “Non-Interest Income” for further detail).

Non-interest expense totaled $320.6 million in the second quarter of 2023, an increase of $32.0 million, or 11%, compared to the second quarter of 2022. This increase compared to the second quarter of 2022 was primarily attributable to increased salaries and employee benefits, advertising and marketing, and lending expenses (see “Non-Interest Expense” for further detail).

Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during the second quarter of 2023, 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. See “Deposits” and “Other Funding Sources” for additional information regarding liquidity sources.

### RESULTS OF OPERATIONS

### Earnings Summary

The Company’s key operating measures and growth rates for the three and six months ended June 30, 2023, as compared to the same period last year, are shown below:

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

|  | Three months ended June 30, 2023 | June 30, 2022 | Percentage (%) or Basis Point (bp) Change |
| --- | ---: | ---: | ---: |
| Net income | **$154,750** | $94,513 | 64% |
| Pre-tax income, excluding provision for credit losses (non-GAAP) (1) | **239,944** | 152,078 | 58 |
| Net income per common share—Diluted | **2.38** | 1.49 | 60 |
| Net revenue (2) | **560,567** | 440,746 | 27 |
| Net interest income | **447,537** | 337,804 | 32 |
| Net interest margin | **3.64%** | 2.92% | 72 bps |
| Net interest margin - fully taxable-equivalent (non-GAAP) (1) | **3.66** | 2.93 | 73 |
| Net overhead ratio (3) | **1.58** | 1.51 | 7 |
| Return on average assets | **1.18** | 0.77 | 41 |
| Return on average common equity | **12.79** | 8.53 | 426 |
| Return on average tangible common equity (non-GAAP) (1) | **15.12** | 10.36 | 476 |

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

|  | Six months ended June 30, 2023 | June 30, 2022 | Percentage (%) or Basis Point (bp) Change |
| --- | ---: | ---: | ---: |
| Net income | **$334,948** | $221,904 | 51% |
| Pre-tax income, excluding provision for credit losses (non-GAAP) (1) | **506,539** | 329,864 | 54 |
| Net income per common share—Diluted | **5.18** | 3.56 | 46 |
| Net revenue (2) | **1,126,331** | 902,830 | 25 |
| Net interest income | **905,532** | 637,098 | 42 |
| Net interest margin | **3.72%** | 2.76% | 96 bps |
| Net interest margin - fully taxable-equivalent (non-GAAP) (1) | **3.74** | 2.77 | 97 |
| Net overhead ratio (3) | **1.54** | 1.25 | 29 |
| Return on average assets | **1.29** | 0.91 | 38 |
| Return on average common equity | **14.20** | 10.22 | 398 |
| Return on average tangible common equity (non-GAAP) (1) | **16.79** | 12.40 | 439 |
| **At end of period** |  |  |  |
| Total assets | **$54,286,176** | $50,969,332 | 7% |
| Total loans, excluding loans held-for-sale | **41,023,408** | 37,053,103 | 11 |
| Total loans, including loans held-for-sale | **41,362,136** | 37,566,335 | 10 |
| Total deposits | **44,038,707** | 42,593,326 | 3 |
| Total shareholders’ equity | **5,041,912** | 4,727,623 | 7 |
| Book value per common share (1) | **$75.65** | $71.06 | 6 |
| Tangible common book value per share (1) | **64.50** | 59.87 | 8 |
| Market price per common share | **72.62** | 80.15 | (9) |
| Allowance for loan and unfunded lending-related commitment losses to total loans | **0.94%** | 0.84% | 10 bps |

*(1) See following section titled, “Supplemental Non-GAAP Financial Measures/Ratios” for additional information on this performance measure/ratio.*

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

*(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 NON-GAAP FINANCIAL MEASURES/RATIOS

The accounting and reporting policies of the Company 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. 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 (“FTE”) 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 pre-tax income, excluding provision for credit losses as a useful measurement 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 June 30, 2023 | March 31, 2022 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| **(A) Interest Income (GAAP)** | **$697,176** | $639,690 | $371,968 | **$1,336,866** | $700,220 |
| Taxable-equivalent adjustment: |  |  |  |  |  |
| - Loans | **1,882** | 1,872 | 568 | **3,754** | 995 |
| - Liquidity management assets | **551** | 551 | 472 | **1,102** | 937 |
| - Other earning assets | **1** | 4 | 1 | **5** | 3 |
| **(B) Interest Income (non-GAAP)** | **$699,610** | $642,117 | $373,009 | **$1,341,727** | $702,155 |
| **(C) Interest Expense (GAAP)** | **249,639** | 181,695 | 34,164 | **431,334** | 63,122 |
| **(D) Net Interest Income (GAAP) (A minus C)** | **$447,537** | $457,995 | $337,804 | **$905,532** | $637,098 |
| **(E) Net Interest Income, fully taxable-equivalent (non-GAAP) (B minus C)** | **$449,971** | $460,422 | $338,845 | **$910,393** | $639,033 |
| **Net interest margin (GAAP)** | **3.64%** | 3.81% | 2.92% | **3.72%** | 2.76% |
| **Net interest margin, fully taxable-equivalent (non-GAAP)** | **3.66** | 3.83 | 2.93 | **3.74** | 2.77 |
| (F) Non-interest income | **$113,030** | $107,769 | $102,942 | **$220,799** | $265,732 |
| (G) (Losses) gains on investment securities, net | **0** | 1,398 | (7,797) | **1,398** | (10,579) |
| (H) Non-interest expense | **320,623** | 299,169 | 288,668 | **619,792** | 572,966 |
| **Efficiency ratio (H/(D+F-G))** | **57.20%** | 53.01% | 64.36% | **55.10%** | 62.73% |
| **Efficiency ratio (non-GAAP) (H/(E+F-G))** | **56.95** | 52.78 | 64.21 | **54.86** | 62.60 |
| **Reconciliation of Non-GAAP Tangible Common Equity Ratio:** |  |  |  |  |  |
| Total shareholders’ equity (GAAP) | **$5,041,912** | $5,015,506 | $4,727,623 |  |  |
| Less: Non-convertible preferred stock (GAAP) | **(412,500)** | (412,500) | (412,500) |  |  |
| Less: Acquisition-related intangible assets (GAAP) | **(682,327)** | (674,538) | (679,827) |  |  |
| (I) Total tangible common shareholders’ equity (non-GAAP) | **$3,947,085** | $3,928,468 | $3,635,296 |  |  |
| (J) Total assets (GAAP) | **$54,286,176** | $52,873,511 | $50,969,332 |  |  |
| Less: Acquisition-related intangible assets (GAAP) | **(682,327)** | (674,538) | (679,827) |  |  |
| (K) Total tangible assets (non-GAAP) | **$53,603,849** | $52,198,973 | $50,289,505 |  |  |
| **Common equity to assets ratio (GAAP) (L/J)** | **8.5%** | 8.7% | 8.5% |  |  |
| **Tangible common equity ratio (non-GAAP) (I/K)** | **7.4** | 7.5 | 7.2 |  |  |
| **Reconciliation of Non-GAAP Tangible Book Value per Common Share:** |  |  |  |  |  |
| Total shareholders’ equity | **$5,041,912** | $5,015,506 | $4,727,623 |  |  |
| Less: Preferred stock | **(412,500)** | (412,500) | (412,500) |  |  |
| (L) Total common equity | **$4,629,412** | $4,603,006 | $4,315,123 |  |  |
| (M) Actual common shares outstanding | **61,198** | 61,176 | 60,722 |  |  |
| **Book value per common share (L/M)** | **$75.65** | $75.24 | $71.06 |  |  |
| **Tangible book value per common share (non-GAAP) (I/M)** | **64.50** | 64.22 | 59.87 |  |  |

| Reconciliation of Non-GAAP Return on Average Tangible Common Equity: |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| (N) Net income applicable to common shares | **$147,759** | $173,207 | $87,522 | **$320,966** | $207,922 |
| Add: Acquisition-related intangible asset amortization | **1,499** | 1,235 | 1,579 | **2,734** | 3,188 |
| Less: Tax effect of acquisition-related intangible asset amortization | **(402)** | (321) | (445) | **(722)** | (870) |
| After-tax acquisition-related intangible asset amortization | **$1,097** | $914 | $1,134 | **$2,012** | $2,318 |
| (O) Tangible net income applicable to common shares (non-GAAP) | **$148,856** | $174,121 | $88,656 | **$322,978** | $210,240 |
| Total average shareholders’equity | **$5,044,718** | $4,895,271 | $4,526,110 | **$4,970,407** | $4,513,356 |
| Less: Average preferred stock | **(412,500)** | (412,500) | (412,500) | **(412,500)** | (412,500) |
| (P) Total average common shareholders’ equity | **$4,632,218** | $4,482,771 | $4,113,610 | **$4,557,907** | $4,100,856 |
| Less: Average acquisition-related intangible assets | **(682,561)** | (675,247) | (681,091) | **(678,924)** | (681,843) |
| (Q) Total average tangible common shareholders’ equity (non-GAAP) | **$3,949,657** | $3,807,524 | $3,432,519 | **$3,878,983** | $3,419,013 |
| **Return on average common equity, annualized (N/P)** | **12.79%** | 15.67% | 8.53% | **14.20%** | 10.22% |
| **Return on average tangible common equity, annualized (non-GAAP) (O/Q)** | **15.12** | 18.55 | 10.36 | **16.79** | 12.40 |

| Reconciliation of Non-GAAP Pre-Tax, Pre-Provision Income: |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Income before taxes | **$211,430** | $243,550 | $131,661 | **$454,980** | $305,341 |
| Add: Provision for credit losses | **28,514** | 23,045 | 20,417 | **51,559** | 24,523 |
| **Pre-tax income, excluding provision for credit losses (non-GAAP)** | **$239,944** | $266,595 | $152,078 | $506,539 | $329,864 |

### Critical Accounting Estimates

The Company’s Consolidated Financial Statements are prepared in accordance with GAAP in the United States, prevailing practices of the banking industry, and the application of accounting policies of which are described in Note (1) “Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 8 of the Company’s 2022 Form 10-K. These policies require numerous estimates and strategic or economic assumptions, which may prove inaccurate or subject to variations. Changes in underlying factors, assumptions or estimates could have a material impact on the Company’s future financial condition and results of operations. At June 30, 2023, management views critical accounting estimates to include the determination of the allowance for credit losses, 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. These estimates were reviewed with the Audit Committee of the Board of Directors.

*Allowance for Credit Losses, including the Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Allowance for Held-to-Maturity Debt Securities*

The allowance for credit losses represents management’s estimate of expected credit losses over the life of a financial asset carried at amortized cost. Determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the fair value of the underlying collateral and amount and timing of expected future cash flows on individually assessed financial assets, estimated credit losses on pools of loans with similar risk characteristics, and consideration of reasonable and supportable forecasts of macroeconomic conditions, all of which are susceptible to significant change. At June 30, 2023, the loan and held-to-maturity debt securities portfolios represent 82% of the total assets on the Company’s consolidated balance sheet. The Company also maintains an allowance for lending-related commitments, specifically unfunded loan commitments and letters of credit, which relates to certain amounts the Company is committed to lend (not unconditionally cancelable) but for which funds have not yet been disbursed.

Key macroeconomic variable data points that are significant inputs into our credit loss models for the commercial and commercial real estate portfolios are the Baa corporate credit spread as well as CREPI specifically related to the commercial real estate portfolio. Holding all other inputs constant, the table below shows the impact of changes in these key macroeconomic variable data points on the estimate of allowance for credit losses.

|  |  |
| --- | --- |
|  | Impact to estimated allowance for credit losses from an increased or higher input value |
| Baa Credit Spread | Increases |
| CRE Price Index | Decreases |

Holding all other inputs constant, the following table provides a sensitivity analysis for the commercial and commercial real estate portfolios based on a 20 basis point change in Baa credit spreads from the assumption utilized in the estimate of that portfolio’s allowance for credit losses at June 30, 2023:

|  |  |  |
| --- | --- | --- |
| Baa Credit Spread |  |  |
|  | Narrows | Widens |
| Commercial | Decreases estimate by 10%-15% | Increases estimate by 10%-15% |
| Commercial Real Estate: |  |  |
| Construction | Decreases estimate by 16%-20% | Increases estimate by 15%-20% |
| Non-Construction | Decreases estimate by 4%-5% | Increases estimate by 4%-5% |

Holding all other inputs constant, the following table provides a sensitivity analysis for the commercial real estate construction and non-construction portfolios based on a 10% change in CREPI from the assumption utilized in the estimate of that portfolio’s allowance for credit losses at June 30, 2023:

|  |  |  |
| --- | --- | --- |
| CRE Price Index |  |  |
|  | Increases | Decreases |
| Commercial Real Estate: |  |  |
| Construction | Decreases estimate by 50%-55% | Increases estimate by 90%-95% |
| Non-Construction | Decreases estimate by 25%-30% | Increases estimate by 60%-65% |

See Note (7) “Allowance for Credit Losses” to the Consolidated Financial Statements in Item 1 of this report and the section titled “Credit Quality” in Item 2 of this report for a description of the methodology used to determine the allowance for credit losses.

For a more detailed discussion on these critical accounting estimates, see “Summary of Critical Accounting Estimates” beginning on page 54 of the 2022 Form 10-K.

### Net Income

Net income for the quarter ended June 30, 2023 totaled $154.8 million, an increase of $60.2 million, or 64%, compared to the quarter ended June 30, 2022. On a per share basis, net income for the second quarter of 2023 totaled $2.38 per diluted common share compared to $1.49 for the second quarter of 2022.

The increase in net income for the second quarter of 2023 as compared to the same period in the prior year is primarily attributable to increased net interest income, partially offset by lower mortgage banking revenue. See “Net Interest Income”, “Non-interest Income”, “Non-interest Expense” and “Credit 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 earning 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 June 30, 2023 compared to the Quarters Ended March 31, 2023 and June 30, 2022

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 second quarter of 2023 as compared to the first quarter of 2023 (sequential quarters) and second quarter of 2022 (linked quarters):

*(Dollars in thousands)*

|  | Average Balance for three months ended, Jun 30, 2023 | Mar 31, 2023 | Jun 30, 2022 | Interest for three months ended, Jun 30, 2023 | Mar 31, 2023 | Jun 30, 2022 | Yield/Rate for three months ended, Jun 30, 2023 | Mar 31, 2023 | Jun 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing deposits with banks, securities purchased under resale agreements and cash equivalents(1) | **$1,454,057** | $1,235,748 | $3,265,607 | **$16,882** | $13,538 | $7,154 | **4.66%** | 4.44% | 0.88% |
| Investment securities(2) | **7,252,582** | 7,956,722 | 6,589,947 | **51,795** | 60,494 | 37,013 | **2.86** | 3.08 | 2.25 |
| FHLB and FRB stock | **223,813** | 233,615 | 136,930 | **3,544** | 3,680 | 1,823 | **6.35** | 6.39 | 5.34 |
| Liquidity management assets(3)(8) | **$8,930,452** | $9,426,085 | $9,992,484 | **$72,221** | $77,712 | $45,990 | **3.24%** | 3.34% | 1.85% |
| Other earning assets(3)(4)(8) | **17,401** | 18,445 | 24,059 | **272** | 313 | 210 | **6.27** | 6.87 | 3.49 |
| Mortgage loans held-for-sale | **307,683** | 270,966 | 560,707 | **4,178** | 3,528 | 5,740 | **5.45** | 5.28 | 4.11 |
| Loans, net of unearned income(3)(5)(8) | **40,106,393** | 39,093,368 | 35,860,329 | **622,939** | 560,564 | 321,069 | **6.23** | 5.82 | 3.59 |
| Total earning assets(8) | **$49,361,929** | $48,808,864 | $46,437,579 | **$699,610** | $642,117 | $373,009 | **5.68%** | 5.34% | 3.22% |
| Allowance for loan and investment security losses | **(302,627)** | (282,704) | (260,547) |  |  |  |  |  |  |
| Cash and due from banks | **481,510** | 488,457 | 476,741 |  |  |  |  |  |  |
| Other assets | **3,061,141** | 3,060,701 | 2,699,653 |  |  |  |  |  |  |
| Total assets | **$52,601,953** | $52,075,318 | $49,353,426 |  |  |  |  |  |  |
| NOW and interest-bearing demand deposits | **$5,540,597** | $5,271,740 | $5,230,702 | **$29,178** | $18,772 | $2,553 | **2.11%** | 1.44% | 0.20% |
| Wealth management deposits | **1,545,626** | 2,167,081 | 2,835,267 | **9,097** | 12,258 | 3,685 | **2.36** | 2.29 | 0.52 |
| Money market accounts | **13,735,924** | 12,533,468 | 11,892,948 | **106,630** | 68,276 | 8,559 | **3.11** | 2.21 | 0.29 |
| Savings accounts | **5,206,609** | 4,830,322 | 3,882,856 | **25,603** | 15,816 | 347 | **1.97** | 1.33 | 0.04 |
| Time deposits | **5,603,024** | 5,041,638 | 3,687,778 | **42,987** | 29,680 | 3,841 | **3.08** | 2.39 | 0.42 |
| Interest-bearing deposits | **$31,631,780** | $29,844,249 | $27,529,551 | **$213,495** | $144,802 | $18,985 | **2.71%** | 1.97% | 0.28% |
| Federal Home Loan Bank advances | **2,227,106** | 2,474,882 | 1,197,390 | **17,399** | 19,135 | 4,878 | **3.13** | 3.14 | 1.63 |
| Other borrowings | **625,757** | 602,937 | 489,779 | **8,485** | 7,854 | 2,734 | **5.44** | 5.28 | 2.24 |
| Subordinated notes | **437,545** | 437,422 | 437,084 | **5,523** | 5,488 | 5,517 | **5.06** | 5.02 | 5.05 |
| Junior subordinated debentures | **253,566** | 253,566 | 253,566 | **4,737** | 4,416 | 2,050 | **7.49** | 6.97 | 3.20 |
| Total interest-bearing liabilities | **$35,175,754** | $33,613,056 | $29,907,370 | **$249,639** | $181,695 | $34,164 | **2.85%** | 2.19% | 0.46% |
| Non-interest-bearing deposits | **10,908,022** | 12,171,631 | 13,805,128 |  |  |  |  |  |  |
| Other liabilities | **1,473,459** | 1,395,360 | 1,114,818 |  |  |  |  |  |  |
| Equity | **5,044,718** | 4,895,271 | 4,526,110 |  |  |  |  |  |  |
| Total liabilities and shareholders’ equity | **$52,601,953** | $52,075,318 | $49,353,426 |  |  |  |  |  |  |
| Interest rate spread(6)(8) |  |  |  |  |  |  | **2.83%** | 3.15% | 2.76% |
| Less: Fully taxable-equivalent adjustment |  |  |  | **(2,434)** | (2,427) | (1,041) | **(0.02)** | (0.02) | (0.01) |
| Net free funds/contribution(7) | **$14,186,175** | $15,195,808 | $16,530,209 |  |  |  | **0.83** | 0.68 | 0.17 |
| Net interest income/margin (GAAP)(8) |  |  |  | **$447,537** | $457,995 | $337,804 | **3.64%** | 3.81% | 2.92% |
| Fully taxable-equivalent adjustment |  |  |  | **2,434** | 2,427 | 1,041 | **0.02** | 0.02 | 0.01 |
| Net interest income/margin, fully taxable-equivalent (non-GAAP)(8) |  |  |  | **$449,971** | $460,422 | $338,845 | **3.66%** | 3.83% | 2.93% |

*(1) Includes interest-bearing deposits with banks and securities purchased under resale agreements with original maturities of greater than three months. Cash equivalents include federal funds sold and securities purchased under resale agreements with original maturities of three months or less.*

*(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 June 30, 2023, March 31, 2023 and June 30, 2022 were $2.4 million, $2.4 million and $1.0 million, respectively.*

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

#### (5) Loans, net of unearned income, include nonaccrual 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 Non-GAAP Financial Measures/Ratios” for additional information on this performance measure/ratio.*

For the second quarter of 2023, net interest income totaled $447.5 million, an decrease of $10.5 million as compared to the first quarter of 2023, and an increase of $109.7 million as compared to the second quarter of 2022. Net interest margin was 3.64% (3.66% on a FTE basis, non-GAAP) during the second quarter of 2023 compared to 3.81% (3.83% on a FTE basis, non-GAAP) during the first quarter of 2023, and 2.92% (2.93% on a FTE basis, non-GAAP) during the second quarter of 2022.

The following table presents a summary of the Company’s net interest income and related net interest margin, including a calculation on a fully taxable-equivalent basis, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022:

*(Dollars in thousands)*

|  | Average Balance for six months ended, June 30, 2023 | June 30, 2022 | Interest for six months ended, June 30, 2023 | June 30, 2022 | Yield/Rate for six months ended, June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing deposits with banks, securities purchased under resale agreements and cash equivalents(1) | **$1,345,506** | $3,911,080 | **$30,421** | $9,272 | **4.56%** | 0.48% |
| Investment securities (2) | **7,602,707** | 6,484,570 | **112,288** | 69,876 | **2.98** | 2.17 |
| FHLB and FRB stock | **228,687** | 136,424 | **7,224** | 3,595 | **6.37** | 5.31 |
| Liquidity management assets (3)(8) | **$9,176,900** | $10,532,074 | **$149,933** | $82,743 | **3.29%** | 1.58% |
| Other earning assets (3)(4)(8) | **17,920** | 24,622 | **585** | 391 | **6.58** | 3.20 |
| Mortgage loans held-for-sale | **289,426** | 612,078 | **7,706** | 11,827 | **5.37** | 3.90 |
| Loans, net of unearned income (3)(5)(8) | **39,602,672** | 35,348,269 | **1,183,503** | 607,194 | **6.03** | 3.46 |
| Total earning assets (8) | **$49,086,918** | $46,517,043 | **$1,341,727** | $702,155 | **5.51%** | 3.04% |
| Allowance for loan and investment security losses | **(292,721)** | (256,834) |  |  |  |  |
| Cash and due from banks | **484,964** | 479,174 |  |  |  |  |
| Other assets | **3,060,929** | 2,687,842 |  |  |  |  |
| Total assets | **$52,340,090** | $49,427,225 |  |  |  |  |
| NOW and interest-bearing demand deposits | **$5,406,911** | $5,010,709 | **$47,949** | $4,543 | **1.79%** | 0.18% |
| Wealth management deposits | **1,854,637** | 2,671,444 | **21,355** | 4,603 | **2.32** | 0.35 |
| Money market accounts | **13,138,018** | 12,330,943 | **174,907** | 16,207 | **2.68** | 0.27 |
| Savings accounts | **5,019,505** | 3,893,519 | **41,419** | 683 | **1.66** | 0.04 |
| Time deposits | **5,323,882** | 3,774,095 | **72,667** | 7,803 | **2.75** | 0.42 |
| Interest-bearing deposits | **$30,742,953** | $27,680,710 | **$358,297** | $33,839 | **2.35%** | 0.25% |
| Federal Home Loan Bank advances | **2,350,309** | 1,219,110 | **36,534** | 9,694 | **3.13** | 1.60 |
| Other borrowings | **614,410** | 492,011 | **16,338** | 4,973 | **5.36** | 2.04 |
| Subordinated notes | **437,484** | 437,025 | **11,011** | 10,999 | **5.08** | 5.03 |
| Junior subordinated debentures | **253,566** | 253,566 | **9,154** | 3,617 | **7.28** | 2.84 |
| Total interest-bearing liabilities | **$34,398,722** | $30,082,422 | **$431,334** | $63,122 | **2.53%** | 0.42% |
| Non-interest-bearing deposits | **11,536,336** | 13,769,792 |  |  |  |  |
| Other liabilities | **1,434,625** | 1,061,655 |  |  |  |  |
| Equity | **4,970,407** | 4,513,356 |  |  |  |  |
| Total liabilities and shareholders’ equity | **$52,340,090** | $49,427,225 |  |  |  |  |
| Interest rate spread (6)(8) |  |  |  |  | **2.98%** | 2.62% |
| Less: Fully taxable-equivalent adjustment |  |  | **(4,861)** | (1,935) | **(0.02)** | (0.01) |
| Net free funds/contribution (7) | **$14,688,196** | $16,434,621 |  |  | **0.76** | 0.15 |
| Net interest income/margin (GAAP) (8) |  |  | **$905,532** | $637,098 | **3.72%** | 2.76% |
| Fully taxable-equivalent adjustment |  |  | **4,861** | 1,935 | **0.02** | 0.01 |
| Net interest income/margin, fully taxable-equivalent (non-GAAP) (8) |  |  | **$910,393** | $639,033 | **3.74%** | 2.77% |

*(1) Includes interest-bearing deposits with banks and securities purchased under resale agreements with original maturities of greater than three months. Cash equivalents include federal funds sold and securities purchased under resale agreements with original maturities of three months or less.*

*(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 taxable-equivalent adjustment based on a marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the six months ended June 30, 2023 and June 30, 2022 were $4.9 million and $1.9 million, respectively.*

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

#### (5) Loans, net of unearned income, include nonaccrual 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 Non-GAAP Financial Measures/Ratios” for additional information on this performance ratio.*

#### Analysis of Changes in Net Interest Income on a FTE basis (non-GAAP)

The following table presents an analysis of the changes in the Company’s net interest income on a FTE basis (non-GAAP) comparing the three month ended June 30, 2023 to each of the three month periods ended March 31, 2023 and June 30, 2022 and six month periods ended June 30, 2023 and 2022. The reconciliations set forth the changes in the net interest income on a FTE basis (non-GAAP) as a result of changes in volumes, changes in rates and differing number of days in each period:

*(In thousands)*

|  | Second Quarter of 2023 Compared to First Quarter of 2023 | Second Quarter of 2023 Compared to Second Quarter of 2022 | First Six Months of 2023 Compared to First Six Months of 2022 |
| --- | ---: | ---: | ---: |
| Net interest income, FTE basis (non-GAAP)(1) for comparative period | $460,422 | $338,845 | $639,033 |
| Change due to mix and growth of earning assets and interest-bearing liabilities (volume) | 4,576 | 21,261 | 38,518 |
| Change due to interest rate fluctuations (rate) | (20,086) | 89,865 | 232,842 |
| Change due to number of days in each period | 5,059 | — | — |
| Less: FTE adjustment | (2,434) | (2,434) | (4,861) |
| Net interest income (GAAP)(1) for the period ended June 30, 2023 | $447,537 | $447,537 | $905,532 |
| FTE adjustment | 2,434 | 2,434 | 4,861 |
| Net interest income, FTE basis (non-GAAP)(1) | $449,971 | $449,971 | $910,393 |

*(1) See “Supplemental Non-GAAP Financial Measures/Ratios” for additional information on this performance measure/ratio.*

### Non-interest Income

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

*(Dollars in thousands)*

|  | Three Months Ended June 30, 2023 | June 30, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Brokerage | **$4,404** | $4,272 | $132 | 3% |
| Trust and asset management | **29,454** | 27,097 | 2,357 | 9 |
| Total wealth management (1) | **33,858** | 31,369 | 2,489 | 8 |
| Mortgage banking | **29,981** | 33,314 | (3,333) | (10) |
| Service charges on deposit accounts | **13,608** | 15,888 | (2,280) | (14) |
| Gains (losses) on investment securities, net | **0** | (7,797) | 7,797 | (100) |
| Fees from covered call options | **2,578** | 1,069 | 1,509 | NM |
| Trading gains, net | **106** | 176 | (70) | (40) |
| Operating lease income, net | **12,227** | 15,007 | (2,780) | (19) |
| Other: |  |  |  |  |
| Interest rate swap fees | **2,711** | 3,300 | (589) | (18) |
| BOLI | **1,322** | (884) | 2,206 | NM |
| Administrative services | **1,319** | 1,591 | (272) | (17) |
| Foreign currency remeasurement gains | **543** | 97 | 446 | NM |
| Early pay-offs of capital leases | **201** | 160 | 41 | 26 |
| Miscellaneous | **14,576** | 9,652 | 4,924 | 51 |
| Total Other | **20,672** | 13,916 | 6,756 | 49 |
| **Total Non-interest Income** | **$113,030** | $102,942 | $10,088 | 10% |

*(1) Wealth management revenue is comprised of the trust and asset management revenue of the CTC 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 CDEC.*

#### NM—Not Meaningful.

*(Dollars in thousands)*

|  | Six Months Ended June 30, 2023 | June 30, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Brokerage | **$8,937** | $8,904 | $33 | 0% |
| Trust and asset management | **54,866** | 53,859 | 1,007 | 2 |
| Total wealth management (1) | **63,803** | 62,763 | 1,040 | 2 |
| Mortgage banking | **48,245** | 110,545 | (62,300) | (56) |
| Service charges on deposit accounts | **26,511** | 31,171 | (4,660) | (15) |
| (Losses) gains on investment securities, net | **1,398** | (10,579) | 11,977 | NM |
| Fees from covered call options | **12,969** | 4,811 | 8,158 | NM |
| Trading gains, net | **919** | 4,065 | (3,146) | (77) |
| Operating lease income, net | **25,273** | 30,482 | (5,209) | (17) |
| Other: |  |  |  |  |
| Interest rate swap fees | **5,317** | 7,869 | (2,552) | (32) |
| BOLI | **2,673** | (836) | 3,509 | NM |
| Administrative services | **2,934** | 3,444 | (510) | (15) |
| Foreign currency remeasurement gains (losses) | **355** | 108 | 247 | NM |
| Early pay-offs of capital leases | **566** | 425 | 141 | 33 |
| Miscellaneous | **29,836** | 21,464 | 8,372 | 39 |
| Total Other | **41,681** | 32,474 | 9,207 | 28 |
| **Total Non-interest Income** | **$220,799** | $265,732 | $(44,933) | (17)% |

*(1) Wealth management revenue is comprised of the trust and asset management revenue of the CTC 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 CDEC.*

#### NM—Not Meaningful.

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

Mortgage banking revenue decreased for the three and six months ended June 30, 2023 as compared to the same periods in 2022 as a result of a decrease in loans originated for sale and lower net revenue related to MSR activity and valuation adjustments. Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. A main factor in the mortgage banking revenue recognized by the Company is the volume of mortgage loans originated or purchased for sale. Mortgage loans originated for sale totaled $578.0 million in the second quarter of 2023 as compared to $821.0 million in the second quarter of 2022. On a year-to-date basis, mortgage loans originated for sale totaled $1.0 billion for the six months ended June 30, 2023 as compared to $1.7 billion for the six months ended June 30, 2022. The decrease in originations was primarily due to rising interest rates reducing refinance incentives for borrowers. The percentage of origination volume from refinancing activities was 16% and 18% for the for the three and six months ended June 30, 2023 as compared to 22% and 28%, for the same periods in 2022, respectively.

The Company records MSRs at fair value on a recurring basis. For the three months ended June 30, 2023, the fair value of the MSRs portfolio increased as a favorable fair value adjustment of $2.7 million was recorded as well as retained servicing rights led to capitalization of $8.7 million, partially offset by a reduction in value of $5.0 million due to payoffs and paydowns of the existing portfolio and a bulk sale of MSRs of $30.2 million. On a year-to-date basis, the fair value of MSRs portfolio decreased due to unfavorable fair value adjustment of $4.2 million as well as retained servicing rights led to capitalization of $13.8 million, partially offset by a reduction in value of $9.0 million due to payoffs and paydowns of the existing portfolio. See Note (9) “Mortgage Servicing Rights (“MSRs”)” to the Consolidated Financial Statements in Item 1 of this report for a summary of the changes in the carrying value of MSRs.

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 effectively entered into these transactions with the goal of economically hedging security positions and enhancing its overall return on its investment portfolio. These option transactions are designed to increase the total return associated with holding certain investment securities and do not qualify as hedges pursuant to accounting guidance. There were no outstanding call option contracts at June 30, 2023 and 2022.

Bank owned life insurance (“BOLI”) increased for the three and six months ended June 30, 2023 primarily as a result of favorable market conditions compared to unfavorable overall market conditions in 2022.

Miscellaneous non-interest income includes loan servicing fees, income from other investments, and other fees. This category of income increased $4.9 million and $8.4 million, respectively, for the three and six months ended June 30, 2023 compared to 2022. The increase for the three months ended June 30, 2023 was primarily due to a $2.5 million loss incurred in 2022 related to the sale of property no longer considered for future expansion. The increase for the six months ended June 30, 2023 compared to the same period of 2022, was primarily due to the loss incurred on the sale of property in 2022 noted above as well as higher fees earned on card-related arrangements and letters of credit and other commitments.

### 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 June 30, 2023 | June 30, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Salaries | **$107,671** | $92,414 | $15,257 | 17% |
| Commissions and incentive compensation | **44,511** | 46,131 | (1,620) | (4) |
| Benefits | **32,741** | 28,781 | 3,960 | 14 |
| Total salaries and employee benefits | **184,923** | 167,326 | 17,597 | 11 |
| Software and equipment | **26,205** | 24,250 | 1,955 | 8 |
| Operating lease equipment | **9,816** | 8,774 | 1,042 | 12 |
| Occupancy, net | **19,176** | 17,651 | 1,525 | 9 |
| Data processing | **9,726** | 8,010 | 1,716 | 21 |
| Advertising and marketing | **17,794** | 16,615 | 1,179 | 7 |
| Professional fees | **8,940** | 7,876 | 1,064 | 14 |
| Amortization of other acquisition-related intangible assets | **1,499** | 1,579 | (80) | (5) |
| FDIC insurance | **9,008** | 6,949 | 2,059 | 30 |
| OREO expense, net | **118** | 294 | (176) | (60) |
| Other: |  |  |  |  |
| Lending expenses, net of deferred originations costs | **7,890** | 4,270 | 3,620 | 85 |
| Travel and entertainment | **5,401** | 3,897 | 1,504 | 39 |
| Miscellaneous | **20,127** | 21,177 | (1,050) | (5) |
| Total other | **33,418** | 29,344 | 4,074 | 14 |
| **Total Non-interest Expense** | **$320,623** | $288,668 | $31,955 | 11% |

#### NM - Not meaningful.

*(Dollars in thousands)*

| Salaries and employee benefits: | Six Months Ended June 30, 2023 | June 30, 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Salaries | **$216,025** | $184,530 | $31,495 | 17% |
| Commissions and incentive compensation | **84,310** | 97,924 | (13,614) | (14) |
| Benefits | **61,369** | 57,227 | 4,142 | 7 |
| Total salaries and employee benefits | **361,704** | 339,681 | 22,023 | 6 |
| Software and equipment | **50,902** | 47,060 | 3,842 | 8 |
| Operating lease equipment depreciation | **19,649** | 18,482 | 1,167 | 6 |
| Occupancy, net | **37,662** | 35,475 | 2,187 | 6 |
| Data processing | **19,135** | 15,515 | 3,620 | 23 |
| Advertising and marketing | **29,740** | 28,539 | 1,201 | 4 |
| Professional fees | **17,103** | 16,277 | 826 | 5 |
| Amortization of other acquisition-related intangible assets | **2,734** | 3,188 | (454) | (14) |
| FDIC insurance | **17,677** | 14,678 | 2,999 | 20 |
| OREO expense, net | **(89)** | (738) | 649 | (88) |
| Other: |  |  |  |  |
| Lending expenses, net of deferred originations costs | **10,989** | 11,091 | (102) | (1) |
| Travel and entertainment | **9,991** | 6,573 | 3,418 | 52 |
| Miscellaneous | **42,595** | 37,145 | 5,450 | 15 |
| Total other | **63,575** | 54,809 | 8,766 | 16 |
| **Total Non-interest Expense** | **$619,792** | $572,966 | $46,826 | 8% |

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

Salaries and employee benefits expense increased for the three and six months ended June 30, 2023 as compared to the same periods in 2022 due to increased salaries and employee benefits resulting from the additional full-time employees in connection with the wealth management acquisition completed in the second quarter of 2023 as well as increased staffing and related costs as the Company grows, partially offset by decreased commissions and incentive compensation as a result of lower commission expense related to declining mortgage production.

Software and equipment expense increased for the three and six months ended June 30, 2023 as compared to the same period in 2022 as a result of higher software license fees as well as higher computer and software depreciation expense as the Company invests in enhancements to the digital customer experience, upgrades to infrastructure and enhancements to information security capabilities.

FDIC insurance expense increased for the three and six months ended June 30, 2023 compared to the same periods in 2022 as a result of the FDIC’s increase of the basis rate beginning with the first quarterly assessment period in 2023 and asset growth.

Miscellaneous expense includes ATM expenses, correspondent bank charges, directors’ fees, telephone, postage, corporate insurance, dues and subscriptions, problem loan expenses and other miscellaneous operational losses and costs. For the six months ended June 30, 2023 as compared to the same period in 2022, miscellaneous expense increased as a result of interest payments made on collateral received for outstanding interest rate derivative contracts.

### Income Taxes

The Company recorded income tax expense of $56.7 million in the second quarter of 2023 compared to $37.1 million in the second quarter of 2022. The effective tax rates were 26.81% in the second quarter of 2023 compared to 28.21% in the second quarter of 2022. During the first six months of 2023, the Company recorded income tax expense of $120.0 million compared to $83.4 million for the first six months of 2022. The effective tax rates were 26.38% for the first six months of 2023 and 27.33% for the first six months of 2022.

The effective tax rates were partially impacted by an overall higher level of pretax net income in the three months and six months ended June 30, 2023 period as well as the tax effects related to share-based compensation which fluctuate based on the Company’s stock price and timing of employee stock option exercises and vesting of other shared-based awards. The Company recorded net excess tax benefits of $2.8 million in the first six months of 2023, compared to net excess tax benefits of $2.3 million in the first six months of 2022 related to share-based compensation, most of which was recorded in the first quarter of each year.

### Operating Segment Results

The Company’s operations consist of three primary segments: community banking, specialty finance and wealth management. Refer to Note (13) “Segment Information” to the Consolidated Financial Statements in Item 1 of this report for further information on the Company’s primary segments. 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.

The community banking segment’s net interest income for the quarter ended June 30, 2023 totaled $346.2 million as compared to $261.7 million for the same period in 2022, an increase of $84.5 million, or 32%. On a year-to-date basis, net interest income for the segment increased by $225.7 million from $490.3 million for the six months ended June 30, 2022 to $716.1 million for the six months ended June 30, 2023. The increase in the three and six month period was primarily attributable to increased interest and fees on loans due to loan growth and increased interest rates, partially offset by increased interest expense on deposits. The community banking segment’s non-interest income totaled $68.1 million in the second quarter of 2023, an increase of $5.4 million, or 9%, when compared to the second quarter of 2022 total of $62.7 million. On a year-to-date basis, non-interest income totaled $136.9 million for the six months ended June 30, 2023, a decrease of $47.7 million, or 26%, compared to $184.6 million for the six months ended June 30, 2022. The decrease in the six month period was primarily the result of reduced mortgage banking revenue due to lower originations for sale and lower net revenue related to MSR activity and valuation adjustments. The community banking segment recorded provision for credit losses of $26.7 million and $47.8 million, respectively, for the three and six months ended June 30, 2023, compared to $20.2 million and $24.3 million, respectively, for the same periods in 2022. The increase in provision for credit losses for the three and six month period was primarily due to deterioration in the macroeconomic forecasts and loan growth. The community banking segment’s net income for the quarter ended June 30, 2023 totaled $102.5 million, an increase of $47.9 million as compared to net income in the second quarter of 2022 of $54.6 million. On a year-to-date basis, the net income of the community banking segment for the six months ended June 30, 2023 totaled $236.7 million as compared to $144.7 million for the six months ended June 30, 2023.

The specialty finance segment’s net interest income totaled $85.0 million for the quarter ended June 30, 2023, compared to $58.7 million for the same period in 2022, an increase of $26.3 million, or 45%. On a year-to-date basis, net interest income for the segment increased $41.3 million, or 36% compared to the same period in 2022. The increase for the three and six month period was primarily due to loan growth and increased interest rates on the premium finance receivables portfolios. The specialty finance segment’s non-interest income increased to $31.7 million from $25.0 million for the three months ended June 30, 2023 and 2022, respectively, and $57.5 million and $49.1 million for the six months ended June 30, 2023 and 2022, respectively. Our property and casualty insurance premium finance operations, life insurance finance operations, lease financing operations and accounts receivable finance operations accounted for 49%, 30%, 18% and 3%, respectively, of the total revenues of our specialty finance business for the six month period ended June 30, 2023. The net income of the specialty finance segment for the quarter ended June 30, 2023 totaled $46.4 million as compared to $30.6 million for the quarter ended June 30, 2022. On a year-to-date basis, the net income of the specialty finance segment for the six months ended June 30, 2023 totaled $83.1 million as compared to $60.2 million for the six months ended June 30, 2023.

The wealth management segment reported net interest income of $7.4 million for the second quarter of 2023 compared to $9.5 million in the same quarter of 2022, an decrease of $2.1 million, or 22%. On a year-to-date basis, net interest income totaled $16.4 million for the first six months of 2023, as compared to $17.9 million for the first six months of 2022. 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 $1.9 billion and $2.7 billion in the first six months of 2023 and 2022, respectively. This segment recorded non-interest income of $33.4 million for the second quarter of 2023 compared to $30.2 million for the second quarter of 2022. On a year-to-date basis, this segment recorded non-interest income of $63.7 million for the first six months of 2023 as compared to $60.8 million for the first six months of 2022. 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 $5.8 million for the second quarter of 2023 compared to $9.3 million for the second quarter of 2022. On a year-to-date basis, the wealth management segment’s net income totaled $15.1 million and $17.0 million for the six month period ended June 30, 2023 and 2022, respectively.

### Financial Condition

Total assets were $54.3 billion at June 30, 2023, representing an increase of $3.3 billion, or 7%, when compared to June 30, 2022 and an increase of approximately $1.4 billion, or 11% on an annualized basis, when compared to March 31, 2023. Total funding, which includes deposits, all notes and advances, including secured borrowings and the junior subordinated debentures, was $47.4 billion at June 30, 2023, $46.3 billion at March 31, 2023, and $44.9 billion at June 30, 2022. 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 June 30, 2023 Balance | Percent | March 31, 2023 Balance | Percent | June 30, 2022 Balance | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage loans held-for-sale | **$307,683** | **1%** | $270,966 | 1% | $560,707 | 1% |
| Loans, net of unearned income |  |  |  |  |  |  |
| Commercial | **$12,616,682** | **26%** | $12,401,473 | 25% | $11,703,274 | 25% |
| Commercial real estate | **10,438,593** | **21** | 10,144,301 | 21 | 9,298,567 | 20 |
| Home equity | **338,388** | **1** | 333,195 | 1 | 323,687 | 1 |
| Residential real estate | **2,453,384** | **5** | 2,336,190 | 5 | 1,876,166 | 4 |
| Premium finance receivables | **14,181,414** | **29** | 13,811,566 | 28 | 12,588,284 | 27 |
| Other loans | **77,932** | **0** | 66,643 | 0 | 70,351 | 0 |
| Total average loans (1) | **$40,106,393** | **82%** | $39,093,368 | 80% | $35,860,329 | 77% |
| Liquidity management assets (2) | **8,930,452** | **17** | 9,426,085 | 19 | 9,992,484 | 22 |
| Other earning assets (3) | **17,401** | **0** | 18,445 | 0 | 24,059 | 0 |
| Total average earning assets | **$49,361,929** | **100%** | $48,808,864 | 100% | $46,437,579 | 100% |
| Total average assets | **$52,601,953** |  | $52,075,318 |  | $49,353,426 |  |
| Total average earning assets to total average assets |  | **94%** |  | 94% |  | 94% |

#### (1) Includes nonaccrual 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.* Mortgage loans held-for-sale represents such loans awaiting subsequent sale in the secondary market with such sales eliminating the interest-rate risk associated with these loans, as they are predominantly long-term fixed rate loans, and provide a source of non-interest revenue. The decrease in average balance from 2022 to 2023 was primarily due to lower mortgage origination production due primarily to higher interest rates as well as the transfer to held-for-investment classification of certain loans previously repurchased by the Company under the early buyout option available for loans sold to GNMA with servicing retained. See below for additional discussion of these early buyout options.

*Loans, net of unearned income.* Growth realized in the combined commercial and commercial real estate loan categories for the second quarter of 2023 as compared to the sequential and prior year periods is primarily attributable to increased business development efforts. The aggregate balances of these loan categories comprised 57% of the average loan portfolio in the second quarter of 2023 as compared to 58% in the first quarter of 2023 and 59% in the second quarter of 2022.

The home equity loan portfolio has remained relatively steady primarily as a result of borrowers preferring to finance through longer term, low rate mortgage loans prior to rising interest rates in 2022. The Company has been actively managing its home equity portfolio to ensure that diligent pricing, appraisal and other underwriting activities continue to exist.

The increase in the residential real estate average balance compared to both periods was partially due to the Company deciding to allocate more balances from its mortgage production for investment instead of for subsequent sale and servicing in the secondary market. The residential real estate loan portfolio includes certain loans guaranteed by U.S. government agencies under the Government National Mortgage Association (“GNMA”) optional repurchase programs. Such programs allow financial institutions acting as servicers to buyout 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 early buyout 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 at fair value, regardless of whether the Company intends to exercise the early buyout option. These rebooked 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. When the early buyout option on these rebooked GNMA loans is exercised, the repurchased loans continue to be carried at fair value. Additionally, such loans typically transfer to mortgage loans held-for-sale at the time of early buyout as the Company’s intent is to cure and resell such loans subsequent to repurchase from GNMA. If such intent to cure and resell changes subsequent to early buyout, the Company reclassifies such loans as held-for-investment. Early buyout loans classified as held-for-investment totaled $187.8 million at June 30, 2023 compared to $113.9 million at June 30, 2022. Such loans consist of both the rebooked GNMA loans and the early buyout exercised loans classified as held-for-investment discussed above. Rebooked GNMA loans held-for-investment amounted to $117.0 million at June 30, 2023, compared to $34.8 million at June 30, 2022. The increase in balance from June 30, 2022 to June 30, 2023 was the result of higher delinquencies between periods and less frequent exercising of the early buyout option by the Company. As of June 30, 2023, early buyout exercised loans held-for-investment totaled $70.8 million compared to $79.1 million as of June 30, 2022. As of June 30, 2023, early buyout exercised mortgage loans held-for-sale totaled $103.2 million compared to $218.5 million as of June 30, 2022. The decline in early buyout exercised mortgage loans held-for-sale relative to the prior year is primarily due to the resale of mortgage loans to GNMA as well as the reclassification of certain loans to held-for-investment classification due to an inability to resell due to continued delinquency.

The increase in the premium finance receivables during the second quarter of 2023 compared to the second quarter of 2022 was the result of continued originations within the portfolio due to hardening insurance market conditions driving a higher average size of new property and casualty insurance premium finance receivables as well as effective marketing and customer servicing. Approximately $5.0 billion of premium finance receivables were originated in the second quarter of 2023 compared to $3.9 billion during the same period of 2022. Premium finance receivables consist of a property and casualty portfolio and a life portfolio comprising approximately 43% and 57%, respectively, of the average total balance of premium finance receivables for the second quarter of 2023, and 41% and 59%, respectively, for the second quarter of 2022.

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.

*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. The Company will continue to prudently evaluate and utilize liquidity sources as needed, including the management of availability with the FHLB and FRB and utilization of the revolving credit facility with unaffiliated banks.

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)*

|  | Six Months Ended June 30, 2023 Balance | Percent | June 30, 2022 Balance | Percent |
| --- | ---: | ---: | ---: | ---: |
| Mortgage loans held-for-sale | **$289,426** | **1%** | $612,078 | 1% |
| Loans: |  |  |  |  |
| Commercial | **$12,509,664** | **25%** | $11,653,901 | 25% |
| Commercial real estate | **10,292,260** | **21** | 9,216,533 | 20 |
| Home equity | **335,806** | **1** | 326,238 | 1 |
| Residential real estate | **2,395,111** | **5** | 1,768,125 | 4 |
| Premium finance receivables | **13,997,512** | **29** | 12,323,809 | 26 |
| Other loans | **72,319** | **0** | 59,663 | 0 |
| Total average loans(1) | **$39,602,672** | **81%** | $35,348,269 | 76% |
| Liquidity management assets (2) | **9,176,900** | **18** | 10,532,074 | 23 |
| Other earning assets (3) | **17,920** | **0** | 24,622 | 0 |
| Total average earning assets | **$49,086,918** | **100%** | $46,517,043 | 100% |
| Total average assets | **$52,340,090** |  | $49,427,225 |  |
| Total average earning assets to total average assets |  | **94%** |  | 94% |

#### (1) Includes nonaccrual 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.*

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

The following table classifies the loan portfolio at June 30, 2023 by date at which the loans reprice or mature, and the type of rate exposure:

*(In thousands)*

| As of June 30, 2023 Commercial | One year or less | From one to five years | From five to fifteen years Total | After fifteen years |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Fixed rate | **$491,950** | **$2,588,577** | **$1,707,423** | **$11,360** | **$4,799,310** |
| Variable rate | **7,799,656** | **1,505** | **—** | **—** | **7,801,161** |
| Total commercial | **$8,291,606** | **$2,590,082** | **$1,707,423** | **$11,360** | **$12,600,471** |
| Commercial real estate |  |  |  |  |  |
| Fixed rate | **580,938** | **2,884,383** | **573,579** | **51,683** | **4,090,583** |
| Variable rate | **6,509,558** | **8,631** | **39** | **—** | **6,518,228** |
| Total commercial real estate | **$7,090,496** | **$2,893,014** | **$573,618** | **$51,683** | **$10,608,811** |
| Home equity |  |  |  |  |  |
| Fixed rate | **11,132** | **2,682** | **—** | **31** | **13,845** |
| Variable rate | **323,129** | **—** | **—** | **—** | **323,129** |
| Total home equity | **$334,261** | **$2,682** | **$—** | **$31** | **$336,974** |
| Residential real estate |  |  |  |  |  |
| Fixed rate | **16,724** | **3,824** | **30,511** | **1,072,690** | **1,123,749** |
| Variable rate | **73,672** | **263,888** | **1,181,931** | **—** | **1,519,491** |
| Total residential real estate | **$90,396** | **$267,712** | **$1,212,442** | **$1,072,690** | **$2,643,240** |
| Premium finance receivables - property & casualty |  |  |  |  |  |
| Fixed rate | **6,657,042** | **105,656** | **—** | **—** | **6,762,698** |
| Variable rate | **—** | **—** | **—** | **—** | **—** |
| Total premium finance receivables - property & casualty | **$6,657,042** | **$105,656** | **$—** | **$—** | **$6,762,698** |
| Premium finance receivables - life insurance |  |  |  |  |  |
| Fixed rate | **121,092** | **547,337** | **22,242** | **—** | **690,671** |
| Variable rate | **7,348,602** | **—** | **—** | **—** | **7,348,602** |
| Total premium finance receivables - life insurance | **$7,469,694** | **$547,337** | **$22,242** | **$—** | **$8,039,273** |

64

| Consumer and other |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Fixed rate | **4,420** | **3,912** | **60** | **301** | **8,693** |
| Variable rate | **23,248** | **—** | **—** | **—** | **23,248** |
| Total consumer and other | **$27,668** | **$3,912** | **$60** | **$301** | **$31,941** |
| Total per category |  |  |  |  |  |
| Fixed rate | **7,883,298** | **6,136,371** | **2,333,815** | **1,136,065** | **17,489,549** |
| Variable rate | **22,077,865** | **274,024** | **1,181,970** | **—** | **23,533,859** |
| Total loans, net of unearned income | **$29,961,163** | **$6,410,395** | **$3,515,785** | **$1,136,065** | **$41,023,408** |
| **Variable Rate Loan Pricing by Index:** |  |  |  |  |  |
| SOFR tenors |  |  |  |  | **$10,407,621** |
| One- year CMT |  |  |  |  | **5,819,451** |
| One- month LIBOR |  |  |  |  | **1,707,349** |
| Three- month LIBOR |  |  |  |  | **10,276** |
| Twelve- month LIBOR |  |  |  |  | **1,028,904** |
| Prime |  |  |  |  | **3,932,654** |
| Ameribor tenors |  |  |  |  | **356,300** |
| Other U.S. Treasury tenors |  |  |  |  | **46,387** |
| BSBY tenors |  |  |  |  | **49,436** |
| Other |  |  |  |  | **175,481** |
| Total variable rate |  |  |  |  | **$23,533,859** |

#### SOFR - Secured Overnight Financing Rate.

#### CMT - Constant Maturity Treasury Rate.

#### LIBOR - London Interbank Offered Rate.

#### Ameribor - American Interbank Offered Rate.

#### BSBY - Bloomberg Short Term Bank Yield Index.

With its transition from LIBOR, the Company increased the portion of its loan portfolio with interest rate indices that are an alternative to LIBOR during the period, including emerging indices such as SOFR, CMT, and Ameribor. As shown above, at June 30, 2023, variable rate loans with loans priced at SOFR, CMT, and Ameribor totaled $10.4 billion, $5.8 billion and $356.3 million, respectively. Additionally, the percentage of the Company’s variable rate loans indexed to LIBOR decreased to 12% at June 30, 2023 compared to 61% at June 30, 2022. The Company continues its transition of its loan portfolio from LIBOR for both loans existing at June 30, 2023 and future new originations.

### CREDIT QUALITY

### Commercial and Commercial Real Estate Loan Portfolios

Our commercial and commercial real estate loan portfolios are comprised primarily of lines of credit for working capital purposes and commercial real estate loans. The table below sets forth information regarding the types and amounts of our loans within these portfolios as of June 30, 2023 and 2022:

*(Dollars in thousands)*

| Commercial: | As of June 30, 2023 Total Balance | % of Losses Balance | Allowance For Credit Allocation | As of June 30, 2022 Total Balance | % of Losses Balance | Allowance For Credit Allocation |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial, industrial, and other | **$12,600,471** | **54.3%** | **$143,142** | $12,047,105 | 56.2% | $142,919 |
| **Commercial Real Estate:** |  |  |  |  |  |  |
| Construction and development | **$1,760,436** | **7.6%** | **$86,725** | $1,506,318 | 7.0% | $45,522 |
| Non-construction | **8,848,375** | **38.1** | **128,971** | 7,900,887 | 36.8 | 98,210 |
| **Total commercial real estate** | **$10,608,811** | **45.7%** | **$215,696** | $9,407,205 | 43.8% | $143,732 |
| **Total commercial and commercial real estate** | **$23,209,282** | **100.0%** | **$358,838** | $21,454,310 | 100.0% | $286,651 |
| Commercial real estate - collateral location by state: |  |  |  |  |  |  |
| Illinois | **$6,751,865** | **63.6%** |  | $6,525,160 | 69.4% |  |
| Wisconsin | **861,564** | **8.1** |  | 789,738 | 8.4 |  |
| **Total primary markets** | **$7,613,429** | **71.7%** |  | $7,314,898 | 77.8% |  |
| Indiana | **348,239** | **3.3** |  | 320,495 | 3.4 |  |
| Florida | **270,412** | **2.5** |  | 221,174 | 2.4 |  |
| Colorado | **258,092** | **2.4** |  | 106,281 | 1.1 |  |
| California | **213,140** | **2.0** |  | 156,077 | 1.7 |  |
| Texas | **199,896** | **1.9** |  | 153,535 | 1.6 |  |
| Ohio | **172,277** | **1.6** |  | 129,602 | 1.4 |  |
| Other | **1,533,326** | **14.6** |  | 1,005,143 | 10.6 |  |
| **Total commercial real estate** | **$10,608,811** | **100.0%** |  | $9,407,205 | 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. Such loans may vary in size based on customer need. Primarily as a result of growth in the Company’s commercial loan portfolio our allowance for credit losses in our commercial loan portfolio increased to $143.1 million as of June 30, 2023 compared to $142.9 million as of June 30, 2022.

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, 71.7% of our commercial real estate loan portfolio is located in this region as of June 30, 2023. We have been able to effectively manage our total non-performing commercial real estate loans, aided by our credit management process. As of June 30, 2023, our allowance for credit losses related to this portfolio was $215.7 million compared to $143.7 million as of June 30, 2022. The increase in the allowance for credit losses is primarily a result of growth in our commercial real estate portfolio as well as a deteriorated forecast in the CREPI macroeconomic variable.

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.

### 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 assigns 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. Description of the Company’s credit risk rating structure used is included in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2022 Form 10-K.

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.

#### Loan Portfolio Aging

As of June 30, 2023, excluding early buy-out loans guaranteed by U.S. government agencies, $57.9 million, or 0.1% of all loans, were 60 to 89 days (or two payments) past due and $187.7 million, or 0.5% of all loans, were 30 to 59 days (or one payment) past due. As of March 31, 2023, excluding early buy-out loans guaranteed by U.S. government agencies, $67.3 million, or 0.2% of all loans, were 60 to 89 days (or two payments) past due and $274.5 million, or 0.7% of all loans, 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 June 30, 2023 that were current with regard to the contractual terms of the loan agreement represent 99.3% of the total home equity portfolio. Residential real estate loans, excluding early buy-out loans guaranteed by U.S. government agencies, at June 30, 2023 that were current with regards to the contractual terms of the loan agreements comprise 99.1% of total residential real estate loans outstanding. For more information regarding delinquent loans as of June 30, 2023, see Note (7) “Allowance for Credit Losses” in Item 1.

#### Non-performing Assets (1)

The following table sets forth the Company's non-performing assets performing under the contractual terms of the loan agreement as of the dates shown.

*(Dollars in thousands)*

| Loans past due greater than 90 days and still accruing (2): | June 30, 2023 | March 31, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: |
| Commercial | **$573** | $— | $— |
| Commercial real estate | **—** | — | — |
| Home equity | **110** | — | — |
| Residential real estate | **—** | 104 | — |
| Premium finance receivables—property and casualty | **12,785** | 9,215 | 6,447 |
| Premium finance receivables—life insurance | **1,667** | 1,066 | — |
| Consumer and other | **28** | 87 | 25 |
| Total loans past due greater than 90 days and still accruing | **15,163** | 10,472 | 6,472 |
| **Nonaccrual loans:** |  |  |  |
| Commercial | **40,460** | 47,950 | 32,436 |
| Commercial real estate | **18,483** | 11,196 | 10,718 |
| Home equity | **1,361** | 1,190 | 1,084 |
| Residential real estate | **13,652** | 11,333 | 8,330 |
| Premium finance receivables—property and casualty | **19,583** | 18,543 | 13,303 |
| Premium finance receivables—life insurance | **6** | — | — |
| Consumer and other | **4** | 6 | 8 |
| Total nonaccrual loans | **93,549** | 90,218 | 65,879 |
| **Total non-performing loans:** |  |  |  |
| Commercial | **41,033** | 47,950 | 32,436 |
| Commercial real estate | **18,483** | 11,196 | 10,718 |
| Home equity | **1,471** | 1,190 | 1,084 |
| Residential real estate | **13,652** | 11,437 | 8,330 |
| Premium finance receivables—property and casualty | **32,368** | 27,758 | 19,750 |
| Premium finance receivables—life insurance | **1,673** | 1,066 | — |
| Consumer and other | **32** | 93 | 33 |
| Total non-performing loans | **$108,712** | $100,690 | $72,351 |
| Other real estate owned | **10,275** | 8,050 | 5,574 |
| Other real estate owned—from acquisitions | **1,311** | 1,311 | 1,265 |
| Other repossessed assets | **—** | — | — |
| Total non-performing assets | **120,298** | $110,051 | $79,190 |
| **Total non-performing loans by category as a percent of its own respective category’s period-end balance:** |  |  |  |
| Commercial | **0.33%** | 0.38% | 0.27% |
| Commercial real estate | **0.17** | 0.11 | 0.11 |
| Home equity | **0.44** | 0.35 | 0.33 |
| Residential real estate | **0.52** | 0.46 | 0.40 |
| Premium finance receivables—property and casualty | **0.48** | 0.48 | 0.36 |
| Premium finance receivables—life insurance | **0.02** | 0.01 | — |
| Consumer and other | **0.10** | 0.22 | 0.07 |
| Total non-performing loans | **0.26%** | 0.25% | 0.20% |
| **Total non-performing assets, as a percentage of total assets** | **0.22%** | 0.21% | 0.16% |
| **Total nonaccrual loans as a percentage of total loans** | **0.23%** | 0.23% | 0.18% |
| **Allowance for credit losses as a percentage of nonaccrual loans** | **414.09%** | 416.54% | 473.76% |

*(1) Excludes early buy-out loans guaranteed by U.S. government agencies. Early buy-out loans are insured or guaranteed by the FHA or the U.S. Department of Veterans Affairs, subject to indemnifications and insurance limits for certain loans.*

At this time, management believes reserves are appropriate to absorb losses that are expected upon the ultimate resolution of these credits. Significant increases may occur in subsequent periods due to ongoing macroeconomic uncertainty and related impacts on borrowers. Management will continue to actively review and monitor its loan portfolios, in an effort to identify problem credits in a timely manner.

#### Non-performing Loans Rollforward, excluding early buy-out loans guaranteed by U.S. government agencies

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

*(In thousands)*

|  | Three Months Ended June 30, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Balance at beginning of period | **$100,690** | $57,305 | **$100,697** | $74,438 |
| Additions from becoming non-performing in the respective period | **21,246** | 22,841 | **45,701** | 26,982 |
| Return to performing status | **(360)** | (1,000) | **(840)** | (1,729) |
| Payments received | **(12,314)** | (4,029) | **(17,575)** | (24,168) |
| Transfer to OREO and other repossessed assets | **(2,958)** | (1,611) | **(2,958)** | (5,988) |
| Charge-offs | **(2,696)** | (1,969) | **(3,855)** | (4,323) |
| Net change for niche loans (1) | **5,104** | 814 | **(12,458)** | 7,139 |
| **Balance at end of period** | **$108,712** | $72,351 | **$108,712** | $72,351 |

*(1) This includes activity for premium finance receivables and indirect consumer 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. A description of how the Company determines the allowance for credit losses is included in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2022 Form 10-K.

Management determined that the allowance for credit losses was appropriate at June 30, 2023, 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, when considered applicable. 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 and overall levels of net charge-off. 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 June 30, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| **Allowance for credit losses at beginning of period** | **$375,798** | $301,168 | **$357,448** | $299,653 |
| **Cumulative effect adjustment from the adoption of ASU 2022-02** | **—** | — | **741** | — |
| **Provision for credit losses** | **28,571** | 20,493 | **51,641** | 24,518 |
| **Other adjustments** | **41** | (56) | **45** | (34) |
| **Charge-offs:** |  |  |  |  |
| Commercial | **5,629** | 8,928 | **8,172** | 10,342 |
| Commercial real estate | **8,124** | 40 | **8,129** | 817 |
| Home equity | **—** | 192 | **—** | 389 |
| Residential real estate | **—** | — | **—** | 466 |
| Premium finance receivables - property & casualty | **4,519** | 2,903 | **9,148** | 4,574 |
| Premium finance receivables - life insurance | **134** | — | **155** | 7 |
| Consumer and other | **110** | 253 | **263** | 446 |
| Total charge-offs | **18,516** | 12,316 | **25,867** | 17,041 |
| **Recoveries:** |  |  |  |  |
| Commercial | **505** | 996 | **897** | 1,534 |
| Commercial real estate | **25** | 553 | **125** | 585 |
| Home equity | **37** | 123 | **72** | 216 |
| Residential real estate | **6** | 6 | **10** | 11 |
| Premium finance receivables - property & casualty | **890** | 1,119 | **2,204** | 2,595 |
| Premium finance receivables - life insurance | **—** | — | **9** | — |
| Consumer and other | **23** | 23 | **55** | 72 |
| Total recoveries | **1,486** | 2,820 | **3,372** | 5,013 |
| **Net charge-offs** | **(17,030)** | (9,496) | **(22,495)** | (12,028) |
| **Allowance for credit losses at period end** | **$387,380** | $312,109 | **$387,380** | $312,109 |
| **Annualized net charge-offs by category as a percentage of its own respective category’s average:** |  |  |  |  |
| Commercial | **0.16%** | 0.27% | **0.12%** | 0.15% |
| Commercial real estate | **0.31** | (0.02) | **0.16** | 0.01 |
| Home equity | **(0.04)** | 0.09 | **(0.04)** | 0.11 |
| Residential real estate | **0.00** | 0.00 | **0.00** | 0.05 |
| Premium finance receivables - property & casualty | **0.24** | 0.14 | **0.24** | 0.02 |
| Premium finance receivables - life insurance | **0.01** | 0.00 | **0.00** | 0.00 |
| Consumer and other | **0.45** | 1.31 | **0.58** | 1.26 |
| Total loans, net of unearned income | **0.17%** | 0.11% | **0.11%** | 0.07% |
| **Loans at period-end** | **$41,023,408** | $37,053,103 |  |  |
| **Allowance for loan losses as a percentage of loans at period end** | **0.74%** | 0.68% |  |  |
| **Allowance for loan and unfunded loan-related commitment losses as a percentage of loans at period end** | **0.94** | 0.84 |  |  |

See Note (7) “Allowance for Credit Losses” 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.

#### Other Real Estate Owned

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 show the activity for the respective periods and the balance for each property type:

*(In thousands)*

|  | Three Months Ended June 30, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Balance at beginning of period | **$9,361** | $6,203 | **$9,900** | $4,271 |
| Disposal/resolved | **(733)** | (1,172) | **(1,168)** | (3,669) |
| Transfers in at fair value, less costs to sell | **2,958** | 2,090 | **2,958** | 6,519 |
| Fair value adjustments | **—** | (282) | **(104)** | (282) |
| Balance at end of period | **$11,586** | $6,839 | **$11,586** | $6,839 |

*(In thousands)*

|  | Period End June 30, 2023 | March 31, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: |
| Residential real estate | **$318** | $1,051 | $1,630 |
| Residential real estate development | **—** | — | 133 |
| Commercial real estate | **11,268** | 8,310 | 5,076 |
| Total | **$11,586** | $9,361 | $6,839 |

### Deposits

Total deposits at June 30, 2023 were $44.0 billion, an increase of $1.4 billion, or 3%, compared to total deposits at June 30, 2022. See Note (10) “Deposits” 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 June 30, 2023:

| Time Certificates of Deposit Maturity/Re-pricing Analysis As of June 30, 2023 (Dollars in thousands) | Total Time Certificates of Deposits | Weighted-Average Rate of Maturing Time Certificates of Deposit (1) |
| --- | ---: | ---: |
| 1-3 months | **$1,407,470** | **3.15%** |
| 4-6 months | **1,323,183** | **2.93** |
| 7-9 months | **1,148,928** | **3.53** |
| 10-12 months | **1,543,622** | **4.39** |
| 13-18 months | **595,056** | **3.25** |
| 19-24 months | **250,020** | **2.87** |
| 24+ months | **87,991** | **1.99** |
| Total | **$6,356,270** | **3.46%** |

*(1) 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 June 30, 2023 Balance | Percent | March 31, 2023 Balance | Percent | June 30, 2022 Balance | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Non-interest-bearing | **$10,908,022** | **26%** | $12,171,631 | 29% | $13,805,128 | 33% |
| NOW and interest-bearing demand deposits | **5,540,597** | **13** | 5,271,740 | 13 | 5,230,702 | 13 |
| Wealth management deposits | **1,545,626** | **4** | 2,167,081 | 5 | 2,835,267 | 7 |
| Money market | **13,735,924** | **32** | 12,533,468 | 30 | 11,892,948 | 29 |
| Savings | **5,206,609** | **12** | 4,830,322 | 11 | 3,882,856 | 9 |
| Time certificates of deposit | **5,603,024** | **13** | 5,041,638 | 12 | 3,687,778 | 9 |
| Total average deposits | **$42,539,802** | **100%** | $42,015,880 | 100% | $41,334,679 | 100% |

Total average deposits for the second quarter of 2023 were $42.5 billion, an increase of $1.2 billion, or 3%, from the second quarter of 2022. Total deposits increased in the second quarter as the Company increased marketing efforts to retain and attract deposits to support continued loan growth. Additionally, the diversity of our deposit base showed its resilience in a volatile market. The Company has experienced a change in the mix of deposits as non-interest bearing deposits have migrated to interest-bearing products.

Wealth management deposits are funds from the brokerage customers of Wintrust Investments, CDEC and trust and asset management customers of the Company 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)*

|  | June 30, 2023 | 2022 | December 31, 2022 | 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Total deposits | **$44,038,707** | $42,593,326 | $42,902,544 | $42,095,585 | $37,092,651 |
| Brokered deposits | **4,086,222** | 1,791,443 | 3,174,093 | 1,591,083 | 1,843,227 |
| Brokered deposits as a percentage of total deposits | **9.3%** | 4.2% | 7.4% | 3.8% | 5.0% |

Brokered deposits include certificates of deposit obtained through deposit brokers, deposits received through the Certificate of Deposit Account Registry Program, and certain 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 FHLB advances, notes payable, short-term borrowings, secured borrowings, subordinated debt 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.

Uninsured deposits are estimated based on the methodologies and assumptions used for the Company’s regulatory reporting requirements. In accordance with the instructions described in the FDIC’s July 24, 2023 Financial Institution Letter to clarify Estimated Uninsured Deposits Reporting Expectations, the Company had approximately $14.1 billion of uninsured deposits as of June 30, 2023 of which $2.4 billion were fully collateralized deposits. The net position of $11.7 billion of uninsured and uncollateralized deposits represents approximately 27% of total deposits as of June 30, 2023. The Company had total liquidity sources, including cash and collateralized funding sources of $14.4 billion or approximately 123% of uninsured and uncollateralized deposits as of June 30, 2023.

On March 12, 2023, the Federal Reserve established the Bank Term Funding Program (“BTFP”). The Company has registered for the BTFP but has not participated and does not intend to participate. However, this is an additional option as an available short-term liquidity source.

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 June 30, 2023 | March 31, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: |
| FHLB advances | **$2,227,106** | $2,474,882 | $1,197,390 |
| Other borrowings: |  |  |  |
| Notes payable | **192,591** | 199,717 | 74,912 |
| Short-term borrowings | **20,691** | 22,840 | 14,791 |
| Secured borrowings | **326,405** | 319,453 | 337,626 |
| Other | **86,070** | 60,927 | 62,450 |
| Total other borrowings | **$625,757** | $602,937 | $489,779 |
| Subordinated notes | **437,545** | 437,422 | 437,084 |
| Junior subordinated debentures | **253,566** | 253,566 | 253,566 |
| Total other funding sources | **$3,543,974** | $3,768,807 | $2,377,819 |

Notes payable balances represent the balances on a credit agreement with certain unaffiliated banks. As of June 30, 2023, the outstanding principal balance under the term loan facility was $185.5 million and there was no outstanding principal balance under the revolving credit facility.

The balance of secured borrowings primarily represents a third party Canadian transaction (“Canadian Secured Borrowing”). Under the Canadian Secured Borrowing, the Company, through its subsidiary, FIFC Canada, sells an undivided co-ownership interest in all receivables owed to FIFC Canada to an unrelated third party in exchange for cash payments pursuant to a receivables purchase agreement (“Receivables Purchase Agreement”). On May 31, 2023, the Company entered into the eleventh amending agreement to the Receivables Purchase Agreement dated as of December 16, 2014. The amended Receivables Purchase Agreement provides for, among other things, an extension of the maturity date to December 15, 2024, an increase to the facility limit from $420 million to $520 million, and a fee rate increase from 0.775% to 0.825%. Additionally, since CDOR will cease being used in Canada in June 2024, references to CDOR changed to the Benchmark rate.

See Note (11) “FHLB Advances, Other Borrowings and Subordinated Notes” and Note (12) “Junior Subordinated Debentures” 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. The Company hereby incorporates by reference Note (11) and Note (12) of the Consolidated Financial Statements presented under Item 1 of this report in its entirety.

### Shareholders’ Equity

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

|  | June 30, 2023 | March 31, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: |
| Tier 1 leverage ratio | **9.3%** | 9.1% | 8.8% |
| Risk-based capital ratios: |  |  |  |
| Tier 1 capital ratio | **10.1** | 10.1 | 9.9 |
| Common equity tier 1 capital ratio | **9.3** | 9.2 | 9.0 |
| Total capital ratio | **11.9** | 12.1 | 11.9 |
| Other ratio: |  |  |  |
| Total average equity-to-total average assets(1) | **9.6** | 9.4 | 9.2 |

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

|  | Minimum Capital Requirements | Minimum Ratio + Capital Conservation Buffer(1) | Minimum Well Capitalized(2) |
| --- | ---: | ---: | ---: |
| Tier 1 leverage ratio | 4.0% | N/A | N/A |
| Risk-based capital ratios: |  |  |  |
| Tier 1 capital ratio | 6.0 | 8.5 | 6.0 |
| Common equity tier 1 capital ratio | 4.5 | 7.0 | N/A |
| Total capital ratio | 8.0 | 10.5 | 10.0 |

#### (1) Reflects the Capital Conservation Buffer of 2.5%.

*(2) Reflects the well-capitalized standard applicable to the Company for purposes of the Federal Reserve’s Regulation Y. The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies (“BHCs”) to reflect the higher capital requirements imposed under the U.S. Basel III Rule or to add Common Equity Tier 1 capital ratio and Tier 1 leverage ratio requirements to this standard. As a result, the Common Equity Tier 1 capital ratio and Tier 1 leverage ratio are denoted as “N/A” in this column. If the Federal Reserve were to apply the same or a very similar well-capitalized standard to BHCs as the standard applicable to our subsidiary banks, we believe the Company’s capital ratios as of June 30, 2023 would exceed such revised well-capitalized standard.*

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) and (12) of the Consolidated Financial Statements in Item 1 for further information on these various funding sources. See Note (23) “Shareholders’ Equity” of the Consolidated Financial Statements presented under Item 7 of the 2022 Form 10-K for details on the Company’s issuance of Series D Preferred Stock in June 2015, Series E Preferred Stock and associated Depositary Shares in May 2020 and additional common stock offering in June 2022.

The 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 and Series E 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 and April of 2023, the Company declared a quarterly cash dividend of $0.40 per common share. In January, April, July and October of 2022, the Company declared a quarterly cash dividend of $0.34 per common share.

The Company continues to leverage its capital management framework to assess and monitor risk when making capital decisions. Management is committed to maintaining the Company’s capital levels above the “Well Capitalized” levels established by the FRB for bank holding companies.

### LIQUIDITY

The Company 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 addition to the liquidity management noted above, in 2022, the Company sold a total of 3,450,000 shares of its common stock through a public offering. Net proceeds to the Company totaled approximately $285.7 million, net of estimated issuance costs. In the second quarter of 2023, we maintained our liquid assets to ensure that we would have the balance sheet strength to serve our clients. As a result, the Company believes that it has sufficient funds and access to funds to effectively meet its working capital and other needs. The Company will continue to prudently evaluate 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.

### INFLATION

A banking organization’s assets and liabilities are primarily monetary. Changes in the rate of inflation typically 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 as material an impact on the Company’s business as entities operating in other industries. 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, and which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2022 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 plans to form additional de novo banks or branch offices, and management’s long-term performance goals, as well as statements relating to the anticipated effects on the Company’s 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:

- economic conditions and events 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, including an actual or threatened U.S. government debt default or rating downgrade, 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 credit 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 that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities;
- the interest rate environment, including a prolonged period of low interest rates or rising interest rates, either broadly or for some types of instruments, which may affect the Company’s net interest income and net interest margin, and which could materially adversely affect the Company’s profitability;
- 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 and similar events or data corruption attempts and identity theft;
- adverse effects on our information technology systems resulting from failures, human error or cyberattacks (including ransomware);
- 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, and ability of the Company to effectively manage the planned transition of the chief executive officer role;
- 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 and the impact of recent failures of financial institutions, including broader financial institution liquidity risk and concerns;
- the expenses and delayed returns inherent in opening new branches and de novo banks;
- liabilities, potential customer loss or reputational harm related to closings of existing branches;
- examinations and challenges by tax authorities, and any unanticipated impact of the Tax Act;
- changes in accounting standards, rules and interpretations, and the impact on the Company’s financial statements;
- the ability of the Company to receive dividends from its subsidiaries;
- the ability of the Company to successfully discontinue use of LIBOR and transition to an alternative benchmark rate for current and future transactions;
- 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;
- changes in laws, regulations, rules, standards and contractual obligations regarding data privacy and cybersecurity;
- 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 persistent inflation 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;
- fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation;
- widespread outages of operational, communication, or other systems, whether internal or provided by third parties, natural or other disasters (including acts of terrorism, armed hostilities and pandemics), and the effects of climate change; and
- the severity, magnitude and duration of the COVID-19 pandemic, including the continued emergence of variant strains, and the direct and indirect impact of such pandemic, as well as responses to the pandemic by the government, businesses and consumers, on the economy, our financial results, operations and personnel, commercial activity and demand across our business and our customers’ businesses.

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, 7,172 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 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 and decreases of 100 and 200 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 June 30, 2023, March 31, 2023 and June 30, 2022 is as follows:

| Static Shock Scenarios | +200 Basis Points | +100 Basis Points | -100 Basis Points | -200 Basis Points |
| --- | ---: | ---: | ---: | ---: |
| **June 30, 2023** | **5.7%** | **2.9%** | **(2.9)%** | **(7.9)%** |
| March 31, 2023 | 4.2 | 2.4 | (2.4) | (7.3)% |
| June 30, 2022 | 17.0 | 9.0 | (12.6) | (23.8)% |

| Ramp Scenarios | +200 Basis Points | +100 Basis Points | -100 Basis Points | -200 Basis Points |
| --- | ---: | ---: | ---: | ---: |
| **June 30, 2023** | **2.9%** | **1.8%** | **(0.9)%** | **(3.4)%** |
| March 31, 2023 | 3.0 | 1.7 | (1.3) | (3.4)% |
| June 30, 2022 | 10.2 | 5.3 | (6.9) | (14.3)% |

77

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 (14) “Derivative Financial Instruments” of the Consolidated Financial Statements in Item 1 of this report for further information on the Company’s derivative financial instruments.

As shown above, the magnitude of potential changes in net interest income in various interest rate scenarios has continued to diminish. Given the recent unprecedented rise in interest rates, the Company has made a conscious effort to reposition its exposure to changing interest rates given the uncertainty of the future interest rate environment. To this end, management has executed various derivative instruments including collars and receive fixed swaps to hedge variable rate loan exposures and originated a higher percentage of its loan originations in longer term fixed rate loans. The Company will continue to monitor current and projected interest rates and expects to execute additional derivatives to mitigate potential fluctuations in net interest margin in future years.

Periodically, the Company enters 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 June 30, 2023 and June 30, 2022. See Note (14) “Derivative Financial Instruments” of the Consolidated Financial Statements in Item 1 of this report for further information on the Company’s fees from covered call options for the six months ended June 30, 2023 and June 30, 2022.

## 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, 127 characters.

There have been no material changes from the risk factors set forth under Part I, Item 1A “Risk Factors” in the 2022 Form 10-K.

Filed Aug 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001015328-23-000164. Last ingested by Listed: Nov 5, 2026, 14:04 ET. No prices; not investment advice.