Wintrust Financial Corp: Form 10-Q for the period ended Sep 30, 2024

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 September 30, 2024 compared with December 31, 2023 and September 30, 2023, and the results of operations for the three and nine month periods ended September 30, 2024 and September 30, 2023, 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, 2023 (“2023 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 and commercial 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

Third Quarter Highlights

The Company recorded net income of $170.0 million for the third quarter of 2024 compared to $164.2 million in the third quarter of 2023. The results for the third quarter of 2024 demonstrate the Company's ability to grow net interest income through both organic earning asset growth and growth through acquisitions. Partially offsetting the increase in net interest income was an increase in non-interest expense. The increase in non-interest expense was a result of additional expenses to support organic growth as well as the impact from the Macatawa acquisition. 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 (loss) totaled $390.0 million for the third quarter of 2024 compared to a loss of $4.4 million for the third quarter of 2023.

The Company increased its loan portfolio from $41.4 billion at September 30, 2023 and $42.1 billion at December 31, 2023 to $47.1 billion at September 30, 2024. The increase in the current period compared to the prior periods was a result of organic growth in several portfolios, including the commercial, commercial real estate, residential real estate loans held for investment portfolios, and property and casualty insurance premium finance receivable portfolios as well as $1.3 billion in loans acquired from Macatawa. 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 $502.6 million in the third quarter of 2024 compared to $462.4 million in the third quarter of 2023. This increase in net interest income recorded in the third quarter of 2024 compared to the third quarter of 2023 resulted primarily from growth in earning assets, specifically a $5.2 billion increase in average loans. Net interest margin was 3.49% (3.51% on a fully taxable-equivalent basis, non-GAAP) in the third quarter of 2024 compared to 3.60% (3.62% on a fully taxable-equivalent basis, non-GAAP) in the third quarter of 2023. The decrease is primarily due to higher rates on interest-bearing liabilities, most notably interest-bearing deposits (see “Net Interest Income” for further detail).

Non-interest income totaled $113.1 million in the third quarter of 2024 compared to $112.5 million in the third quarter of 2023. The increase is due to increased net gains on investment securities of $5.5 million, increased wealth management revenue of $3.7 million and an increase of service charges on deposits of $2.2 million which was offset by decreased mortgage banking revenue of $11.4 million in the third quarter of 2024 compared to the third quarter of 2023 (see “Non-Interest Income” for further detail).

Non-interest expense totaled $360.7 million in the third quarter of 2024, an increase of $30.6 million, or 9%, compared to the third quarter of 2023. This increase compared to the third quarter of 2023 was primarily attributable to increased salaries and employee benefits of $18.9 million and increased software and equipment expenses of $5.6 million. (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 third quarter of 2024, 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 nine months ended September 30, 2024, as compared to the same period last year, are shown below:

(Dollars in thousands, except per share data)

(Dollars in thousands, except per share data)

(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)

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 2023 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 September 30, 2024, 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 September 30, 2024, the loan and held-to-maturity debt securities portfolios represent 80% 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.

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 September 30, 2024:

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 September 30, 2024:

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 57 of the 2023 Form 10-K.

Net Income

Net income for the quarter ended September 30, 2024 totaled $170.0 million, an increase of $5.8 million, or 4%, compared to the quarter ended September 30, 2023. On a per share basis, net income for the third quarter of 2024 totaled $2.47 per diluted common share compared to $2.53 for the third quarter of 2023.

The increase in net income for the third quarter of 2024 as compared to the same period in the prior year is primarily attributable to increased net interest income, partially offset by increased non-interest expense including the impact of the Macatawa acquisition. 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 September 30, 2024 compared to the Quarters Ended June 30, 2024 and September 30, 2023

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 third quarter of 2024 as compared to the second quarter of 2024 (sequential quarters) and third quarter of 2023 (linked quarters):

(Dollars in thousands)

(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 September 30, 2024, June 30, 2024 and September 30, 2023 were $3.1 million, $2.9 million and $2.5 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 third quarter of 2024, net interest income totaled $502.6 million, an increase of $32.0 million as compared to the second quarter of 2024, and an increase of $40.2 million as compared to the third quarter of 2023. Net interest margin was 3.49% (3.51% on a FTE basis, non-GAAP) during the third quarter of 2024 compared to 3.50% (3.52% on a FTE basis, non-GAAP) during the second quarter of 2024, and 3.60% (3.62% on a FTE basis, non-GAAP) during the third quarter of 2023.

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 nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:

(Dollars in thousands)

(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 nine months ended September 30, 2024 and September 30, 2023 were $8.8 million and $7.4 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 September 30, 2024 to each of the three month periods ended June 30, 2024 and September 30, 2023 and nine month periods ended September 30, 2024 and 2023. 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)

(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)

(1) Wealth management revenue is comprised of the trust and asset management revenue of Wintrust Private Trust Company, N.A. (“WPTC”) 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)

(1) Wealth management revenue is comprised of the trust and asset management revenue of the WPTC 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:

Wealth management revenue increased by $3.7 million and $10.1 million in the three and nine months ended September 30, 2024 as compared to the same periods of 2023, respectively. For the three and nine months ended September 30, 2024, the increase is primarily due to increased asset management fees as a result of higher assets under management when compared to same period in the prior year.

Mortgage banking revenue decreased for the three months ended September 30, 2024 as compared to the same period in 2023 due to lower net revenue related to MSR activity and valuation adjustments. On a year-to-date basis, mortgage banking revenue decreased slightly for the nine months ended September 30, 2024 as compared to the same period in 2023 as a result of lower net revenue related to MSR activity which was offset by higher production revenue from increased mortgage production. 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 $766.8 million in the third quarter of 2024 as compared to $572.6 million in the third quarter of 2023. On a year-to-date basis, mortgage loans originated for sale totaled $2.0 billion for the nine months ended September 30, 2024 as compared to $1.5 billion for the nine months ended September 30, 2023. The increase in originations from the comparative three and nine month periods was driven by growth in both purchase and refinance originations as housing inventories have improved and interest rates pulled back from peak levels reached in 2023. The percentage of origination volume from refinancing activities was 28% and 22% for the three and nine months ended September 30, 2024, as compared to 16% and 17%, for the same periods in 2023, respectively.

The Company records MSRs at fair value on a recurring basis. For the three months ended September 30, 2024, the fair value of the MSRs portfolio decreased as a result of an unfavorable fair value adjustment of $17.3 million was recorded and a reduction in value of $7.3 million due to payoffs, paydowns and repurchases of the existing portfolio, partially offset as retained servicing rights led to capitalization of $6.4 million. On a year-to-date basis, the fair value of MSRs decreased due to a unfavorable fair value adjustment of $8.9 million as well as a reduction in value of $17.2 million due to payoffs, paydowns and repurchases of the existing portfolio, partially offset by retained servicing rights led to capitalization of $20.0 million. 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.

Mortgage banking revenue is also impacted by changes in the fair value of derivative contracts held to economically hedge a portion of the fair value adjustments related to the Company’s MSRs portfolio. The change in fair value of the derivative contracts held as an economic hedge was a favorable $6.9 million and $3.5 million for the three and nine months ended September 30, 2024, respectively.

Service charges on deposits increased for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 primarily as a result of increased account analysis services fees. Service charges on deposit accounts include fees charged to deposit customers for various services, including account analysis services, and are based on factors such as the size and type of customer, type of product and number of transactions. The fees are based on a standard schedule of fees and, depending on the nature of the service performed, the service is performed at a point in time or over a period of a month.

The Company recognized net gains on investment securities for the three and nine months ended September 30, 2024 of $3.2 million and $233,000, respectively. The Company recognized net losses on investment securities for the three and nine months ended September 30, 2023 of $2.4 million and $1.0 million, respectively. The net gains for the three and nine months ended September 30, 2024 were primarily due to gains on the Company’s equity investment securities recorded in the third quarter of 2024. See Note (5) “Investment Securities” to the Consolidated Financial Statements in Item 1 of this report for more information on net gains and losses on investment securities.

Fees from covered call options for the three and nine months ended September 30, 2024 decreased $3.2 million and $9.3 million, respectively, when compared to the same periods in the prior year, respectively. The decreased income was primarily because the Company sold less options than the prior year for both comparative periods. 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 September 30, 2024 and 2023.

Miscellaneous non-interest income includes loan servicing fees, income from other investments, and other fees. This category of income increased $277,000 and $30.9 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023, respectively. For the three months ended September 30, 2024, miscellaneous income increased compared to the same period in 2023 primarily due higher fee income earned on card-related arrangements and partnership income. The increased income on a year-to-date basis was primarily due to a $20.0 million gain recognized in the first quarter of 2024 related to the sale of the Company’s Retirement Benefits Advisors (“RBA") division within its wealth management business as well as a $4.6 million gain recognized in the second quarter of 2024 on the sale of premium finance receivables.

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

(Dollars in thousands)

(1) Production revenue represents revenue earned from the origination and subsequent sale of mortgages, including gains on loans sold and fees from originations, changes in other related financial instruments carried at fair value, processing and other related activities, and excludes servicing fees, changes in the fair value of servicing rights and changes to the mortgage recourse obligation and other non-production revenue.

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

Non-interest Expense

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

(Dollars in thousands)

(Dollars in thousands)

NM - Not meaningful.

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

Salaries and employee benefits expense increased for the three and nine months ended September 30, 2024 as compared to the same periods in 2023. The increase was primarily due to elevated commissions from increased mortgage production as well as due to the increase in employees related to the growth of the Company, including the Macatawa acquisition.

Software and equipment expense increased for the three and nine months ended September 30, 2024 as compared to the same periods in 2023 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.

Amortization of other acquisition-related intangible assets increased for the three and nine months ended September 30, 2024 compared to the same periods in 2023. The Macatawa acquisition impacted this increase by approximately $3.0 million.

FDIC insurance expense increased for the three and nine months ended September 30, 2024 compared to the same periods in 2023. On a year-to-date basis, the increase is primarily due to the Company’s recognition of approximately $5.2 million accrued in the first quarter of 2024 as a result of the FDIC special assessment on uninsured deposits in response to certain bank failures that occurred in 2023 as compared to the nine months ended September 30, 2023. For the three months ended September 30, 2024, the increased expense is primarily due to balance sheet growth as compared to the three months ended September 30, 2023.

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. During the three and nine months ended September 30, 2024, the company incurred $1.6 million and $2.5 million, respectively, in acquisition expenses related to the acquisition of Macatawa.

Income Taxes

The Company recorded income tax expense of $62.7 million in the third quarter of 2024 compared to $60.7 million in the third quarter of 2023. The effective tax rates were 26.95% in the third quarter of 2024 compared to 26.98% in the third quarter of 2023. During the first nine months of 2024, the Company recorded income tax expense of $184.3 million compared to $180.7 million for the first nine months of 2023. The effective tax rates were 26.56% for the first nine months of 2024 and 26.58% for the first nine months of 2023.

The effective tax rates were partially impacted by 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 $4.4 million in the first nine months of 2024, compared to net excess tax benefits of $2.9 million in the first nine months of 2023 related to share-based compensation, most of which was recorded in the first quarter for 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 September 30, 2024 totaled $396.9 million as compared to $360.6 million for the same period in 2023, an increase of $36.3 million, or 10%. On a year-to-date basis, net interest income for the nine months ended September 30, 2024 and September 30, 2023 was $1.1 billion. The increase in the third quarter of 2024, was primarily attributable to increased interest and fees on loans. The community banking segment’s non-interest income totaled $66.3 million in the third quarter of 2024, an decrease of $4.2 million, or 6%, when compared to the third quarter of 2023 total of $70.5 million. On a year-to-date basis, non-interest income totaled $212.6 million for the nine months ended September 30, 2024, an increase of $5.2 million, or 2%, compared to $207.4 million for the nine months ended September 30, 2023. The increase in the nine month period was primarily the result of gains on investment securities and increased service charges on deposit accounts, partially offset by decreased mortgage banking revenue due to the decrease in the fair value of MSRs related to the changes in fair value model assumptions. The community banking segment recorded provision for credit losses of $20.5 million and $77.2 million, respectively, for the three and nine months ended September 30, 2024, compared to $16.7 million and $64.6 million, respectively, for the same periods in 2023. The increase in provision for credit losses for the three and nine month period was primarily the result of loan growth, including $15.5 million in Day 1 provision related to the acquisition of Macatawa, coupled with losses experienced in the Commercial and Commercial Real

Estate portfolios. The community banking segment’s net income for each of the quarters ended September 30, 2024 and September 30, 2023 totaled $115.2 million. On a year-to-date basis, the net income of the community banking segment for the nine months ended September 30, 2024 totaled $326.5 million as compared to $351.9 million for the nine months ended September 30, 2023.

The specialty finance segment’s net interest income totaled $88.4 million for the quarter ended September 30, 2024, compared to $85.4 million for the same period in 2023, an increase of $3.0 million, or 4%. On a year-to-date basis, net interest income for the segment increased $25.2 million, or 10%, compared to the same period in 2023. The increase for the three and nine 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 $29.6 million from $20.8 million for the three months ended September 30, 2024 and 2023, respectively, and stood at $89.2 million and $78.3 million for the nine months ended September 30, 2024 and 2023, respectively. Our property and casualty insurance premium finance operations, life insurance finance operations, lease financing operations and accounts receivable finance operations accounted for 51%, 29%, 18% and 2%, respectively, of the net revenues of our specialty finance business for the nine month period ended September 30, 2024. The net income of the specialty finance segment for the quarter ended September 30, 2024 totaled $46.8 million as compared to $40.5 million for the quarter ended September 30, 2023. On a year-to-date basis, the net income of the specialty finance segment for the nine months ended September 30, 2024 totaled $142.4 million as compared to $123.7 million for the nine months ended September 30, 2023.

The wealth management segment reported net interest income of $6.9 million for the third quarter of 2024 compared to $8.0 million in the same quarter of 2023, a decrease of $1.1 million, or 13%. On a year-to-date basis, net interest income totaled $22.6 million for the first nine months of 2024, as compared to $24.4 million for the first nine months of 2023. 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 $1.5 billion and $1.7 billion in the first nine months of 2024 and 2023, respectively. This segment recorded non-interest income of $37.4 million for the third quarter of 2024 compared to $37.3 million for the third quarter of 2023. On a year-to-date basis, this segment recorded non-interest income of $131.5 million for the first nine months of 2024 as compared to $101.0 million for the first nine months of 2023. The increase was primarily due to a $20.0 million gain recognized in the first quarter of 2024 related to the sale of the Company’s RBA division within the wealth management business. 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 $8.0 million for the third quarter of 2024 compared to $8.5 million for the third quarter of 2023. On a year-to-date basis, the wealth management segment’s net income totaled $40.8 million and $23.6 million for the nine month period ended September 30, 2024 and 2023, respectively.

Financial Condition

Total assets were $63.8 billion at September 30, 2024, representing an increase of $8.2 billion, or 15%, when compared to September 30, 2023 and an increase of approximately $4.0 billion, or 27% on an annualized basis, when compared to June 30, 2024. Total funding, which includes deposits, all notes and advances, including secured borrowings and the junior subordinated debentures, was $55.8 billion at September 30, 2024, $52.4 billion at June 30, 2024, and $48.7 billion at September 30, 2023. 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)

(1) Total average loans 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 increase in average balance for the third quarter of 2024 as compared to the sequential and prior year periods is primarily due to higher mortgage origination production.

Loans, net of unearned income. Growth realized in the combined commercial and commercial real estate loan categories for the third quarter of 2024 as compared to the sequential and prior year periods is primarily attributable to increased business development efforts as well as loans acquired through the Macatawa acquisition. The aggregate balances of these loan categories comprised 59%, 58% and 57% of the average loan portfolio in the third quarter of 2024, second quarter of 2024 and third quarter of 2023, respectively.

Residential real estate loans averaged $3.2 billion in the third quarter of 2024, and increased $614.1 million, or 24%, from the average balance of $2.6 billion in the same period of 2023. Additionally, compared to the quarter ended June 30, 2024, the average balance increased $277.3 million, or 38% on an annualized basis. Growth is due to the Company continuing to allocate a portion of its mortgage production for investment instead of for subsequent sale into the secondary market.

The increase in the premium finance receivables during the third quarter of 2024 compared to the third quarter of 2023 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 $4.8 billion of premium finance receivables were originated in the third quarter of 2024 compared to $4.6 billion during the same period of 2023. Premium finance receivables consist of a property and casualty portfolio and a life portfolio comprising approximately 47% and 53%, respectively, of the average total balance of premium finance receivables for the third quarter of 2024, and 46% and 54%, respectively, for the third quarter of 2023.

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)

(1) Total average loans 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 September 30, 2024 by date at which the loans reprice or mature, and the type of rate exposure:

(In thousands)

64

SOFR - Secured Overnight Financing Rate.

CMT - Constant Maturity Treasury Rate.

Ameribor - American Interbank Offered Rate.

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 September 30, 2024 and 2023:

(Dollars in thousands)

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 $171.6 million as of September 30, 2024 compared to $151.5 million as of September 30, 2023.

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, southern Wisconsin and west Michigan, 69.4% of our commercial real estate loan portfolio is located in this region as of September 30, 2024. We have been able to effectively manage our total non-performing commercial real estate loans, aided by our credit management process. As of September 30, 2024, our allowance for credit losses related to this portfolio was $231.1 million compared to $215.7 million as of September 30, 2023. The increase in the allowance for credit losses is primarily a result of growth in our commercial real estate portfolio. The table below sets forth the commercial real estate loans by property type and owner vs. non-owner occupied.

(In thousands)

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.

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 2023 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 September 30, 2024, excluding early buy-out loans guaranteed by U.S. government agencies, $83.1 million, or 0.2% of all loans, were 60 to 89 days (or two payments) past due and $204.0 million, or 0.4% of all loans, were 30 to 59 days (or one payment) past due. As of June 30, 2024, excluding early buy-out loans guaranteed by U.S. government agencies, $59.4 million, or 0.1% of all loans, were 60 to 89 days (or two payments) past due and $139.8 million, or 0.3% 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 September 30, 2024 that were current with regard to the contractual terms of the loan agreement represent 98.9% of the total home equity portfolio. Residential real estate loans, excluding early buy-out loans guaranteed by U.S. government agencies, at September 30, 2024 that were current with regards to the contractual terms of the loan agreements comprise 99.2% of total residential real estate loans outstanding. For more information regarding delinquent loans as of September 30, 2024, see Note (7) “Allowance for Credit Losses” in Item 1 of this report.

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)

(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)

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 2023 Form 10-K.

Management determined that the allowance for credit losses was appropriate at September 30, 2024, 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)

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)

(In thousands)

Deposits

Total deposits at September 30, 2024 were $51.4 billion, an increase of $6.4 billion, or 14%, compared to total deposits at September 30, 2023. 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 September 30, 2024:

71

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)

Total average deposits for the third quarter of 2024 were $48.9 billion, an increase of $4.9 billion, or 11%, from the third quarter of 2023. Total deposits increased in the third quarter primarily as a result of the Macatawa acquisition as well as the Company’s 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)

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.

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

(In thousands)

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:

(1) Based on quarterly average balances.

(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 September 30, 2024 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 2023 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, April and July of 2024, the Company declared a quarterly cash dividend of $0.45 per common share. In January, April, July and October of 2023, the Company declared a quarterly cash dividend of $0.40 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 the second quarter of 2024, the Company completed a loan sale transaction within our property and casualty insurance premium finance receivables portfolio which demonstrated that our premium finance portfolio is a strong source of additional liquidity if needed and demonstrated the flexibility to continue to manage our balance sheet effectively. Net proceeds to the Company totaled approximately $627.5 million and a gain on the sale was recorded for approximately $4.6 million. We maintain 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 2023 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 losses, difficulties or developments related to 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, or those of third parties, 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 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 impact of the Company’s transition from LIBOR 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; and
• 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.

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.

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 September 30, 2024, June 30, 2024 and September 30, 2023 is as follows:

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 remain relatively neutral. 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 periods.

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 September 30, 2024 and September 30, 2023. 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 nine months ended September 30, 2024 and September 30, 2023.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, management of the Company, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act. 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 were effective, in ensuring the information relating to the Company (and its consolidated subsidiaries) required to be disclosed by the Company in the reports it files or submits under the Exchange Act was recorded, processed, summarized and reported in a timely manner.

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.

There have been no material changes from the risk factors set forth under Part I, Item 1A “Risk Factors” in the 2023 Form 10-K.