WINTRUST FINANCIAL CORP

Previous wording

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, 2024 compared with December 31, 2023 and June 30, 2023, and the results of operations for the three and six month periods ended June 30, 2024 and June 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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

The Company recorded net income of $152.4 million for the second quarter of 2024 compared to $154.8 million in the second quarter of 2023. The results for the second quarter of 2024 demonstrate increased net interest income primarily due to substantial growth in earning assets as well as the Company’s ability to navigate industry disruptions during the period due to the Company’s strong deposit franchise and balanced business model. This was partially offset by increased provision for credit losses due to loan growth across a majority of segments coupled with losses experienced in the Commercial, Commercial Real Estate and Premium Finance Receivables portfolios. 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 $125.3 million for the second quarter of 2024 compared to $48.1 million for the second quarter of 2023.

Current wording

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.

Previous wording

The Company increased its loan portfolio from $41.0 billion at June 30, 2023 and $42.1 billion at December 31, 2023 to $44.7 billion at June 30, 2024. The increase in the current period compared to the prior periods was primarily 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. 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.

Current wording

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.

Previous wording

The Company recorded net interest income of $470.6 million in the second quarter of 2024 compared to $447.5 million in the second quarter of 2023. This increase in net interest income recorded in the second quarter of 2024 compared to the second quarter of 2023 resulted primarily from growth in earning assets, specifically a $3.7 billion increase in average loans. Net interest margin was 3.50% (3.52% on a fully taxable-equivalent basis, non-GAAP) in the second quarter of 2024 compared to 3.64% (3.66% on a fully taxable-equivalent basis, non-GAAP) in the second 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).

Current wording

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).

Previous wording

Non-interest income totaled $121.1 million in the second quarter of 2024 compared to $113.0 million in the second quarter of 2023. The increase is primarily due to $4.6 million of gains recognized on the sale of premium finance receivables in the second quarter of 2024 and an increase in service charges on deposits of $1.9 million partially off set by decreased mortgage banking revenue of $857,000 in the second quarter of 2024 compared to the second quarter of 2023 (see “Non-Interest Income” for further detail).

Current wording

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).

Previous wording

Non-interest expense totaled $340.4 million in the second quarter of 2024, an increase of $19.7 million, or 6%, compared to the second quarter of 2023. This increase compared to the second quarter of 2023 was primarily attributable to increased salaries and employee benefits of $13.6 million and increased software and equipment expenses of $3.0 million. (see “Non-Interest Expense” for further detail).

Current wording

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).

Previous wording

Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during the second 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.

Current wording

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.

Previous wording

The Company’s key operating measures and growth rates for the three and six months ended June 30, 2024, as compared to the same period last year, are shown below:

Current wording

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:

Previous wording

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, 2024, the loan and held-to-maturity debt securities portfolios represent 81% 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.

Current wording

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.

Previous wording

Net income for the quarter ended June 30, 2024 totaled $152.4 million, a decrease of $2.4 million, or 2%, compared to the quarter ended June 30, 2023. On a per share basis, net income for the second quarter of 2024 totaled $2.32 per diluted common share compared to $2.38 for the second quarter of 2023.

Current wording

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.

Previous wording

The decrease in net income for the second quarter of 2024 as compared to the same period in the prior year is primarily attributable to increased non-interest expense, partially offset by increased net interest income and non-interest income. See “Net Interest Income”, “Non-interest Income”, “Non-interest Expense” and “Credit Quality” for further detail.

Current wording

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.

Previous wording

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

Current wording

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):

Previous wording

(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, 2024, March 31, 2024 and June 30, 2023 were $2.9 million, $2.8 million and $2.4 million, respectively.

Current wording

(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.

Previous wording

For the second quarter of 2024, net interest income totaled $470.6 million, an increase of $6.4 million as compared to the first quarter of 2024, and an increase of $23.1 million as compared to the second quarter of 2023. Net interest margin was 3.50% (3.52% on a FTE basis, non-GAAP) during the second quarter of 2024 compared to 3.57% (3.59% on a FTE basis, non-GAAP) during the first quarter of 2024, and 3.64% (3.66% on a FTE basis, non-GAAP) during the second quarter of 2023.

Current wording

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.

Previous wording

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, 2024 compared to the six months ended June 30, 2023:

Current wording

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:

Previous wording

(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, 2024 and June 30, 2023 were $5.7 million and $4.9 million, respectively.

Current wording

(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.

Previous wording

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, 2024 to each of the three month periods ended March 31, 2024 and June 30, 2023 and six month periods ended June 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:

Current wording

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:

Previous wording

(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.

Current wording

(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.

Previous wording

(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.

Current wording

(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.

Previous wording

Wealth management revenue increased by $1.6 million and $6.4 million in the three and six months ended June 30, 2024 as compared to the same periods of 2023, respectively. For the three months ended June 30, 2024, the increase is primarily due to increased brokerage income as compared to the same period in 2023. On a year-to-date basis, the increased income 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.

Current wording

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.

Previous wording

Mortgage banking revenue decreased slightly for the three months ended June 30, 2024 as compared to the same period in 2023 due to lower net revenue related to MSR activity and valuation adjustments, partially offset by increased production revenue. On a year-to-date basis, mortgage banking revenue increased for the six months ended June 30, 2024 as compared to the same period in 2023 as a result of higher net revenue related to MSR activity and 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 $722.2 million in the second quarter of 2024 as compared to $578.0 million in the second quarter of 2023. On a year-to-date basis, mortgage loans originated for sale totaled $1.2 billion for the six months ended June 30, 2024 as compared to $1.0 billion for the six months ended June 30, 2023. The increase in originations from the comparative three and six 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 17% and 20% for the three and six months ended June 30, 2024, as compared to 16% and 18%, for the same periods in 2023, respectively.

Current wording

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.

Previous wording

The Company records MSRs at fair value on a recurring basis. For the three months ended June 30, 2024, the fair value of the MSRs portfolio increased as retained servicing rights led to capitalization of$8.2 million and a favorable fair value adjustment of $877,000 was recorded, partially offset by a reduction in value of $5.5 million due to payoffs, paydowns and repurchases of the existing portfolio. On a year-to-date basis, the fair value of MSRs increased due to a favorable fair value adjustment of $8.5 million as well as retained servicing rights led to capitalization of $13.6 million, partially offset by a reduction in value of $9.9 million due to payoffs, paydowns and repurchases of the existing portfolio. See Note (9) “Mortgage Servicing Rights

Current wording

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.

Previous wording

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 an unfavorable $772,000 and $3.3 million for the three and six months ended June 30, 2024, respectively.

Current wording

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.

Previous wording

Service charges on deposits increased for the three and six months ended June 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.

Current wording

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.

Previous wording

The Company recognized net losses on investment securities for the three and six months ended June 30, 2024 of $4.3 million and $3.0 million, respectively. There were no net losses for the three month period ended June 30, 2023. However, there were $1.4 million of net gains for the six month period ended June 30, 2023. The net losses for the three and six months ended June 30, 2024 were primarily due to losses on the Company’s equity investment securities recorded in the second 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.

Current wording

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.

Previous wording

Fees from covered call options for the three and six months ended June 30, 2024 decreased $522,000 and $6.1 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 June 30, 2024 and 2023.

Current wording

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.

Previous wording

Miscellaneous non-interest income includes loan servicing fees, income from other investments, and other fees. This category of income increased $7.5 million and $30.6 million for the three and six months ended June 30, 2024 compared to the same periods in 2023, respectively. For the three months ended June 30, 2024, miscellaneous income increased compared to the same period in 2023 primarily due to a $4.6 million gain recognized in the second quarter of 2024 on the sale of premium finance receivables. 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 RBA division within its wealth management business.

Current wording

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.

Previous wording

Salaries and employee benefits expense increased for the three and six months ended June 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 higher salaries due the Company’s annual merit increase. Additionally, the increase is also due to commissions related to the sale of the Company’s RBA division within its wealth management business in the first quarter of 2024.

Current wording

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.

Previous wording

Software and equipment expense increased for the three and six months ended June 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.

Current wording

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.

Previous wording

FDIC insurance expense increased for the three and six months ended June 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 six months ended June 30, 2023. For the three months ended June 30, 2024, the increased expense is primarily due to deposit and asset growth as compared to the three months ended June 30, 2023.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

The Company recorded income tax expense of $59.0 million in the second quarter of 2024 compared to $56.7 million in the second quarter of 2023. The effective tax rates were 27.90% in the second quarter of 2024 compared to 26.81% in the second quarter of 2023. During the first six months of 2024, the Company recorded income tax expense of $121.6 million compared to $120.0 million for the first six months of 2023. The effective tax rates were 26.36% for the first six months of 2024 and 26.38% for the first six months of 2023.

Current wording

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.

Previous wording

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 six months of 2024, compared to net excess tax benefits of $2.8 million in the first six months of 2023 related to share-based compensation, most of which was recorded in the first quarter for each year.

Current wording

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.

Previous wording

The community banking segment’s net interest income for the quarter ended June 30, 2024 totaled $358.8 million as compared to $346.2 million for the same period in 2023, an increase of $12.6 million, or 4%. On a year-to-date basis, net interest income for the segment increased by $6.4 million from $716.1 million for the six months ended June 30, 2023 to $722.5 million for the six months ended June 30, 2024. The increase in the three and six month period was primarily attributable to increased interest and fees on loans. The community banking segment’s non-interest income totaled$71.6 million in the second quarter of 2024, anincrease of$3.5 million, or 5%, when compared to the second quarter of 2023 total of$68.1 million. On a year-to-date basis, non-interest income totaled$146.3 million for thesix months ended June 30, 2024, anincrease of$9.4 million, or 7%, compared to$136.9 million for thesix months ended June 30, 2023. Theincrease in thesix month period was primarily the result of increased mortgage banking revenue due to the increase 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$36.3 million and $56.7 million, respectively, for the three and six months ended June 30, 2023, compared to$26.7 million and $47.8 million, respectively, for the same periods in 2023. Theincrease in provision for credit losses for thethree and six month period wasprimarily the result of loan growth coupled with losses experienced in the Commercial and Commercial Real Estate portfolios. The community banking segment’s net income for the quarter ended June 30, 2024 totaled$91.2 million, adecrease of$11.3 million as compared to net income in the second quarter of 2023 of $102.5 million. On a year-to-date basis, the net income of the community banking segment for the six months ended June 30, 2024 totaled $211.3 million as compared to $236.7 million for the six months ended June 30, 2023.

Current wording

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 thethird 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, andecrease 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 thenine months ended September 30, 2024, anincrease of$5.2 million, or 2%, compared to$207.4 million for thenine months ended September 30, 2023. Theincrease in thenine 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. Theincrease in provision for credit losses for thethree and nine month period wasprimarily 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

Previous wording

The specialty finance segment’s net interest income totaled $95.2 million for the quarter ended June 30, 2024, compared to $85.0 million for the same period in 2023, an increase of $10.2 million, or 12%. On a year-to-date basis, net interest income for the segment increased $22.1 million, or 14% compared to the same period in 2023. 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 $32.3 million from $31.7 million for the three months ended June 30, 2024 and 2023, respectively, and stood at $59.6 million and $57.5 million for the six months ended June 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 45%, 35%, 2% and 18%, respectively, of the total revenues of our specialty finance business for the six month period ended June 30, 2024. The net income of the specialty finance segment for the quarter ended June 30, 2024 totaled $53.1 million as compared to $46.4 million for the quarter ended June 30, 2023. On a year-to-date basis, the net income of the specialty finance segment for the six months ended June 30, 2024 totaled $95.6 million as compared to $83.1 million for the six months ended June 30, 2023.

Current wording

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.

Previous wording

The wealth management segment reported net interest income of $7.9 million for the second quarter of 2024 compared to $7.4 million in the same quarter of 2023, an increase of $524,000, or 7%. On a year-to-date basis, net interest income totaled $15.7 million for the first six months of 2024, as compared to $16.4 million for the first six 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 $1.9 billion in the first six months of 2024 and 2023, respectively. This segment recorded non-interest income of $35.6 million for the second quarter of 2024 compared to $33.4 million for the second quarter of 2023. On a year-to-date basis, this segment recorded non-interest income of $94.1 million for the first six months of 2024 as compared to $63.7 million for the first six 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 $8.1 million for the second quarter of 2024 compared to $5.8 million for the second quarter of 2023. On a year-to-date basis, the wealth management segment’s net income totaled $32.8 million and $15.1 million for the six month period ended June 30, 2024 and 2023, respectively.

Current wording

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.

Previous wording

Total assets were $59.8 billion at June 30, 2024, representing an increase of $5.5 billion, or 10%, when compared to June 30, 2023 and an increase of approximately $2.2 billion, or 15% on an annualized basis, when compared to March 31, 2024. Total funding, which includes deposits, all notes and advances, including secured borrowings and the junior subordinated debentures, was $52.4 billion at June 30, 2024, $50.4 billion at March 31, 2024, and $47.4 billion at June 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.

Current wording

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.

Previous wording

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 second quarter of 2024 as compared to the sequential and prior year periods is primarily due to higher mortgage origination production.

Current wording

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.

Previous wording

Loans, net of unearned income. Growth realized in the combined commercial and commercial real estate loan categories for the second quarter of 2024 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 58%, 58% and 57% of the average loan portfolio in the second quarter of 2024, first quarter of 2024 and second quarter of 2023, respectively.

Current wording

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.