WINTRUST FINANCIAL CORP

Previous wording

The Company recorded net income of $622.6 million for the year of 2023 compared to $509.7 million and $466.2 million for the years of 2022 and 2021, respectively. The results for 2023 demonstrate increased net interest income primarily due to increasing net interest margin and significant growth in earning assets, partially offset by an FDIC special assessment, an increase in provision for credit losses due to higher charge-offs for the year, growth in the portfolio and deterioration of forecasted macroeconomic conditions used in the measurement of the allowance for credit losses as well as reduced mortgage banking revenue primarily as a result of unfavorable fair value adjustments ofmortgage servicing rights (“MSRs”), net of servicing hedge, and a decrease in loans originated for sale, partially offset by favorable adjustments to the Company’s held-for-sale portfolio of early buy-out exercised loans (“EBOs”) guaranteed by U.S. government agencies, which are held at fair value.

Current wording

The Company recorded net income of $695.0 million for the year of 2024 compared to $622.6 million and $509.7 million for the years of 2023 and 2022, respectively. The results for 2024 demonstrate increased net interest income primarily due to increased growth in earning assets, as well as increased wealth management revenue and mortgage banking revenues as a result of a favorable fair value adjustments of MSRs, net of servicing hedge, and an increase in loans originated for sale, partially offset by payoffs, paydowns and repurchases of the existing portfolio.

Previous wording

The Company increased its loan portfolio from $39.2 billion at December 31, 2022 to $42.1 billion at December 31, 2023. This increase was primarily due to growth in several portfolios, including the commercial, industrial and other, commercial real estate, property and casualty premium finance receivables, and residential real estate portfolios. For more information regarding changes in the Company’s loan portfolio, see “Analysis of Financial Condition – Interest Earning Assets” and Note (4) “Loans” to the Consolidated Financial Statements presented under Item 8 of this Annual Report on Form 10-K.

Current wording

The Company increased its loan portfolio from $42.1 billion at December 31, 2023 to $48.1 billion at December 31, 2024. This increase was primarily due to growth in several portfolios, including the commercial, industrial and other, commercial real estate, property and casualty premium finance receivables, and residential real estate portfolios. For more information regarding changes in the Company’s loan portfolio, see “Analysis of Financial Condition – Interest Earning Assets” and Note (4) “Loans” to the Consolidated Financial Statements presented under Item 8 of this Annual Report on Form 10-K.

Previous wording

The Company recorded net interest income of $1.8 billion in 2023 compared to $1.5 billion and $1.1 billion in 2022 and 2021, respectively. The higher level of net interest income recorded in 2023 compared to 2022 resulted primarily from a $2.8 billion increase in average earning assets, and a 51 basis point increase in the net interest margin in 2023 (see “Net Interest Margin” section later in this Item 7 for further detail).

Current wording

The Company recorded net interest income of $2.0 billion in 2024 compared to $1.8 billion and $1.5 billion in 2023 and 2022, respectively. The higher level of net interest income recorded in 2024 compared to 2023 resulted primarily from a $5.7 billion increase in average earning assets partially offset by a 15 basis point decline in the net interest margin in 2024 (see “Net Interest Margin” section later in this Item 7 for further detail).

Previous wording

Non-interest income totaled $434.1 million in 2023, decreasing $26.9 million, or 6%, compared to 2022. The decrease in non-interest income in 2023 compared to 2022 was primarily attributable to decreases in mortgage banking revenues primarily as a result of unfavorable fair value adjustments of MSRs, net of servicing hedge, and a decrease in loans originated for sale, partially offset by favorable adjustments to the Company’s held-for-sale portfolio of EBOs guaranteed by U.S. government agencies, which are held at fair value (see “Non-Interest Income” section later in this Item 7 for further detail).

Current wording

Non-interest income totaled $488.3 million in 2024, increasing $54.2 million, or 12%, compared to 2023. The increase in non-interest income in 2024 compared to 2023 was primarily attributable 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 and an increase in mortgage banking revenues as a result of favorable fair value adjustments of MSRs, net of servicing hedge, and an increase in loans originated for sale, partially offset by payoffs, paydowns and repurchases of the existing portfolio (see “Non-Interest Income” section later in this Item 7 for further detail).

Previous wording

Non-interest expense totaled $1.3 billion in 2023, increasing $135.2 million, or 11%, compared to 2022. The increase compared to 2022 was primarily attributable to an $51.9 million increase in salary and employee benefits expense and a $42.5 million increase in FDIC insurance expense. (see “Non-Interest Expense” section later in this Item 7 for further detail).

Current wording

Non-interest expense totaled $1.4 billion in 2024, increasing $90.2 million, or 7%, compared to 2023. The increase compared to 2023 was primarily attributable to an $69.1 million increase in salary and employee benefits expense and a $18.2 million increase in software and equipment expense (see “Non-Interest Expense” section later in this Item 7 for further detail).

Previous wording

Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during 2023, the Company continued its practice of maintaining appropriate funding capacity to provide the Company with adequate liquidity for its ongoing operations. In this regard, the Company benefited from its strong deposit base, a liquid investment portfolio and its access to funding from a variety of external funding sources. The Company had overnight liquid funds and interest-bearing deposits with banks of $2.5 billion at December 31, 2023 and 2022.

Current wording

Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during 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 investment portfolio and its access to funding from a variety of external funding sources. The Company had overnight liquid funds and interest-bearing deposits with banks of $4.9 billion and $2.5 billion at December 31, 2024 and 2023, respectively.

Previous wording

The Company has leveraged its operating strengths to grow its earning assets base while still benefiting from high interest rates and the resulting impact in net interest margin in 2023. In 2023, the Company's net interest margin increased to 3.66% (3.68% on a fully tax-equivalent basis, non-GAAP) as compared to 3.15% (3.17% on a fully tax-equivalent basis, non-GAAP) in 2022, primarily due to higher yields on the Company’s earning assets and a shift in earning asset mix in 2023 with loans constituting a greater portion of earning assets than liquidity management assets. Significant growth in earning assets resulted in the Company’s net interest income increasing by $342.5 million in 2023 compared to 2022. Based on contractual terms, approximately 72% of our current loan balances are projected to reprice or mature in 2024. The magnitude of potential changes in net interest income in various interest rate scenarios has continued to diminish. Given the 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 may execute additional derivatives to mitigate potential fluctuations in the net interest margin in future years.

Current wording

The Company has leveraged its operating strengths to grow its earning assets base while maintaining a stable net interest margin in 2024. In 2024, the Company's net interest margin decreased to 3.51% (3.53% on a fully tax-equivalent basis, non-GAAP) as compared to 3.66% (3.68% on a fully tax-equivalent basis, non-GAAP) in 2023, primarily due to increased deposit competition following bank failures in 2023. Significant growth in earning assets resulted in the Company’s net interest income increasing by $124.7 million in 2024 compared to 2023. Based on contractual terms, approximately 74% of our current loan balances are projected to reprice or mature in 2025. The magnitude of potential changes in net interest income in various interest rate scenarios has continued to remain relatively neutral. As the current interest rate cycle progressed, management took action to reposition its sensitivity to interest rates. To this end, management has executed various derivative instruments including collars and receive-fixed swaps to hedge variable-rate loan exposures. The Company will continue to monitor current and projected interest rates and may execute additional derivatives to mitigate potential fluctuations in the net interest margin in future periods.

Previous wording

The Company has continued its practice of writing call options against certain investment securities to economically hedge the securities positions and receive fee income to compensate for net interest margin compression. In 2023, the Company recognized $21.9 million in fees on covered call options compared to $14.1 million in 2022.

Current wording

The Company has continued its practice of writing call options against certain investment securities to economically hedge the securities positions and receive fee income to compensate for net interest margin compression. In 2024, the Company recognized $10.2 million in fees on covered call options compared to $21.9 million in 2023.

Previous wording

The interest rate environment impacts the profitability and mix of the Company’s mortgage banking business which generated revenues of $83.1 million in 2023 and $155.2 million in 2022, representing 4% and 8% of total net revenue in 2023 and 2022, respectively. Mortgage banking revenue is primarily comprised of gains on sales of mortgage loans originated for new home purchases as well as mortgage refinancing. Mortgage revenue is also impacted by changes in the fair value of MSRs and EBOs guaranteed by U.S. government agencies. Mortgage originations for sale totaled $2.0 billion and $2.8 billion in 2023 and 2022, respectively. In 2023, approximately 83% of originations were mortgages associated with new home purchases, while 17% of originations were related to refinancing of mortgages. In 2022, approximately 71% of originations were mortgages associated with new home purchases, while 29% of originations were related to refinancing of mortgages.

Current wording

The interest rate environment impacts the profitability and mix of the Company’s mortgage banking business which generated revenues of $93.2 million in 2024 and $83.1 million in 2023, representing 4% of total net revenue in both 2024 and 2023. Mortgage banking revenue is primarily comprised of gains on sales of mortgage loans originated for new home purchases as well as mortgage refinancing. Mortgage revenue is also impacted by changes in the fair value of MSRs and EBOs guaranteed by U.S. government agencies. Mortgage originations for sale totaled $2.6 billion and $2.0 billion in 2024 and 2023, respectively. In 2024, approximately 75% of originations were mortgages associated with new home purchases, while 25% of originations were related to refinancing of mortgages. In 2023, approximately 83% of originations were mortgages associated with new home purchases, while 17% of originations were related to refinancing of mortgages.

Previous wording

•The Company’s 2023 provision for credit losses totaled $114.4 million compared to a provision of $78.6 million in 2022 and a negative provision of $59.3 million in 2021. The provision in 2023 was primarily the result of higher charge-offs, deterioration in the forecasted macroeconomic forecast, specifically the Company’s macroeconomic forecasts of key model inputs (most notably, Commercial Real Estate Price Index and Baa corporate credit spreads) as well as growth in the Company's loan portfolios. Net charge-offs increased to $45.5 million in 2023 (of which $27.8 million related to commercial and commercial real estate loans), compared to $20.3 million in 2022 (of which $10.1 million related to commercial and commercial real estate loans) and $21.5 million in 2021 (of which $20.2 million related to commercial and commercial real estate loans).

Current wording

•The Company’s 2024 provision for credit losses totaled $101.0 million compared to a provision of $114.4 million in 2023 and a provision of $78.6 million in 2022. The lower provision in 2024 was primarily the result of improvements in the macroeconomic forecast, specifically the Company’s macroeconomic forecasts of key model inputs (most notably, Commercial Real Estate Price Index and Baa corporate credit spreads) despite growth in the Company's loan portfolios. Net charge-offs increased to $94.4 million in 2024 (of which $67.8 million related to commercial and commercial real estate loans), compared to $45.5 million in 2023 (of which $27.8 million related to commercial and commercial real estate loans) and $20.3 million in 2022 (of which $10.1 million related to commercial and commercial real estate loans).

Previous wording

•The Company's allowance for loan and unfunded lending-related commitment losses increased to $427.3 million at December 31, 2023, reflecting an increase of $69.8 million, or 20%, when compared to 2022. At December 31, 2023, approximately $223.9 million, or 52%, of the allowance for loan and unfunded lending-related commitment losses was associated with commercial real estate loans and an additional $169.6 million, or 40%, was associated with commercial loans.

Current wording

•The Company's allowance for loan and unfunded lending-related commitment losses increased to $436.6 million at December 31, 2024, reflecting an increase of $9.3 million, or 2%, when compared to 2023. At December 31, 2024, approximately $222.9 million, or 51%, of the allowance for loan and unfunded lending-related commitment losses was associated with commercial real estate loans and an additional $175.8 million, or 40%, was associated with commercial loans.

Previous wording

•The Company has significant exposure to commercial real estate. At December 31, 2023, $11.3 billion, or 27%, of our loan portfolio was commercial real estate, with approximately 68.8% located in our market area. The commercial real estate loan portfolio was comprised of $2.1 billion in construction and development loans, and $9.3 billion in non-construction loans. In analyzing the commercial real estate market, the Company does not rely upon the assessment of broad market statistical data, in large part because the Company’s market area is diverse and covers many communities, each of which is impacted differently by economic forces affecting the Company’s general market area. As such, the extent of the decline in real estate valuations can vary meaningfully among the different types of commercial and other real estate loans made by the Company. The Company uses its multi-chartered structure and local management knowledge to analyze and manage the local market conditions at each of its banks.

Current wording

•The Company has significant exposure to commercial real estate. At December 31, 2024, $12.9 billion, or 27%, of our loan portfolio was commercial real estate, with approximately 68.5% located in our market area. The commercial real estate loan portfolio was comprised of $2.4 billion in construction and development loans, and $10.5 billion in non-construction loans. In analyzing the commercial real estate market, the Company does not rely upon the assessment of broad market statistical data, in large part because the Company’s market area is diverse and covers many communities, each of which is impacted differently by economic forces affecting the Company’s general market area. As such, the extent of the decline in real estate valuations can vary meaningfully among the different types of commercial and other real estate loans made by the Company. The Company uses its multi-chartered structure and local management knowledge to analyze and manage the local market conditions at each of its banks.

Previous wording

•Excluding early buy-out loans guaranteed by U.S. government agencies, total non-performing loans (loans on non-accrual status and loans more than 90 days past due and still accruing interest) were $139.0 million (of which $35.5 million, or 26%, was related to commercial real estate) at December 31, 2023, an increase of $38.3 million compared to December 31, 2022. Non-performing loans as a percentage of total loans were 0.33% at December 31, 2023 compared to 0.26% at December 31, 2022.

Current wording

•Excluding early buy-out loans guaranteed by U.S. government agencies, total non-performing loans (loans on non-accrual status and loans more than 90 days past due and still accruing interest) were $170.8 million (of which $21.0 million, or 12%, was related to commercial real estate) at December 31, 2024, an increase of $31.8 million compared to December 31, 2023. Non-performing loans as a percentage of total loans were 0.36% at December 31, 2024 compared to 0.33% at December 31, 2023.

Previous wording

•The Company’s other real estate owned increased by $3.4 million to $13.3 million during 2023, from $9.9 million at December 31, 2022. The $13.3 million of other real estate owned as of December 31, 2023 was comprised of $12.6 million of commercial real estate property and $720,000 of residential real estate property.

Current wording

•The Company’s other real estate owned increased by $9.8 million to $23.1 million during 2024, from $13.3 million at December 31, 2023. The $23.1 million of other real estate owned as of December 31, 2024 was comprised entirely of commercial real estate property.

Previous wording

The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. The Company’s practice is generally not to retain long-term fixed-rate mortgages on its balance sheet in order to mitigate interest rate risk, and consequently sells most of such mortgages into the secondary market. These agreements provide recourse to investors through certain representations concerning credit information, loan documentation, collateral and insurability. Investors request the Company to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations. An increase in requests for loss indemnification can negatively impact mortgage banking revenue as additional recourse expense. The liability for estimated losses on repurchase and indemnification claims for residential mortgage loans previously sold to investors was $152,000 at December 31, 2023 and $624,000 at December 31, 2022.

Current wording

The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. The Company’s practice is generally not to retain long-term fixed-rate mortgages on its balance sheet in order to mitigate interest rate risk, and consequently sells most of such mortgages into the secondary market. These agreements provide recourse to investors through certain representations concerning credit information, loan documentation, collateral and insurability. Investors request the Company to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations. An increase in requests for loss indemnification can negatively impact mortgage banking revenue as additional recourse expense. The liability for estimated losses on repurchase and indemnification claims for residential mortgage loans previously sold to investors was approximately $188,000 at December 31, 2024 and $152,000 at December 31, 2023.

Previous wording

Measurement of the allowance for credit losses. The Company adopted CECL as of January 1, 2020, which requires the estimate of expected credit losses over the entire life of financial assets measured at amortized cost. To measure lifetime expected credit losses, the Company adjusts credit loss estimates for reasonable and supportable forecasts of macroeconomic conditions. Such forecasts can significantly impact the profitability of our community banks as changing estimates of lifetime losses from period to period can result in significant fluctuations in provision for credit losses during those periods. In 2023, such fluctuations in provision for credit losses unfavorably impacted the profitability of our community banks, primarily as a result of deterioration in key variables (Baa credit spread and Commercial Real Estate Price Index) within forecasted macroeconomic conditions.

Current wording

Measurement of the allowance for credit losses. The Company adopted CECL as of January 1, 2020, which requires the estimate of expected credit losses over the entire life of financial assets measured at amortized cost. To measure lifetime expected credit losses, the Company adjusts credit loss estimates for reasonable and supportable forecasts of macroeconomic conditions. Such forecasts can significantly impact the profitability of our community banks as changing estimates of lifetime losses from period to period can result in significant fluctuations in provision for credit losses during those periods. In 2024, such fluctuations in provision for credit losses favorably impacted the profitability of our community banks, primarily as a result of improvement in key variables (Baa credit spread and Commercial Real Estate Price Index) within forecasted macroeconomic conditions.

Previous wording

Mortgage banking revenue. Our community banking franchise is also influenced by the level of fees generated by the origination of residential mortgages and the sale of such mortgages into the secondary market by Wintrust Mortgage. The Company recognized a decrease of $72.1 million in mortgage banking revenue in 2023 compared to 2022 as origination volumes declined and due to unfavorable fair value adjustments of MSRs in 2023 compared to 2022. Mortgage originations for sale totaled $2.0 billion and $2.8 billion in 2023 and 2022, respectively, decreasing as increased interest rates reduced refinance incentives for borrowers. Partially offsetting the impact of lower originations and production margins was the change in fair value on EBOs guaranteed by U.S. government agencies.

Current wording

Mortgage banking revenue. Our community banking franchise is also influenced by the level of fees generated by the origination of residential mortgages and the sale of such mortgages into the secondary market by Wintrust Mortgage. The Company recognized an increase of $10.1 million in mortgage banking revenue in 2024 compared to 2023 as a result of higher origination volumes and favorable fair value adjustments of MSRs in 2024 compared to 2023. Mortgage originations for sale totaled $2.6 billion and $2.0 billion in 2024 and 2023, respectively, and 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. Partially offsetting the impact of higher originations and production margins was the change in fair value on EBOs guaranteed by U.S. government agencies.

Previous wording

In addition to the factors considered above, before we engage in expansion throughde novo branches, we must first make a determination that the expansion fulfills our objective of enhancing shareholder value through potential future earnings growth and enhancement of the overall franchise value of the Company. Generally, we believe that, in normal market conditions, expansion throughde novo growth is a better long-term investment than acquiring banks because the cost to bring a de novo location to profitability is generally substantially less than the premium paid for the acquisition of a healthy bank. Each opportunity to expand is unique from a cost and benefit perspective. Both FDIC-assisted and non-FDIC-assisted acquisitions offer a unique opportunity for the Company to expand into new and existing markets in a non-traditional manner. Potential acquisitions are reviewed in a similar manner as ade novo branch opportunities, however, FDIC-assisted and non-FDIC-assisted acquisitions have the ability to immediately enhance shareholder value. Factors including the valuation of our stock, other economic market conditions, the size and scope of the particular expansion opportunity and competitive landscape all influence the decision to expand viade novo growth or through acquisition.

Current wording

In addition to the factors considered above, before we engage in expansion throughde novo branches, we must first make a determination that the expansion fulfills our objective of enhancing shareholder value through potential future earnings growth and enhancement of the overall franchise value of the Company. Generally, we believe that, in normal market conditions, expansion throughde novo growth is a better long-term investment than acquiring banks because the cost to bring a de novo location to profitability is generally substantially less than the premium paid for the acquisition of a healthy bank. Each opportunity to expand is unique from a cost and benefit perspective. Both FDIC-assisted and non-FDIC-assisted acquisitions offer a unique opportunity for the Company to expand into new and existing markets in a non-traditional manner. Potential acquisitions are reviewed in a similar manner as ade novo branch opportunities, however, FDIC-assisted and non-FDIC-assisted acquisitions have the ability to immediately enhance shareholder value. Factors including the valuation of our stock, other economic market conditions, the size and scope of the particular expansion opportunity and competitive landscape all influence the decision to expand viade novo growth or through acquisition. See discussion of acquisition activity in the “Recent Transactions” section below.

Previous wording

The primary driver of profitability related to the financing of property and casualty insurance premiums is the net interest spread that FIRST Insurance Funding and FIFC Canada can produce between the yields on the loans generated and the cost of funds allocated to the business unit. The property and casualty insurance premium finance business is a competitive industry and yields on loans are influenced by the market rates offered by our competitors. The majority of loans originated by FIRST Insurance Funding are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments. We fund these loans primarily through our deposits, the cost of which is influenced by competitors in the retail banking markets in our market area.

Current wording

The primary driver of profitability related to the financing of property and casualty insurance premiums is the net interest spread that FIRST Insurance Funding and FIFC Canada can produce between the yields on the loans generated and the cost of funds incurred by the business unit. The property and casualty insurance premium finance business is a competitive industry and yields on loans are influenced by the market rates offered by our competitors. The majority of loans originated by FIRST Insurance Funding are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments. We fund these loans primarily through our deposits, the cost of which is influenced by competitors in the retail banking markets in our market area.

Previous wording

Through our wealth management segment, we offer a full range of wealth management services through four separate subsidiaries (CTC, Wintrust Investments, Great Lakes Advisors and CDEC): trust and investment services, tax-deferred like-kind exchange services, asset management solutions, securities brokerage services and 401(k) and retirement plan services.

Current wording

Through our wealth management segment, we offer a full range of wealth management services through four separate subsidiaries (WPT, Wintrust Investments, GLA and CDEC): trust and investment services, tax-deferred like-kind exchange services, asset management solutions, and securities brokerage services.

Previous wording

Our business is heavily regulated and supervised by both federal and state agencies. Both the scope of the laws and regulations and the intensity of the supervision to which our business is subject have increased in recent years, initially in response to the financial crisis, and more recently in light of other factors such as the regional banking uncertainty in early 2023, technological updates, and market changes. Many of these changes have occurred as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and its implementing regulations, most of which are now in place. We expect that our business will remain subject to extensive regulation and supervision.

Current wording

Our business is heavily regulated and supervised by federal agencies, state agencies and the federal & provincial governments of Canada. Both the scope of the laws and regulations and the intensity of the supervision to which our business is subject have increased in recent years, initially in response to the financial crisis, and more recently in light of other factors such as the regional banking uncertainty in early 2023, technological updates, and market changes. Many of these changes have occurred as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and its implementing regulations, most of which are now in place. We expect that our business will remain subject to extensive regulation and supervision.

Previous wording

The exact impact of the changing regulatory environment on our business and operations depends upon legislative or regulatory changes to reform the financial regulatory framework and the actions of our competitors, customers, and other market participants. Legislative and regulatory changes could have a significant impact on us by, for example, requiring us to change our business practices; requiring us to meet more stringent capital, liquidity and leverage ratio requirements; limiting our ability to pursue business opportunities; imposing additional costs and compliance obligations on us; limiting fees we can charge for services; impacting the value of our assets; or otherwise adversely affecting our businesses and our earnings’ capabilities. We have already experienced significant increases in compliance related costs in recent years, and we are now subject to more stringent risk-based capital and leverage ratio requirements than we were prior to the adoption of the U.S. Basel III Rules. We are also now subject to many mortgage-related rules promulgated by the CFPB that materially restructured the origination, services and securitization of residential mortgages in the United States. As discussed under Supervision and Regulation in Item 1, the FDIC adopted a final rule, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. Additionally there was a special assessment by the FDIC that was levied on banks with asset size above $5 billion to recoup losses from certain bank failures that occurred earlier in 2023. We will continue to monitor the impact that the implementation of applicable rules, regulations and policies arising out of any legislative or regulatory changes may have on our organization. For further discussion of the laws and regulations applicable to us and our subsidiary banks, please refer to “Business-Supervision and Regulation.”

Current wording

The exact impact of the changing regulatory environment on our business and operations depends upon legislative or regulatory changes to reform the financial regulatory framework and the actions of our competitors, customers, and other market participants. Legislative and regulatory changes could have a significant impact on us by, for example, requiring us to change our business practices; requiring us to meet more stringent capital, liquidity and leverage ratio requirements; limiting our ability to pursue business opportunities; imposing additional costs and compliance obligations on us; limiting fees we can charge for services; impacting the value of our assets; or otherwise adversely affecting our businesses and our earnings’ capabilities. We have already experienced significant increases in compliance related costs in recent years, and we are now subject to more stringent risk-based capital and leverage ratio requirements than we were prior to the adoption of the U.S. Basel III Rules. We are also now subject to many mortgage-related rules promulgated by the CFPB that materially restructured the origination, services and securitization of residential mortgages in the United States. As discussed under Supervision and Regulation in Item 1, the FDIC adopted a final rule, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, which began in the first quarterly assessment period of 2023. There was no change to the initial base deposit insurance assessment rate in 2024. Additionally, there was a special assessment by the FDIC that was levied on banks with an asset size above $5 billion to recoup losses from certain bank failures that occurred early in 2023. Special assessment payments began in June of 2024. We will continue to monitor the impact that the implementation of applicable rules, regulations and policies arising out of any legislative or regulatory changes may have on our organization. For further discussion of the laws and regulations applicable to us and our subsidiary banks, please refer to “Business-Supervision and Regulation.”

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 December 31, 2023, the loan and held-to-maturity debt securities portfolios represent 82% of 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 December 31, 2024, the loan and held-to-maturity debt securities portfolios represent 80% of 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

As of December 31, 2023, the Company had three reporting units: Community Banking, Specialty Finance and Wealth Management. Based on the Company’s 2023 annual goodwill impairment testing, which was performed qualitatively, the Company concluded that the fair value of each reporting unit more likely than not exceeded the carrying amounts of the respective reporting units.

Current wording

As of December 31, 2024, the Company had three reporting units: Community Banking, Specialty Finance and Wealth Management. Based on the Company’s 2024 annual goodwill impairment testing, which was performed quantitatively, the Company concluded that the fair value of each reporting unit more likely than not exceeded the carrying amounts of the respective reporting units.

Previous wording

Accounting for derivatives differs significantly depending on whether a derivative is designated as an accounting hedge, which is a transaction intended to reduce a risk associated with a specific asset or liability or future expected cash flow at the time it is purchased. In order to qualify as an accounting hedge, a derivative must be designated as such at inception by management and meet certain criteria. Management must also continue to evaluate whether the instrument effectively reduces the risk associated with that item. To determine if a derivative instrument continues to be an effective hedge, the Company must make assumptions and judgments about the continued effectiveness of the hedging strategies and the nature and timing of forecasted transactions. If the Company’s hedging strategy were to become ineffective, hedge accounting would no longer apply and the reported results of operations or financial condition could be materially affected. See Note (21) “Derivative Financial Instruments” to the Consolidated Financial Statements in Item 8 for a further discussion of derivative accounting.

Current wording

Accounting for derivatives differs significantly depending on whether a derivative is designated as an accounting hedge, which is a transaction intended to reduce a risk associated with specific assets or liabilities or future expected cash flows at the time it is purchased. In order to qualify as an accounting hedge, a derivative must be designated as such at inception by management and meet certain criteria. Management must also continue to evaluate whether the instrument effectively reduces the risk associated with the hedged item. To determine if a derivative instrument continues to be an effective hedge, the Company must make assumptions and judgments about the continued effectiveness of the hedging strategies and the nature and timing of forecasted transactions. If the Company’s hedging strategy were to become ineffective, hedge accounting would no longer apply and the reported results of operations or financial condition could be materially affected. See Note (21) “Derivative Financial Instruments” to the Consolidated Financial Statements in Item 8 for a further discussion of derivative accounting.

Previous wording

The following discussion of Wintrust’s results of operations requires an understanding that a majority of the Company’s bank subsidiaries have been started as de novo banks since December 1991. Wintrust has a strategy of continuing to build its customer base and securing broad product penetration in each marketplace that it serves. The Company has expanded its banking franchise from three banks with five offices in 1994 to 15 banks with 174 offices at the end of 2023. FIRST Insurance Funding and Wintrust Life Finance have matured into separate divisions that generated, on a national basis, $16.1 billion in total premium finance receivables in 2023 within the United States. FIFC Canada, acquired in 2012, originated $1.8 billion in Canadian property and casualty premium finance receivables in 2023. The Company’s leasing business increased its portfolio of assets, including direct financing leases, loans and equipment on operating leases, to $3.4 billion as of December 31, 2023. In addition, the wealth management companies have been building a team of experienced professionals who are located within a majority of the banks.

Current wording

The following discussion of Wintrust’s results of operations requires an understanding that a majority of the Company’s bank subsidiaries have been started as de novo banks since December 1991. Wintrust has a strategy of continuing to build its customer base and securing broad product penetration in each marketplace that it serves. The Company has expanded its banking franchise from three banks with five offices in 1994 to 16 banks with 205 offices at the end of 2024. FIRST Insurance Funding and Wintrust Life Finance have matured into separate divisions that generated, on a national basis, $18.1 billion in total premium finance receivables in 2024 within the United States. FIFC Canada, acquired in 2012, originated $1.9 billion in Canadian property and casualty premium finance receivables in 2024. The Company’s leasing business increased its portfolio of assets, including direct financing leases, loans and equipment on operating leases, to $3.9 billion as of December 31, 2024. In addition, the wealth management companies have been building a team of experienced professionals who are located within a majority of the banks.

Previous wording

Net income for the year ended December 31, 2023, totaled $622.6 million, or $9.58 per diluted common share, compared to $509.7 million, or $8.02 per diluted common share, in 2022, and $466.2 million, or $7.58 per diluted common share, in 2021. During 2023, net income increased by $112.9 million and earnings per diluted common share increased by $1.56. Net interest income increased in 2023 compared to 2022 primarily as a result of an increase in the net interest margin as well as growth in average earning assets in 2023. Partially offsetting the increase to net income from higher net interest income was a higher provision for credit losses. The Company’s provision for credit losses increased in 2023 primarily due to higher net charge-offs coupled with deterioration of forecasted macroeconomic conditions used in the measurement of the allowance for credit losses. Mortgage banking revenue decreased in 2023 as compared 2022 primarily as a result of unfavorable fair value adjustments of MSRs, net of servicing hedge, and a decrease in loans originated for sale, partially offset by favorable adjustments to the Company’s held-for-sale portfolio of EBOs guaranteed by U.S. government agencies, which are held at fair value.

Current wording

Net income for the year ended December 31, 2024, totaled $695.0 million, or $10.31 per diluted common share, compared to $622.6 million, or $9.58 per diluted common share, in 2023, and $509.7 million, or $8.02 per diluted common share, in 2022. During 2024, net income increased by $72.4 million and earnings per diluted common share increased by $0.73. Net interest income increased in 2024 compared to 2023 primarily as a result of growth in average earning assets in 2024. Non-interest income increased 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 and an increase in mortgage banking revenue in 2024 as compared 2023 primarily as a result of favorable fair value adjustments of MSRs, net of servicing hedge, and an increase in loans originated for sale, partially offset by unfavorable adjustments to the Company’s held-for-sale portfolio of EBOs guaranteed by U.S. government agencies, which are held at fair value.

Previous wording

Other items impacting net income in 2023 compared to 2022 include increased salary and employee benefits expenses and higher FDIC insurance costs in 2023 primarily due to the FDIC special assessment in response to certain bank failures occurring in 2023.

Current wording

Other items impacting net income in 2024 compared to 2023 include increased salary and employee benefits expenses.

Previous wording

Net interest income in 2023 totaled $1.84 billion, up from $1.50 billion in 2022 and up from $1.12 billion in 2021, representing an increase of $342.5 million, or 23%, in 2023 and an increase of $370.4 million, or 33%, in 2022. The table presented later in this section, titled “Changes in Interest Income and Expense,” presents the dollar amount of changes in interest income and expense, by major category, attributable to changes in the volume of the balance sheet category and changes in the rate earned or paid with respect to that category of assets or liabilities for 2023 and 2022.

Current wording

Net interest income in 2024 totaled $1.96 billion, up from $1.84 billion in 2023 and up from $1.50 billion in 2022, representing an increase of $124.7 million, or 7%, in 2024 and an increase of $342.5 million, or 23%, in 2023. The table presented later in this section, titled “Changes in Interest Income and Expense,” presents the dollar amount of changes in interest income and expense, by major category, attributable to changes in the volume of the balance sheet category and changes in the rate earned or paid with respect to that category of assets or liabilities for 2024 and 2023.

Previous wording

Average earning assets increased $2.8 billion, or 6%, in 2023 and $3.6 billion, or 8%, in 2022. Loans are the most significant component of the earning asset base as they earn interest at a higher rate than the majority of other earning assets. Average loans increased $3.6 billion, or 10%, in 2023 and $3.6 billion, or 11%, in 2022. Total average loans as a percentage of total average earning assets were 80%, 77% and 75% in 2023, 2022 and 2021, respectively. The average yield on loans was 6.32% in 2023, 4.12% in 2022 and 3.43% in 2021, reflecting an increase of 220 basis points in 2023 and an increase of 69 basis points in 2022. The higher loan yields in 2023 compared to 2022 is primarily a result of the increase in the interest rate environment in 2023 compared to 2022. The average yield on liquidity management assets was 3.53% in 2023, 2.15% in 2022 and 1.14% in 2021, reflecting an increase of 138 basis points in 2023 and an increase of 101 basis points in 2022. The higher yield in 2023 compared to 2022 is also a result of the increase in the interest rate environment in 2023 compared to 2022. The average rate paid on interest-bearing deposits, the largest component of the Company’s interest-bearing liabilities, was 2.81% in 2023, 0.62% in 2022 and 0.33% in 2021, representing an increase of 219 basis points in 2023 and an increase of 29 basis points in 2022. The higher level of interest-bearing deposits rates in 2023 compared to 2022 is also primarily a result of the increase in the interest rate environment in 2023 compared to 2022. As a result of the above, net interest margin increased to 3.66% (3.68% on a fully taxable-equivalent basis, non-GAAP) in 2023 compared to 3.15% (3.17% on a fully taxable-equivalent basis, non-GAAP) in 2022.

Current wording

Average earning assets increased $5.7 billion, or 11%, in 2024 and $2.8 billion, or 6%, in 2023. Loans are the most significant component of the earning asset base as they earn interest at a higher rate than the majority of other earning assets. Average loans increased $4.4 billion, or 11%, in 2024 and $3.6 billion, or 10%, in 2023. Total average loans as a percentage of total average earning assets were 80%, 80% and 77% in 2024, 2023 and 2022, respectively. The average yield on loans was 6.82% in 2024, 6.32% in 2023 and 4.12% in 2022, reflecting an increase of 50 basis points in 2024 and an increase of 220 basis points in 2023. The higher loan yields in 2024 compared to 2023 is primarily a result of new loan originations at higher market rates along with existing loans repricing at higher levels in 2024 compared to 2023. The average yield on liquidity management assets was 3.85% in 2024, 3.53% in 2023 and 2.15% in 2022, reflecting an increase of 32 basis points in 2024 and an increase of 138 basis points in 2023. The higher yield in 2024 compared to 2023 is a result of investment security purchases at higher market rates. The average rate paid on interest-bearing deposits, the largest component of the Company’s interest-bearing liabilities, was 3.58% in 2024, 2.81% in 2023 and 0.62% in 2022, representing an increase of 77 basis points in 2024 and an increase of 219 basis points in 2023. The higher level of interest-bearing deposits rates in 2024 compared to 2023 is primarily a result of increased deposit competition driving interest rates higher in 2024 compared to 2023. As a result of the above, net interest margin decreased to 3.51% (3.53% on a fully taxable-equivalent basis, non-GAAP) in 2024 compared to 3.66% (3.68% on a fully taxable-equivalent basis, non-GAAP) in 2023.

Previous wording

(3)Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the years ended December 31, 2023, 2022 and 2021 were $10.1 million, $5.6 million and $3.6 million, respectively.

Current wording

(3)Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the years ended December 31, 2024, 2023 and 2022 were $11.9 million, $10.1 million and $5.6 million, respectively.

Previous wording

The changes in net interest income are created by changes in both interest rates and volumes. In the table above, volume variances are computed using the change in volume multiplied by the previous year’s rate. Rate variances are computed using the change in rate multiplied by the previous year’s volume. The change in interest due to both rate and volume has been allocated between factors in proportion to the relationship of the absolute dollar amounts of the change in each.

Current wording

The changes in net interest income are created by changes in both interest rates and volumes. In the table above, volume variances are computed using the change in volume multiplied by the previous year’s rate. Rate variances are computed using the change in rate multiplied by the previous year’s volume. The change in interest due to both rate and volume has been allocated between factors in proportion to the relationship of the absolute dollar amounts of the change in each. The change in interest due to an additional day resulting from the 2024 leap year has been allocated entirely to the change due to volume.

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 WPT and GLA, 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

Mortgage banking revenue decreased in 2023 as compared 2022 primarily as a result of unfavorable fair value adjustments of MSRs, net of servicing hedge, and a decrease in loans originated for sale, partially offset by favorable adjustments to the Company’s held-for-sale portfolio of early buy-out exercised loans guaranteed by U.S. government agencies, which are held at fair value. 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 $2.0 billion for the year ended 2023 compared to $2.8 billion for the same period of 2022. The decrease in originations was primarily due to increased interest rates reducing refinance incentives for borrowers. The percentage of origination volume from refinancing activities was 17% in 2023 as compared to 29% in 2022.

Current wording

Mortgage banking revenue increased in 2024 as compared 2023 primarily as a result of a favorable fair value adjustments of MSRs, net of servicing hedge, and a increase in loans originated for sale, partially offset by payoffs, paydowns and repurchases of the existing portfolio. 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 $2.6 billion for the year ended 2024 compared to $2.0 billion for the same period of 2023. The increase in originations was primarily 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 25% in 2024 as compared to 17% in 2023.

Previous wording

The Company records MSRs at fair value on a recurring basis. During 2023, the fair value of the MSRs portfolio decreased due to a reduction in value of $17.1 million due to payoffs and paydowns of the existing portfolio, an unfavorable fair value adjustment of $19.1 million, and a bulk sale of MSRs of $30.2 million, partially offset by retained servicing rights which led to capitalization of $28.6 million. See Note (6) “Mortgage Servicing Rights (“MSRs”)” to the Consolidated Financial Statements in Item 8 for a summary of the changes in the carrying value of MSRs.

Current wording

The Company records MSRs at fair value on a recurring basis. During 2024, the fair value of the MSRs portfolio increased due to a favorable fair value adjustment of $4.4 million and retained servicing rights which led to capitalization of $30.0 million, partially offset by reduction in value of $23.0 million due to payoffs and paydowns of the existing portfolio. See Note (6) “Mortgage Servicing Rights (“MSRs”)” to the Consolidated Financial Statements in Item 8 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 during 2023 was a $1.3 million favorable valuation adjustment compared to a $2.2 million unfavorable valuation adjustment in 2022. The table below presents additional selected information regarding mortgage banking for the respective periods.

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 during 2024 was a $7.9 million unfavorable valuation adjustment compared to a $1.3 million favorable valuation adjustment in 2023. The table below presents additional selected information regarding mortgage banking for the respective periods.

Previous wording

Net gains on investment securities in 2023 were primarily the result of unrealized gains on equity investments. The Company did not recognize any credit-related write-downs or other-than-temporary impairment charges within its available-for-sale or held-to-maturity investment securities portfolio in 2023 or 2022, respectively.

Current wording

Net losses on investment securities in 2024 were primarily the result of unrealized losses on equity investments. The Company did not recognize any credit-related write-downs or other-than-temporary impairment charges within its available-for-sale or held-to-maturity investment securities portfolio in 2024 or 2023, respectively.

Previous wording

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 December 31, 2023 and 2022.

Current wording

Fees from covered call option transactions totaled $10.2 million in 2024, compared to $21.9 million in 2023. 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 December 31, 2024 and 2023.

Previous wording

Miscellaneous non-interest income includes loan servicing fees, income from other investments, service charges and other fees. The increased miscellaneous other income for 2023 compared to 2022 was primarily the result of decreased contingent consideration accrued in 2023 related to previous acquisitions, $2.5 million of losses recorded in 2022 relating to the sale of a property no longer considered for future expansion and losses on the sale of a former data processing facility in 2022, as well as increased fee income in 2023 earned on card-related arrangements, letters of credit and other commitments.

Current wording

Miscellaneous non-interest income includes loan servicing fees, income from other investments, service charges and other fees. The increased miscellaneous other income for 2024 compared to 2023 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 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 is the largest component of non-interest expense, accounting for 57% of the total in 2023 compared to 59% in 2022. Salaries and employee benefits increased in 2023 compared to 2022 primarily as a result of increased salaries and benefits expense as the Company grows, partially offset by decreased commissions and incentive compensation expense primarily due to lower commission expense due to reduced mortgage production.

Current wording

Salaries and employee benefits is the largest component of non-interest expense, accounting for 58% of the total in 2024 compared to 57% in 2023. Salaries and employee benefits increased in 2024 compared to 2023 primarily as a result of elevated commissions from increased mortgage production as well as due to the increase in employees related to the growth of the Company, including Macatawa.