WINTRUST FINANCIAL CORP - Quarter Report: 2023 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35077

_____________________________________

WINTRUST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Illinois			36-3873352
(State of incorporation or organization)			(I.R.S. Employer Identification No.)

9700 W. Higgins Road, Suite 800

Rosemont, Illinois 60018

(Address of principal executive offices)

(847) 939-9000

(Registrant’s telephone number, including area code)


Title of Each Class	Ticker Symbol	Name of Each Exchange on Which Registered
Common Stock, no par value	WTFC	The NASDAQ Global Select Market
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, no par value	WTFCM	The NASDAQ Global Select Market
Depositary Shares, Each Representing a 1/1,000th Interest in a Share of	WTFCP	The NASDAQ Global Select Market
6.875% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E, no par value

____________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

(Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock — no par value, 61,212,017 shares, as of July 31, 2023

Table of Contents

TABLE OF CONTENTS


		Page
	PART I. — FINANCIAL INFORMATION
ITEM 1.	Financial Statements	1
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	77
ITEM 4.	Controls and Procedures	78
	PART II. — OTHER INFORMATION
ITEM 1.	Legal Proceedings	79
ITEM 1A.	Risk Factors	80
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
ITEM 3.	Defaults Upon Senior Securities	NA
ITEM 4.	Mine Safety Disclosures	NA
ITEM 5.	Other Information	80
ITEM 6.	Exhibits	80
	Signatures	82

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS


WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
	(Unaudited)				(Unaudited)
(In thousands, except share data)	June 30, 2023		December 31, 2022		June 30, 2022
Assets
Cash and due from banks	$	513,858	$	490,908	$	498,891
Federal funds sold and securities purchased under resale agreements	59		58		475,056
Interest-bearing deposits with banks	2,163,708		1,988,719		3,266,541
Available-for-sale securities, at fair value	3,492,481		3,243,017		2,970,121
Held-to-maturity securities, at amortized cost, net of allowance for credit losses of $406, $488 and $83 at June 30, 2023, December 31, 2022 and June 30, 2022, respectively ($2.9 billion, $2.9 billion and $2.9 billion fair value at June 30, 2023, December 31, 2022 and June 30, 2022, respectively)	3,564,473		3,640,567		3,413,469
Trading account securities	3,027		1,127		1,010
Equity securities with readily determinable fair value	116,275		110,365		93,295
Federal Home Loan Bank and Federal Reserve Bank stock	195,117		224,759		136,138
Brokerage customer receivables	15,722		16,387		21,527
Mortgage loans held-for-sale, at fair value	338,728		299,935		513,232




Loans, net of unearned income	41,023,408		39,196,485		37,053,103
Allowance for loan losses	(302,499)		(270,173)		(251,769)


Net loans	40,720,909		38,926,312		36,801,334
Premises, software and equipment, net	749,393		764,798		762,381
Lease investments, net	274,351		253,928		223,813


Accrued interest receivable and other assets	1,455,748		1,391,342		1,112,697
Trade date securities receivable	—		921,717		—

Goodwill	656,674		653,524		654,709
Other acquisition-related intangible assets	25,653		22,186		25,118
Total assets	$	54,286,176	$	52,949,649	$	50,969,332

Liabilities and Shareholders’ Equity
Deposits:
Non-interest-bearing	$	10,604,915	$	12,668,160	$	13,855,844
Interest-bearing	33,433,792		30,234,384		28,737,482
Total deposits	44,038,707		42,902,544		42,593,326


Federal Home Loan Bank advances	2,026,071		2,316,071		1,166,071

Other borrowings	665,219		596,614		482,787

Subordinated notes	437,628		437,392		437,162
Junior subordinated debentures	253,566		253,566		253,566

Accrued interest payable and other liabilities	1,823,073		1,646,624		1,308,797



Total liabilities	49,244,264		48,152,811		46,241,709
Shareholders’ Equity:
Preferred stock, no par value; 20,000,000 shares authorized:


Series D - $25 liquidation value; 5,000,000 shares issued and outstanding at June 30, 2023, December 31, 2022 and June 30, 2022	125,000		125,000		125,000
Series E - $25,000 liquidation value; 11,500 shares issued and outstanding at June 30, 2023, December 31, 2022 and June 30, 2022	287,500		287,500		287,500
Common stock, no par value; $1.00 stated value; 100,000,000 shares authorized at June 30, 2023, December 31, 2022 and June 30, 2022; 61,219,240 shares issued at June 30, 2023, 60,797,270 shares issued at December 31, 2022 and 60,721,889 shares issued at June 30, 2022	61,219		60,797		60,722
Surplus	1,923,623		1,902,474		1,880,913
Treasury stock, at cost, 21,564 shares at June 30, 2023, 3,262 shares at December 31, 2022, and no shares at June 30, 2022	(1,966)		(304)		—
Retained earnings	3,120,626		2,849,007		2,616,525
Accumulated other comprehensive loss	(474,090)		(427,636)		(243,037)
Total shareholders’ equity	5,041,912		4,796,838		4,727,623
Total liabilities and shareholders’ equity	$	54,286,176	$	52,949,649	$	50,969,332

See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended				Six Months Ended
(In thousands, except per share data)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Interest income
Interest and fees on loans	$	621,057	$	320,501	$	1,179,749	$	606,199
Mortgage loans held-for-sale	4,178		5,740		7,706		11,827
Interest-bearing deposits with banks	16,882		5,790		30,350		7,477
Federal funds sold and securities purchased under resale agreements	1		1,364		71		1,795
Investment securities	51,243		36,541		111,186		68,939
Trading account securities	6		4		20		9
Federal Home Loan Bank and Federal Reserve Bank stock	3,544		1,823		7,224		3,595
Brokerage customer receivables	265		205		560		379
Total interest income	697,176		371,968		1,336,866		700,220
Interest expense
Interest on deposits	213,495		18,985		358,297		33,839
Interest on Federal Home Loan Bank advances	17,399		4,878		36,534		9,694
Interest on other borrowings	8,485		2,734		16,339		4,973
Interest on subordinated notes	5,523		5,517		11,011		10,999
Interest on junior subordinated debentures	4,737		2,050		9,153		3,617
Total interest expense	249,639		34,164		431,334		63,122
Net interest income	447,537		337,804		905,532		637,098
Provision for credit losses	28,514		20,417		51,559		24,523
Net interest income after provision for credit losses	419,023		317,387		853,973		612,575
Non-interest income
Wealth management	33,858		31,369		63,803		62,763
Mortgage banking	29,981		33,314		48,245		110,545
Service charges on deposit accounts	13,608		15,888		26,511		31,171
Gains (losses) on investment securities, net	0		(7,797)		1,398		(10,579)
Fees from covered call options	2,578		1,069		12,969		4,811
Trading gains, net	106		176		919		4,065
Operating lease income, net	12,227		15,007		25,273		30,482
Other	20,672		13,916		41,681		32,474
Total non-interest income	113,030		102,942		220,799		265,732
Non-interest expense
Salaries and employee benefits	184,923		167,326		361,704		339,681
Software and equipment	26,205		24,250		50,902		47,060
Operating lease equipment	9,816		8,774		19,649		18,482
Occupancy, net	19,176		17,651		37,662		35,475
Data processing	9,726		8,010		19,135		15,515
Advertising and marketing	17,794		16,615		29,740		28,539
Professional fees	8,940		7,876		17,103		16,277
Amortization of other acquisition-related intangible assets	1,499		1,579		2,734		3,188
FDIC insurance	9,008		6,949		17,677		14,678
Other real estate owned expense, net	118		294		(89)		(738)
Other	33,418		29,344		63,575		54,809
Total non-interest expense	320,623		288,668		619,792		572,966
Income before taxes	211,430		131,661		454,980		305,341
Income tax expense	56,680		37,148		120,032		83,437
Net income	$	154,750	$	94,513	$	334,948	$	221,904
Preferred stock dividends	6,991		6,991		13,982		13,982
Net income applicable to common shares	$	147,759	$	87,522	$	320,966	$	207,922
Net income per common share—Basic	$	2.41	$	1.51	$	5.26	$	3.61
Net income per common share—Diluted	$	2.38	$	1.49	$	5.18	$	3.56
Cash dividends declared per common share	$	0.40	$	0.34	$	0.80	$	0.68
Weighted average common shares outstanding	61,192		58,063		61,072		57,632
Dilutive potential common shares	902		775		933		823
Average common shares and dilutive common shares	62,094		58,838		62,005		58,455

See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended				Six Months Ended
(In thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net income	$	154,750	$	94,513	$	334,948	$	221,904
Unrealized (losses) gains on available-for-sale securities
Before tax	(46,231)		(166,536)		809		(372,553)
Tax effect	12,322		44,382		(215)		99,285
Net of tax	(33,909)		(122,154)		594		(273,268)
Reclassification of net gains on available-for-sale securities included in net income
Before tax	2		—		562		250
Tax effect	(1)		—		(152)		(67)
Net of tax	1		—		410		183
Reclassification of amortization of unrealized gains on investment securities transferred to held-to-maturity from available-for-sale
Before tax	28		44		71		86
Tax effect	(8)		(12)		(19)		(23)
Net of tax	20		32		52		63
Net unrealized (losses) gains on available-for-sale securities	(33,930)		(122,186)		132		(273,514)
Unrealized (losses) gains on derivative instruments
Before tax	(106,431)		2,375		(71,765)		41,856
Tax effect	28,363		(634)		19,125		(11,166)
Net unrealized (losses) gains on derivative instruments	(78,068)		1,741		(52,640)		30,690
Foreign currency adjustment
Before tax	6,527		(8,260)		7,417		(5,418)
Tax effect	(1,183)		1,667		(1,363)		1,113
Net foreign currency adjustment	5,344		(6,593)		6,054		(4,305)
Total other comprehensive (loss)	(106,654)		(127,038)		(46,454)		(247,129)
Comprehensive income (loss)	$	48,096	$	(32,525)	$	288,494	$	(25,225)

See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except per share data)	Preferred stock		Common stock		Surplus		Treasury stock		Retained earnings		Accumulated other comprehensive income (loss)		Total shareholders’ equity
Balance at March 31, 2022	$	412,500	$	59,091	$	1,698,093	$	(109,903)	$	2,548,474	$	(115,999)	$	4,492,256

Net income	—		—		—		—		94,513		—		94,513
Other comprehensive loss, net of tax	—		—		—		—		—		(127,038)		(127,038)
Cash dividends declared on common stock, $0.34 per share	—		—		—		—		(19,471)		—		(19,471)
Dividends on Series D preferred stock, $0.41 per share and Series E preferred stock, $429.69 per share	—		—		—		—		(6,991)		—		(6,991)

Stock-based compensation	—		—		6,998		—		—		—		6,998
Issuance of Series E preferred stock	—		—		—		—		—		—		—
Common stock issued for:
New Issuance, net of cost	—		1,612		174,206		109,903		—		—		285,721
Exercise of stock options and warrants	—		5		177		—		—		—		182
Restricted stock awards	—		4		(4)		—		—		—		—
Employee stock purchase plan	—		9		784		—		—		—		793
Director compensation plan	—		1		659		—		—		—		660
Balance at June 30, 2022	$	412,500	$	60,722	$	1,880,913	$	—	$	2,616,525	$	(243,037)	$	4,727,623

Balance at January 1, 2022	$	412,500	$	58,892	$	1,685,572	$	(109,903)	$	2,447,535	$	4,092	$	4,498,688

Net income	—		—		—		—		221,904		—		221,904
Other comprehensive loss, net of tax	—		—		—		—		—		(247,129)		(247,129)
Cash dividends declared on common stock, $0.68 per share	—		—		—		—		(38,932)		—		(38,932)
Dividends on Series D preferred stock, $0.82 per share and Series E preferred stock, $859.38 per share	—		—		—		—		(13,982)		—		(13,982)
Common stock repurchases under authorized program	—		—		—		—		—		—		—
Stock-based compensation	—		—		14,889		—		—		—		14,889
Issuance of Series E preferred stock	—		—		—		—		—		—		—
Common stock issued for:
Acquisitions	—		1,612		174,206		109,903		—		—		285,721
Exercise of stock options and warrants	—		84		3,456		—		—		—		3,540
Restricted stock awards	—		56		(56)		—		—		—		—
Employee stock purchase plan	—		19		1,616		—		—		—		1,635
Director compensation plan	—		59		1,230		—		—		—		1,289
Balance at June 30, 2022	$	412,500	$	60,722	$	1,880,913	$	—	$	2,616,525	$	(243,037)	$	4,727,623

Balance at March 31, 2023	$	412,500	$	61,198	$	1,913,947	$	(1,966)	$	2,997,263	$	(367,436)	$	5,015,506

Net income	—		—		—		—		154,750		—		154,750
Other comprehensive loss, net of tax	—		—		—		—		—		(106,654)		(106,654)
Cash dividends declared on common stock, $0.40 per share	—		—		—		—		(24,396)		—		(24,396)
Dividends on Series D preferred stock, $0.41 per share and Series E preferred stock, $429.69 per share	—		—		—		—		(6,991)		—		(6,991)

Stock-based compensation	—		—		8,108		—		—		—		8,108

Common stock issued for:

Exercise of stock options and warrants	—		—		—		—		—		—		—
Restricted stock awards	—		8		(8)		—		—		—		—
Employee stock purchase plan	—		13		894		—				—		907
Director compensation plan	—		—		682		—		—		—		682
Balance at June 30, 2023	$	412,500	$	61,219	$	1,923,623	$	(1,966)	$	3,120,626	$	(474,090)	$	5,041,912

Balance at January 1, 2023	$	412,500	$	60,797	$	1,902,474	$	(304)	$	2,849,007	$	(427,636)	$	4,796,838
Cumulative effect adjustment from the adoption of ASU 2022-02 (TDR)	—		—		—		—		(544)		—		(544)
Net income	—		—		—		—		334,948		—		334,948
Other comprehensive loss, net of tax	—		—		—		—		—		(46,454)		(46,454)
Cash dividends declared on common stock, $0.80 per share	—		—		—		—		(48,803)		—		(48,803)
Dividends on Series D preferred stock, $0.82 per share and Series E preferred stock, $859.38 per share	—		—		—		—		(13,982)		—		(13,982)
Common stock repurchased under authorized program	—		—		—		—		—		—		—
Stock-based compensation	—		—		16,403		—		—		—		16,403
Issuance of Series E Preferred Stocks	—		—		—		—		—		—		—
Common stock issued for:
New issuance, net of cost	—		—		—		—		—		—		—
Exercise of stock options and warrants	—		54		2,162		—		—		—		2,216
Restricted stock awards	—		283		(283)		(1,662)		—		—		(1,662)
Employee stock purchase plan	—		22		1,579		—		—		—		1,601
Director compensation plan	—		63		1,288		—		—		—		1,351
Balance at June 30, 2023	$	412,500	$	61,219	$	1,923,623	$	(1,966)	$	3,120,626	$	(474,090)	$	5,041,912

See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended
(In thousands)	June 30, 2023		June 30, 2022
Operating Activities:
Net income	$	334,948	$	221,904
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses	51,559		24,523
Depreciation, amortization and accretion, net	34,997		45,187
Stock-based compensation expense	16,403		14,889

Amortization of premium on securities, net	743		1,475
Accretion of discount and deferred fees on loans, net	(9,067)		(13,960)
Mortgage servicing rights fair value changes, net of economic hedge	13,190		(39,658)
Non-designated derivatives fair value changes, net	(2,088)		(236)
Originations and purchases of mortgage loans held-for-sale	(980,276)		(1,716,502)
Early buy-out exercises of mortgage loans held-for-sale guaranteed by U.S. government agencies, net of subsequent paydowns or payoffs	29,890		43,288
Proceeds from sales of mortgage loans held-for-sale	900,046		1,916,314
Bank owned life insurance (“BOLI”) (gains) losses	(2,673)		836
(Increase) decrease in trading securities, net	(1,900)		51
Decrease in brokerage customer receivables, net	665		4,541
Gains on mortgage loans sold	(24,133)		(31,137)
(Gains) losses on investment securities, net	(1,398)		10,579

Losses on sales of premises and equipment, net	1,594		2,126
Losses (gains) on sales and fair value adjustments of other real estate owned, net	100		(868)
(Increase) decrease in accrued interest receivable and other assets, net	(83,646)		130,148
Increase in accrued interest payable and other liabilities, net	129,238		209,824
Net Cash Provided by Operating Activities	408,192		823,324
Investing Activities:
Proceeds from maturities and calls of available-for-sale securities	2,032,564		208,534
Proceeds from maturities and calls of held-to-maturity securities	84,015		124,986


Proceeds from sales of equity securities with readily determinable fair value	23,592		18,753
Proceeds from sales and capital distributions of equity securities without readily determinable fair value	67		529
Purchases of available-for-sale securities	(1,359,722)		(1,224,316)
Purchases of held-to-maturity securities	(8,439)		(596,897)
Purchases of equity securities with readily determinable fair value	(26,677)		(27,805)
Purchases of equity securities without readily determinable fair value	(5,600)		(8,480)
Redemptions (purchases) of Federal Home Loan Bank and Federal Reserve Bank stock, net	29,642		(760)
Distributions from investments in partnerships, net	4,995		3,196
Net cash paid in business combinations	(4,966)		—
Proceeds from sales of other real estate owned	1,168		3,669
Decrease in securities purchased under resale agreements with terms exceeding three months, net	—		225,000
(Increase) decrease in interest-bearing deposits with banks, net	(172,149)		2,105,160
Increase in loans, net	(1,820,788)		(2,202,286)
Redemption of BOLI	—		960
Purchases of premises and equipment, net	(9,318)		(23,366)
Net Cash Used for Investing Activities	(1,231,616)		(1,393,123)
Financing Activities:
Increase in deposit accounts, net	1,136,159		497,735
Increase (decrease) in other borrowings, net	59,552		(5,059)
Decrease in Federal Home Loan Bank advances, net	(290,000)		(75,000)
Proceeds from common stock offering, net	—		286,315



Cash payments to settle contingent consideration liabilities recognized in business combinations	(57)		—
Issuance of common shares resulting from the exercise of stock options and employee stock purchase plan	5,168		6,464

Common stock repurchases for tax withholdings related to stock-based compensation	(1,662)		—
Dividends paid	(62,785)		(52,914)
Net Cash Provided by Financing Activities	846,375		657,541
Net Increase in Cash and Cash Equivalents	22,951		87,742
Cash and Cash Equivalents at Beginning of Period	490,966		411,205
Cash and Cash Equivalents at End of Period	$	513,917	$	498,947

See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

The interim consolidated financial statements of Wintrust Financial Corporation and its subsidiaries (collectively, “Wintrust” or the “Company”) presented herein are unaudited, but in the opinion of management, reflect all necessary adjustments of a normal or recurring nature for a fair presentation of results as of the dates and for the periods covered by the interim consolidated financial statements.

The accompanying interim consolidated financial statements are unaudited and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations or cash flows in accordance with U.S. generally accepted accounting principles (“GAAP”). The interim unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”). Operating results reported for the period are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.

The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable; however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for credit losses, including the allowance for loan losses, the allowance for unfunded commitment losses and the allowance for held-to-maturity securities losses, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of the Company’s significant accounting policies are included in Note (1) “Summary of Significant Accounting Policies” of the 2022 Form 10-K. In preparation of these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users or filed with the SEC.

(2) Recent Accounting Developments

Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides temporary optional relief for contracts modified as a result of reference rate reform meeting certain modification criteria, generally allowing an entity to account for contract modifications occurring due to reference rate reform as an event that does not require contract remeasurement or reassessment of a previous accounting determination at the modification date. The guidance also includes temporary optional expedients intended to provide relief from various hedge effectiveness requirements for hedging relationships affected by reference rate reform, provided certain criteria are met, and allows a one-time election to sell or transfer to either available-for-sale or trading any held-to-maturity (“HTM”) debt securities that refer to an interest rate affected by reference rate reform and were classified as HTM prior to January 1, 2020. Additionally, in January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which provided additional clarification that certain optional expedients and exceptions noted above apply to derivative instruments that use an interest rate for margining, discounting or contract price alignment that is modified as a result of reference rate reform. This guidance was effective upon issuance and was able to be applied prospectively, with certain exceptions, through December 31, 2022.

In November 2020, federal and state banking regulators issued the “Interagency Policy Statement on Reference Rates for Loans” to reiterate that a specific replacement rate for loans impacted by reference rate reform has not been endorsed and entities may utilize any replacement reference rate determined to be appropriate based on its funding model and customer needs. As discussed in the “Interagency Policy Statement on Reference Rates for Loans,” fallback language should be included in lending contracts to provide for use of a robust fallback rate if the initial reference rate is discontinued. Additionally, federal banking regulators issued the “Interagency Statement on LIBOR Transition” acknowledging that the administrator of the London Inter-Bank Offered Rate (“LIBOR”) has announced it will consult on its intention to cease the publication of the one

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week and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. As discussed in the “Interagency Statement on LIBOR Transition,” regulators encouraged banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021, in order to facilitate an orderly, safe and sound LIBOR transition. The Company has discontinued use of USD LIBOR in new contracts and continues to monitor efforts and evaluate the impact of reference rate reform on its consolidated financial statements. As of June 30, 2023, the Company has mitigated its remaining LIBOR exposure, with any outstanding or committed exposures being proactively moved to an alternative rate or falling back per the terms of the contract or as per the AIRLA.

In December 2022, the FASB issued ASU No. 2022-06 “Reference Rate Reform (Topic 848) - Deferral of the Sunset Date of Topic 848,” which updated the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities would no longer be permitted to apply the relief in Topic 848. The objective of Topic 848 is to provide relief during the temporary transition period, thus, the FASB included a sunset provision within Topic 848 based on expectations of when LIBOR would cease being published. This guidance was effective upon issuance and can be applied prospectively, with certain exceptions, through December 31, 2024. The Company expects that adoption of this standard on activities subsequent to June 30, 2023 will not have a material impact on the consolidated financial statements.

Business Combinations

In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which clarifies diversity in practice related to recognition and measurement of contract assets and liabilities related to revenue contracts with customers which are acquired in a business combination by aligning business combination accounting with the subsequent accounting for contract assets and liabilities by requiring entities to apply ASC Topic 606, Revenue from Contracts with Customers, in order to recognize and measure deferred revenue in a business combination. The guidance also creates an exception to the general recognition and measurement principle in ASC Topic 805, Business Combinations, under which such amounts are recognized by the acquirer at fair value on the acquisition date by providing two practical expedients for acquirers. The Company adopted ASU No. 2021-08 as of January 1, 2023. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Fair Value Hedging - Portfolio Layer Method

In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method” which expands the current last-of-layer method by allowing multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. The Company adopted ASU No. 2022-01 as of January 1, 2023. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Troubled Debt Restructurings and Vintage Disclosures

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” which eliminates the separate recognition and measurement guidance for troubled debt restructurings (“TDRs”) by creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty, and requiring entities to disclose current-period gross write-offs by year of origination for certain financing receivables and net investments in leases. The Company adopted ASU No. 2022-02 as of January 1, 2023. Guidance was adopted under a modified retrospective approach and, at January 1, 2023, the Company recognized a cumulative-effect adjustment to the allowance for loan losses of $741,000 representing the change in methodology of estimating expected credit losses for loans previously classified as TDRs. This amount was a positive adjustment to the allowance for loan losses, presented separately on the Company’s Consolidated Statements of Condition, with an offsetting negative adjustment recorded directly to retained earnings, net of taxes.

Fair Value Measurement - Equity Securities with Contractual Sale Restrictions

In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” which clarifies the guidance in ASC 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, and also requires specific disclosures related to these types of securities. This guidance is effective for fiscal years beginning after December 15, 2023, including interim periods therein, and is to be applied under a prospective approach. Early adoption is permitted. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements.

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Legislation Issued Related to Stock Repurchases

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed by the President of the United States. Among other things, the IRA imposes a 1% excise tax on the fair market value of stock repurchased after December 31, 2022. With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements. This new legislation did not have a material impact on the Company's consolidated financial statements.

Equity Method and Joint Ventures - Investments in Tax Credit Structures

In March 2023, the FASB issued ASU No. 2023-02, “Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,” which allows reporting entities the option to apply the proportional amortization method to other tax credit programs besides the Low-Income Housing Tax Credit structures. The guidance requires application of the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing the method at the reporting level entity level. This guidance is effective for fiscal years beginning after December 15, 2023, including interim periods therein, and is to be applied under either a modified retrospective or retrospective approach. Early adoption is permitted. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements.

(3) Business Combinations

On April 3, 2023, the Company completed its acquisition of Rothschild & Co Asset Management US Inc. and Rothschild & Co Risk Based Investments LLC from Rothschild & Co North America Inc (collectively, “Rothschild & Co Asset Management U.S.”). As of the acquisition date, the Company acquired approximately $12.6 million in assets. As the transaction was determined to be a business combination, the Company recorded goodwill of approximately $2.6 million on the purchase.

(4) Cash and Cash Equivalents

For purposes of the Consolidated Statements of Cash Flows, the Company considers cash and cash equivalents to include cash on hand, cash items in the process of collection, non-interest bearing amounts due from correspondent banks, federal funds sold and securities purchased under resale agreements with original maturities of three months or less. These items are included within the Company’s Consolidated Statements of Condition as cash and due from banks, and federal funds sold and securities purchased under resale agreements.

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(5) Investment Securities

The following tables are a summary of the investment securities portfolios as of the dates shown:


	June 30, 2023
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities
U.S. Treasury	$	—	$	—	$	—	$	—
U.S. government agencies	80,000		—		(5,725)		74,275
Municipal	173,540		102		(6,231)		167,411
Corporate notes:
Financial issuers	83,995		—		(12,920)		71,075
Other	1,000		—		(15)		985
Mortgage-backed: (1)
Mortgage-backed securities	3,585,943		—		(483,659)		3,102,284
Collateralized mortgage obligations	94,373		—		(17,922)		76,451
Total available-for-sale securities	$	4,018,851	$	102	$	(526,472)	$	3,492,481
Held-to-maturity securities
U.S. government agencies	$	339,604	$	—	$	(71,022)	$	268,582
Municipal	176,128		362		(4,502)		171,988
Mortgage-backed: (1)
Mortgage-backed securities	2,832,138		—		(574,114)		2,258,024
Collateralized mortgage obligations	159,120		—		(23,014)		136,106
Corporate notes	57,889		35		(4,733)		53,191
Total held-to-maturity securities	$	3,564,879	$	397	$	(677,385)	$	2,887,891
Less: Allowance for credit losses	(406)
Held-to-maturity securities, net of allowance for credit losses	$	3,564,473
Equity securities with readily determinable fair value	$	120,629	$	3,711	$	(8,065)	$	116,275

(1)Consisting entirely of residential mortgage-backed securities, none of which are subprime.

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	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(In thousands)
Available-for-sale securities
U.S. Treasury	$	14,943	$	5	$	—	$	14,948
U.S. government agencies	80,000		36		(5,814)		74,222
Municipal	173,861		230		(5,436)		168,655
Corporate notes:
Financial issuers	93,994		—		(9,291)		84,703
Other	1,000		2		—		1,002
Mortgage-backed: (1)
Mortgage-backed securities	3,308,494		238		(488,795)		2,819,937
Collateralized mortgage obligations	97,342		—		(17,792)		79,550
Total available-for-sale securities	$	3,769,634	$	511	$	(527,128)	$	3,243,017
Held-to-maturity securities
U.S. government agencies	$	339,614	$	—	$	(75,293)	$	264,321
Municipal	179,027		477		(4,066)		175,438
Mortgage-backed: (1)
Mortgage-backed securities	2,900,031		—		(583,682)		2,316,349
Collateralized mortgage obligations	164,151		—		(23,322)		140,829
Corporate notes	58,232		—		(5,348)		52,884
Total held-to-maturity securities	$	3,641,055	$	477	$	(691,711)	$	2,949,821
Less: Allowance for credit losses	(488)
Held-to-maturity securities, net of allowance for credit losses	$	3,640,567
Equity securities with readily determinable fair value	$	115,552	$	2,935	$	(8,122)	$	110,365

(1)Consisting entirely of residential mortgage-backed securities, none of which are subprime.

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	June 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(In thousands)
Available-for-sale securities
U.S. Treasury	$	—	$	—	$	—	$	—
U.S. government agencies	50,000		—		(1,913)		48,087
Municipal	170,268		570		(4,133)		166,705
Corporate notes:
Financial issuers	93,994		—		(5,177)		88,817
Other	1,000		—		(4)		996
Mortgage-backed: (1)
Mortgage-backed securities	2,915,107		28		(336,517)		2,578,618
Collateralized mortgage obligations	101,132		1		(14,235)		86,898
Total available-for-sale securities	$	3,331,501	$	599	$	(361,979)	$	2,970,121
Held-to-maturity securities
U.S. government agencies	$	294,631	$	—	$	(53,222)	$	241,409
Municipal	179,642		1,195		(2,796)		178,041
Mortgage-backed: (1)
Mortgage-backed securities	2,719,754		—		(438,050)		2,281,704
Collateralized mortgage obligations	170,951		—		(16,254)		154,697
Corporate notes	48,574		2		(4,158)		44,418
Total held-to-maturity securities	$	3,413,552	$	1,197	$	(514,480)	$	2,900,269
Less: Allowance for credit losses	(83)
Held-to-maturity securities, net of allowance for credit losses	$	3,413,469
Equity securities with readily determinable fair value	$	96,247	$	3,143	$	(6,095)	$	93,295

(1)Consisting entirely of residential mortgage-backed securities, none of which are subprime.

Equity securities without readily determinable fair values totaled $53.4 million as of June 30, 2023. Equity securities without readily determinable fair values are included as part of accrued interest receivable and other assets in the Company’s Consolidated Statements of Condition. The Company monitors its equity investments without readily determinable fair values to identify potential transactions that may indicate an observable price change in orderly transactions for the identical or a similar investment of the same issuer, requiring adjustment to its carrying amount. The Company recorded no upward or downward adjustments related to such observable price changes for the three and six months ended June 30, 2023 or June 30, 2022. The Company conducts a quarterly assessment of its equity securities without readily determinable fair values to determine whether impairment exists in such securities, considering, among other factors, the nature of the securities, financial condition of the issuer and expected future cash flows. During the three months ended June 30, 2023, the Company recorded no impairment of equity securities without readily determinable fair values. During the three months ended June 30, 2022, the Company recorded $3.8 million of impairment of equity securities without readily determinable fair values. During the six months ended June 30, 2023, the Company recorded no of impairment of equity securities without readily determinable fair values. During the six months ended June 30, 2022, the Company recorded $4.4 million of impairment of equity securities without readily determinable fair values.

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The following table presents the portion of the Company’s available-for-sale investment securities portfolios that have gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at June 30, 2023:


	Continuous unrealized losses existing for less than 12 months				Continuous unrealized losses existing for greater than 12 months				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-sale securities

U.S. government agencies	$	29,909	$	(91)	$	44,366	$	(5,634)	$	74,275	$	(5,725)
Municipal	101,356		(1,988)		53,731		(4,243)		155,087		(6,231)
Corporate notes:
Financial issuers	—		—		71,075		(12,920)		71,075		(12,920)
Other	985		(15)		—		—		985		(15)
Mortgage-backed: (1)
Mortgage-backed securities	876,659		(18,454)		2,225,624		(465,205)		3,102,283		(483,659)
Collateralized mortgage obligations	37		(1)		76,414		(17,921)		76,451		(17,922)
Total available-for-sale securities	$	1,008,946	$	(20,549)	$	2,471,210	$	(505,923)	$	3,480,156	$	(526,472)

(1)Consisting entirely of residential mortgage-backed securities, none of which are subprime.

The Company conducts a regular assessment of its investment securities to determine whether securities are experiencing credit losses. Factors for consideration include the nature of the securities, credit ratings or financial condition of the issuer, the extent of the unrealized loss, expected cash flows, market conditions and the Company’s ability to hold the securities through the anticipated recovery period.

The Company does not consider available-for-sale securities with unrealized losses at June 30, 2023 to be experiencing credit losses and recognized no resulting allowance for credit losses for such individually assessed credit losses. The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost bases, which may be the maturity dates of the securities. The unrealized losses within each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. Available-for-sale securities with continuous unrealized losses existing for more than twelve months at June 30, 2023 were primarily mortgage-backed securities with unrealized losses due to increased market rates during such period.

See Note (7) “Allowance for Credit Losses” for further discussion regarding any credit losses associated with held-to-maturity securities at June 30, 2023.

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The following table provides information as to the amount of gross gains and losses, adjustments and impairment on investment securities recognized in earnings and proceeds received through the sale or call of investment securities:


	Three months ended June 30,				Six months ended June 30,
(In thousands)	2023		2022		2023		2022
Realized gains on investment securities	$	6	$	7	$	611	$	265
Realized losses on investment securities	(6)		(7)		(51)		(14)
Net realized gains on investment securities	—		—		560		251
Unrealized gains on equity securities with readily determinable fair value	684		2		2,974		182
Unrealized losses on equity securities with readily determinable fair value	(684)		(4,013)		(2,136)		(6,655)
Net unrealized gains (losses) on equity securities with readily determinable fair value	—		(4,011)		838		(6,473)
Upward adjustments of equity securities without readily determinable fair values	—		—		—		—
Downward adjustments of equity securities without readily determinable fair values	—		—		—		—
Impairment of equity securities without readily determinable fair values	—		(3,786)		—		(4,357)
Adjustment and impairment, net, of equity securities without readily determinable fair values	—		(3,786)		—		(4,357)
Gains (losses) on investment securities, net	$	—	$	(7,797)	$	1,398	$	(10,579)





Proceeds from sales of available-for-sale securities(1)	$	—	$	—	$	—	$	—

Proceeds from sales of equity securities with readily determinable fair value	—		—		23,592		18,753
Proceeds from sales and capital distributions of equity securities without readily determinable fair value	—		279		67		529

(1)Includes proceeds from available-for-sale securities sold in accordance with written covered call options sold to a third party.

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The amortized cost and fair value of available-for-sale and held-to-maturity investment securities as of June 30, 2023, December 31, 2022 and June 30, 2022, by contractual maturity, are shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without penalties:


	June 30, 2023				December 31, 2022				June 30, 2022
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale securities
Due in one year or less	$	93,724	$	93,137	$	119,830	$	119,275	$	55,058	$	54,824
Due in one to five years	138,704		126,776		63,644		61,701		75,941		74,559
Due in five to ten years	41,655		36,315		115,734		105,076		115,378		109,492
Due after ten years	64,452		57,518		64,590		57,478		68,885		65,730
Mortgage-backed	3,680,316		3,178,735		3,405,836		2,899,487		3,016,239		2,665,516
Total available-for-sale securities	$	4,018,851	$	3,492,481	$	3,769,634	$	3,243,017	$	3,331,501	$	2,970,121
Held-to-maturity securities
Due in one year or less	$	2,479	$	2,475	$	1,340	$	1,332	$	1,457	$	1,458
Due in one to five years	102,182		96,806		94,705		89,093		84,906		80,705
Due in five to ten years	106,708		105,054		115,318		113,758		105,450		105,491
Due after ten years	362,252		289,426		365,510		288,460		331,034		276,214
Mortgage-backed	2,991,258		2,394,130		3,064,182		2,457,178		2,890,705		2,436,401
Total held-to-maturity securities	$	3,564,879	$	2,887,891	$	3,641,055	$	2,949,821	$	3,413,552	$	2,900,269
Less: Allowance for credit losses	(406)				(488)				(83)
Held-to-maturity securities, net of allowance for credit losses	$	3,564,473			$	3,640,567			$	3,413,469

Securities having a carrying value of $6.4 billion at June 30, 2023 as well as securities having a carrying value of $2.8 billion at both December 31, 2022 and June 30, 2022, respectively, were pledged as collateral for public deposits, trust deposits, Federal Home Loan Bank (“FHLB”) advances and available lines of credit, securities sold under repurchase agreements and derivatives. At June 30, 2023, there were no securities of a single issuer, other than U.S. government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

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(6) Loans

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


	June 30,			December 31,			June 30,
(Dollars in thousands)	2023			2022			2022
Balance:
Commercial	$	12,600,471		$	12,549,164		$	12,047,105
Commercial real estate	10,608,811			9,950,947			9,407,205
Home equity	336,974			332,698			325,826
Residential real estate	2,643,240			2,372,383			2,078,907
Premium finance receivables
Property and casualty insurance	6,762,698			5,849,459			5,541,447
Life insurance	8,039,273			8,090,998			7,608,433
Consumer and other	31,941			50,836			44,180
Total loans, net of unearned income	$	41,023,408		$	39,196,485		$	37,053,103
Mix:
Commercial	31		%	32		%	32		%
Commercial real estate	26			25			25
Home equity	1			1			1
Residential real estate	6			6			6
Premium finance receivables
Property and casualty insurance	16			15			15
Life insurance	20			21			21
Consumer and other	0			0			0
Total loans, net of unearned income	100		%	100		%	100		%

The Company’s loan portfolio is generally comprised of loans to consumers and small to medium-sized businesses, which, for the commercial and commercial real estate portfolios, are located primarily within the geographic market areas that the banks serve. Various niche lending businesses, including lease finance and franchise lending, operate on a national level. The premium finance receivables portfolios are made to customers throughout the United States and Canada. The Company strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower, and geographic concentrations. Such diversification reduces the exposure to economic downturns that may occur in different segments of the economy or in different industries.

Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $281.7 million at June 30, 2023, $224.5 million at December 31, 2022 and $160.6 million at June 30, 2022.

Total loans, excluding purchased credit deteriorated (“PCD”) loans, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $72.8 million at June 30, 2023, $71.8 million at December 31, 2022 and $70.2 million at June 30, 2022.

It is the policy of the Company to review each prospective credit in order to determine the appropriateness and, when required, the adequacy of security or collateral necessary to obtain when making a loan. The type of collateral, when required, will vary from liquid assets to real estate. The Company seeks to ensure access to collateral, in the event of default, through adherence to state lending laws and the Company’s credit monitoring procedures.

(7) Allowance for Credit Losses

In accordance with ASC 326, the Company is required to measure the allowance for credit losses of financial assets with similar risk characteristics on a collective or pooled basis. In considering the segmentation of financial assets measured at amortized cost into pools, the Company considered various risk characteristics in its analysis. Generally, the segmentation utilized represents the level at which the Company develops and documents its systematic methodology to determine the allowance for credit losses for the financial assets held at amortized cost, specifically the Company's loan portfolio and debt securities

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classified as held-to-maturity. Descriptions of the Company’s loan portfolio segments and major debt security types are included in Note (5) “Allowance for Credit Losses” of the 2022 Form 10-K.

In accordance with ASC 326, the Company elected to not measure an allowance for credit losses on accrued interest. As such accrued interest is written off in a timely manner when deemed uncollectible. Any such write-off of accrued interest will reverse previously recognized interest income. In addition, the Company elected to not include accrued interest within presentation and disclosures of the carrying amount of financial assets held at amortized cost. This election is applicable to the various disclosures included within the Company's financial statements. Accrued interest related to financial assets held at amortized cost is included within accrued interest receivable and other assets within the Company's Consolidated Statements of Condition and totaled $267.3 million at June 30, 2023, $214.0 million at December 31, 2022, and $130.9 million at June 30, 2022.

The tables below show the aging of the Company’s loan portfolio by the segmentation noted above at June 30, 2023, December 31, 2022 and June 30, 2022:


As of June 30, 2023			90+ days and still accruing		60-89 days past due		30-59 days past due
(In thousands)	Nonaccrual								Current		Total Loans
Loan Balances (includes PCD):
Commercial






Commercial, industrial and other	$	40,460	$	573	$	22,808	$	48,970	$	12,487,660	$	12,600,471

Commercial real estate
Construction and development	12,536		—		—		766		1,747,134		1,760,436
Non-construction	5,947		—		1,054		13,452		8,827,922		8,848,375







Home equity	1,361		110		316		601		334,586		336,974

Residential real estate, excluding early buy-out loans	13,652		—		7,243		872		2,433,625		2,455,392


Premium finance receivables
Property and casualty insurance loans	19,583		12,785		22,670		32,751		6,674,909		6,762,698
Life insurance loans	6		1,667		3,729		90,117		7,943,754		8,039,273

Consumer and other	4		28		51		146		31,712		31,941
Total loans, net of unearned income, excluding early buy-out loans	$	93,549	$	15,163	$	57,871	$	187,675	$	40,481,302	$	40,835,560
Early buy-out loans guaranteed by U.S. government agencies (1)	117		57,728		918		—		129,085		187,848
Total loans, net of unearned income	$	93,666	$	72,891	$	58,789	$	187,675	$	40,610,387	$	41,023,408


As of December 31, 2022			90+ days and still accruing		60-89 days past due		30-59 days past due
(In thousands)	Nonaccrual								Current		Total Loans
Loan Balances (includes PCD):
Commercial






Commercial, industrial and other	$	35,579	$	462	$	21,128	$	56,696	$	12,435,299	$	12,549,164

Commercial real estate
Construction and development	416		—		361		14,390		1,471,763		1,486,930
Non-construction	5,971		—		1,883		16,285		8,439,878		8,464,017







Home equity	1,487		—		—		2,152		329,059		332,698

Residential real estate, excluding early buy-out loans	10,171		—		4,364		9,982		2,183,078		2,207,595

Premium finance receivables
Property and casualty insurance loans	13,470		15,841		14,926		40,557		5,764,665		5,849,459
Life insurance loans	—		17,245		5,260		68,725		7,999,768		8,090,998

Consumer and other	6		49		18		224		50,539		50,836
Total loans, net of unearned income, excluding early buy-out loans	$	67,100	$	33,597	$	47,940	$	209,011	$	38,674,049	$	39,031,697
Early buy-out loans guaranteed by U.S. government agencies (1)	31,279		47,450		984		1,584		83,491		164,788
Total loans, net of unearned income	$	98,379	$	81,047	$	48,924	$	210,595	$	38,757,540	$	39,196,485

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

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As of June 30, 2022			90+ days and still accruing		60-89 days past due		30-59 days past due
(In thousands)	Nonaccrual								Current		Total Loans
Loan Balances (includes PCD):
Commercial






Commercial, industrial and other	$	32,436	$	—	$	16,789	$	14,120	$	11,983,760	$	12,047,105

Commercial real estate
Construction and development	889		—		—		1,144		1,504,285		1,506,318
Non-construction	9,829		—		6,771		33,076		7,851,211		7,900,887







Home equity	1,084		—		154		930		323,658		325,826

Residential real estate, excluding early buy-out loans	8,330		—		534		147		1,956,040		1,965,051

Premium finance receivables
Property and casualty insurance loans	13,303		6,447		15,299		23,313		5,483,085		5,541,447
Life insurance loans	—		—		1,796		65,155		7,541,482		7,608,433

Consumer and other	8		25		8		119		44,020		44,180
Total loans, net of unearned income, excluding early buy-out loans	$	65,879	$	6,472	$	41,351	$	138,004	$	36,687,541	$	36,939,247
Early buy-out loans guaranteed by U.S. government agencies (1)	23,815		50,314		272		—		39,455		113,856
Total loans, net of unearned income	$	89,694	$	56,786	$	41,623	$	138,004	$	36,726,996	$	37,053,103

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

Credit Quality Indicators

Credit quality indicators, specifically the Company's internal risk rating systems, reflect how the Company monitors credit losses and represents factors used by the Company when measuring the allowance for credit losses. Descriptions of the Company’s credit quality indicators by financial asset are included in Note (5) “Allowance for Credit Losses” of the 2022 Form 10-K.

The table below shows the Company’s loan portfolio by credit quality indicator and year of origination at June 30, 2023:


	Year of Origination														Revolving		Total
(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving		to Term		Loans
Loan Balances:
Commercial, industrial and other
Pass	$	1,432,042	$	2,302,642	$	1,892,615	$	842,764	$	536,136	$	1,091,823	$	4,016,909	$	3,612	$	12,118,543
Special mention	4,953		44,081		72,155		5,689		18,040		6,820		94,418		1,328		247,484
Substandard accrual	3,046		36,007		39,858		3,177		9,549		41,282		60,683		382		193,984
Substandard nonaccrual/doubtful	—		1,100		5,576		1,848		27,455		4,316		165		—		40,460
Total commercial, industrial and other	$	1,440,041	$	2,383,830	$	2,010,204	$	853,478	$	591,180	$	1,144,241	$	4,172,175	$	5,322	$	12,600,471






Construction and development
Pass	$	137,138	$	623,589	$	479,051	$	191,308	$	110,298	$	115,876	$	16,549	$	367	$	1,674,176
Special mention	—		—		1,699		18,420		20,000		14,250		—		—		54,369
Substandard accrual	—		2,475		—		—		3,464		13,416		—		—		19,355
Substandard nonaccrual/doubtful	—		4,190		—		8,248		—		98		—		—		12,536
Total construction and development	$	137,138	$	630,254	$	480,750	$	217,976	$	133,762	$	143,640	$	16,549	$	367	$	1,760,436
Non-construction
Pass	$	824,864	$	1,857,052	$	1,423,876	$	972,603	$	788,128	$	2,549,042	$	192,636	$	1,415	$	8,609,616
Special mention	2,479		5,088		28,536		—		26,357		63,570		1,439		—		127,469
Substandard accrual	—		1,431		2,964		21,406		11,012		68,530		—		—		105,343
Substandard nonaccrual/doubtful	—		—		25		—		586		5,336		—		—		5,947
Total non-construction	$	827,343	$	1,863,571	$	1,455,401	$	994,009	$	826,083	$	2,686,478	$	194,075	$	1,415	$	8,848,375
Home equity
Pass	$	—	$	—	$	63	$	—	$	93	$	6,207	$	317,066	$	—	$	323,429
Special mention	—		230		—		—		59		1,763		2,370		—		4,422
Substandard accrual	—		—		—		—		—		6,596		1,038		128		7,762
Substandard nonaccrual/doubtful	—		—		77		115		18		937		98		116		1,361
Total home equity	$	—	$	230	$	140	$	115	$	170	$	15,503	$	320,572	$	244	$	336,974
Residential real estate
Early buy-out loans guaranteed by U.S. government agencies	$	—	$	24	$	1,384	$	9,713	$	19,125	$	157,602	$	—	$	—	$	187,848
Pass	254,659		827,009		809,152		221,005		116,043		189,815		—		—		2,417,683

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Special mention	39		3,470		994		1,355		534		5,317		—		—		11,709
Substandard accrual	583		2,562		4,377		1,165		260		3,401		—		—		12,348
Substandard nonaccrual/doubtful	—		912		1,206		744		2,497		8,293		—		—		13,652
Total residential real estate	$	255,281	$	833,977	$	817,113	$	233,982	$	138,459	$	364,428	$	—	$	—	$	2,643,240
Premium finance receivables - property and casualty
Pass	$	5,638,768	$	919,368	$	26,646	$	4,012	$	361	$	—	$	—	$	—	$	6,589,155
Special mention	130,056		17,308		255		10		—		—		—		—		147,629
Substandard accrual	3,220		3,110		1		—		—		—		—		—		6,331
Substandard nonaccrual/doubtful	4,554		14,811		213		5		—		—		—		—		19,583
Total premium finance receivables - property and casualty	$	5,776,598	$	954,597	$	27,115	$	4,027	$	361	$	—	$	—	$	—	$	6,762,698
Premium finance receivables - life
Pass	$	125,737	$	584,412	$	875,181	$	1,063,640	$	949,935	$	4,404,124	$	—	$	—	$	8,003,029
Special mention	—		—		758		6,323		—		29,157		—		—		36,238
Substandard accrual	—		—		—		—		—		—		—		—		—
Substandard nonaccrual/doubtful	—		6		—		—		—		—		—		—		6
Total premium finance receivables - life	$	125,737	$	584,418	$	875,939	$	1,069,963	$	949,935	$	4,433,281	$	—	$	—	$	8,039,273
Consumer and other
Pass	$	2,344	$	1,904	$	1,077	$	163	$	399	$	—	$	25,849	$	—	$	31,736
Special mention	2		13		—		—		2		127		1		—		145
Substandard accrual	—		9		—		—		—		37		10		—		56
Substandard nonaccrual/doubtful	—		—		4		—		—		—		—		—		4
Total consumer and other	$	2,346	$	1,926	$	1,081	$	163	$	401	$	164	$	25,860	$	—	$	31,941
Total loans
Early buy-out loans guaranteed by U.S. government agencies	$	—	$	24	$	1,384	$	9,713	$	19,125	$	157,602	$	—	$	—	$	187,848
Pass	8,415,552		7,115,976		5,507,661		3,295,495		2,501,393		8,356,887		4,569,009		5,394		39,767,367
Special mention	137,529		70,190		104,397		31,797		64,992		121,004		98,228		1,328		629,465
Substandard accrual	6,849		45,594		47,200		25,748		24,285		133,262		61,731		510		345,179
Substandard nonaccrual/doubtful	4,554		21,019		7,101		10,960		30,556		18,980		263		116		93,549
Total loans	$	8,564,484	$	7,252,803	$	5,667,743	$	3,373,713	$	2,640,351	$	8,787,735	$	4,729,231	$	7,348	$	41,023,408
Gross write offs
Three months ended June 30, 2023	$	4,963	$	569	$	1,055	$	5,159	$	5,014	$	1,756	$	—	$	—	$	18,516
Six months ended June 30, 2023	5,441		5,462		2,249		5,496		5,332		1,887		—		—		25,867

Held-to-maturity debt securities

The Company conducts an assessment of its investment securities, including those classified as held-to-maturity, at the time of purchase and on at least an annual basis to ensure such investment securities remain within appropriate levels of risk and continue to perform satisfactorily in fulfilling its obligations. The Company considers, among other factors, the nature of the securities and credit ratings or financial condition of the issuer. If available, the Company obtains a credit rating for issuers from a Nationally Recognized Statistical Rating Organization (“NRSRO”) for consideration. If no such rating is available for an issuer, the Company performs an internal rating based on the scale utilized within the loan portfolio as discussed above. For purposes of the table below, the Company has converted any issuer rating from an NRSRO into the Company’s internal ratings based on Investment Policy and review by the Company’s management.

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As of June 30, 2023	Year of Origination												Total
(In thousands)	2023		2022		2021		2020		2019		Prior		Balance
Amortized Cost Balances:
U.S. government agencies
1-4 internal grade	$	—	$	160,000	$	147,806	$	25,000	$	4,000	$	2,798	$	339,604
5-7 internal grade													—
8-10 internal grade													—
Total U.S. government agencies	$	—	$	160,000	$	147,806	$	25,000	$	4,000	$	2,798	$	339,604
Municipal
1-4 internal grade	$	1,996	$	1,041	$	6,955	$	264	$	616	$	165,256	$	176,128
5-7 internal grade	—		—		—		—		—		—		—
8-10 internal grade	—		—		—		—		—		—		—
Total municipal	$	1,996	$	1,041	$	6,955	$	264	$	616	$	165,256	$	176,128
Mortgage-backed securities
1-4 internal grade	$	5,065	$	595,015	$	2,391,178	$	—	$	—	$	—	$	2,991,258
5-7 internal grade	—		—		—		—		—		—		—
8-10 internal grade	—		—		—		—		—		—		—
Total mortgage-backed securities	$	5,065	$	595,015	$	2,391,178	$	—	$	—	$	—	$	2,991,258
Corporate notes
1-4 internal grade	$	—	$	14,964	$	—	$	6,008	$	7,269	$	29,648	$	57,889
5-7 internal grade	—		—		—		—		—		—		—
8-10 internal grade	—		—		—		—		—		—		—
Total corporate notes	$	—	$	14,964	$	—	$	6,008	$	7,269	$	29,648	$	57,889
Total held-to-maturity securities													$	3,564,879
Less: Allowance for credit losses													(406)
Held-to-maturity securities, net of allowance for credit losses													$	3,564,473

Measurement of Allowance for Credit Losses

The Company's allowance for credit losses consists of the allowance for loan losses, the allowance for unfunded commitment losses and the allowance for held-to-maturity debt security losses. In accordance with ASC 326, the Company measures the allowance for credit losses at the time of origination or purchase of a financial asset, representing an estimate of lifetime expected credit losses on the related asset. When developing its estimate, the Company considers available information relevant to assessing the collectability of cash flows, from both internal and external sources. Historical credit loss experience is one input in the estimation process as well as inputs relevant to current conditions and reasonable and supportable forecasts. In considering past events, the Company considers the relevance, or lack thereof, of historical information due to changes in such things as financial asset underwriting or collection practices, and changes in portfolio mix due to changing business plans and strategies. In considering current conditions and forecasts, the Company considers both the current economic environment and the forecasted direction of the economic environment with emphasis on those factors deemed relevant to or driving changes in expected credit losses. As significant judgment is required, the review of the appropriateness of the allowance for credit losses is performed quarterly by various committees with participation by the Company's executive management.


	June 30,		December 31,		June 30,
(In thousands)	2023		2022		2022





Allowance for loan losses	$	302,499	$	270,173	$	251,769
Allowance for unfunded lending-related commitments losses	84,881		87,275		60,340
Allowance for loan losses and unfunded lending-related commitments losses	387,380		357,448		312,109
Allowance for held-to-maturity securities losses	406		488		83
Allowance for credit losses	$	387,786	$	357,936	$	312,192

The allowance for credit losses is measured on a collective or pooled basis when similar risk characteristics exist, based upon the segmentation discussed above. The Company utilizes modeling methodologies that estimate lifetime credit loss rates on each pool, including methodologies estimating the probability of default and loss given default on specific segments. Historical credit loss history is adjusted for reasonable and supportable forecasts developed by the Company on a quantitative or qualitative basis and incorporates third party economic forecasts. Reasonable and supportable forecasts consider the macroeconomic factors that are most relevant to evaluating and predicting expected credit losses in the Company's financial assets. Currently, the Company utilizes an eight quarter forecast period using a single macroeconomic scenario provided by a

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third party and reviewed within the Company's governance structure. For periods beyond the ability to develop reasonable and supportable forecasts, the Company reverts to historical loss rates at an input level, straight-line over a four quarter reversion period. Expected credit losses are measured over the contractual term of the financial asset with consideration of expected prepayments. Expected extensions, renewals or modifications of the financial asset are considered when the expected extension, renewal or modification is contained within the existing agreement and is not unconditionally cancelable. The methodologies discussed above are applied to both current asset balances on the Company's Consolidated Statements of Condition and off-balance sheet commitments (i.e. unfunded lending-related commitments).

Assets that do not share similar risk characteristics with a pool are assessed for the allowance for credit losses on an individual basis. These typically include assets experiencing financial difficulties, including assets rated as substandard nonaccrual and doubtful. If foreclosure is probable or the asset is considered collateral-dependent, expected credit losses are measured based upon the fair value of the underlying collateral adjusted for selling costs, if appropriate. Underlying collateral across the Company's segments consist primarily of real estate, land and construction assets as well as general business assets of the borrower. As of June 30, 2023, excluding loans carried at fair value, substandard nonaccrual loans totaling $23.5 million in carrying balance had no related allowance for credit losses.

The Company does not measure an allowance for credit losses on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when assets are placed on nonaccrual status.

Loan portfolios

A summary of activity in the allowance for credit losses, specifically for the loan portfolio (i.e. allowance for loan losses and allowance for unfunded commitment losses), for the three and six months ended June 30, 2023 and 2022 is as follows.


Three months ended June 30, 2023			Commercial Real Estate		Home Equity		Residential Real Estate		Premium Finance Receivables		Consumer and Other		Total Loans
(In thousands)	Commercial

Allowance for credit losses at beginning of period	$	149,501	$	194,780	$	7,728	$	11,434	$	11,955	$	400	$	375,798

Other adjustments	—		—		—		—		41		—		41
Charge-offs	(5,629)		(8,124)		—		—		(4,653)		(110)		(18,516)
Recoveries	505		25		37		6		890		23		1,486
Provision for credit losses	(1,235)		29,015		(798)		812		813		(36)		28,571


Allowance for credit losses at period end	$	143,142	$	215,696	$	6,967	$	12,252	$	9,046	$	277	$	387,380
By measurement method:
Individually measured	$	7,205	$	5,819	$	—	$	106	$	—	$	—	$	13,130
Collectively measured	135,937		209,877		6,967		12,146		9,046		277		374,250

Loans at period end
Individually measured	$	40,460	$	18,483	$	1,361	$	13,496	$	—	$	4	$	73,804
Collectively measured	12,560,011		10,590,328		335,613		2,429,297		14,801,971		31,937		40,749,157

Loans held at fair value	—		—		—		200,447		—		—		200,447


Three months ended June 30, 2022	Commercial		Commercial Real Estate		Home Equity		Residential Real Estate		Premium Finance Receivables		Consumer and Other		Total Loans
(In thousands)

Allowance for credit losses at beginning of period	$	120,911	$	144,906	$	10,566	$	9,429	$	14,722	$	634	$	301,168

Other adjustments	—		—		—		—		(56)		—		(56)

Charge-offs	(8,928)		(40)		(192)		—		(2,903)		(253)		(12,316)
Recoveries	996		553		123		6		1,119		23		2,820
Provision for credit losses	29,940		(1,687)		(3,507)		1,044		(5,380)		83		20,493
Allowance for credit losses at period end	$	142,919	$	143,732	$	6,990	$	10,479	$	7,502	$	487	$	312,109
By measurement method:
Individually measured	$	5,674	$	99	$	105	$	790	$	—	$	—	$	6,668
Collectively measured	137,245		143,633		6,885		9,689		7,502		487		305,441

Loans at period end
Individually measured	$	34,892	$	20,377	$	11,876	$	18,333	$	—	$	79	$	85,557
Collectively measured	12,012,213		9,386,828		313,950		1,937,817		13,149,880		44,101		36,844,789

Loans held at fair value	—		—		—		122,757		—		—		122,757

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Six months ended June 30, 2023			Commercial Real Estate		Home Equity		Residential Real Estate		Premium Finance Receivables		Consumer and Other		Total Loans
(In thousands)	Commercial

Allowance for credit losses at beginning of period	$	142,769	$	184,352	$	7,573	$	11,585	$	10,671	$	498	$	357,448
Cumulative effect adjustment from the adoption of ASU 2016-13	111		1,356		(33)		(692)		—		(1)		741
Other adjustments	—		—		—		—		45		—		45
Charge-offs	(8,172)		(8,129)		—		—		(9,303)		(263)		(25,867)
Recoveries	897		125		72		10		2,213		55		3,372
Provision for credit losses	7,537		37,992		(645)		1,349		5,420		(12)		51,641


Allowance for credit losses at period end	$	143,142	$	215,696	$	6,967	$	12,252	$	9,046	$	277	$	387,380


Six months ended June 30, 2022			Commercial Real Estate		Home Equity		Residential Real Estate		Premium Finance Receivables		Consumer and Other		Total Loans
(In thousands)	Commercial

Allowance for credit losses at beginning of period	$	119,307	$	144,583	$	10,699	$	8,782	$	15,859	$	423	$	299,653

Other adjustments	—		—		—		—		(34)		—		(34)
Charge-offs	(10,342)		(817)		(389)		(466)		(4,581)		(446)		(17,041)
Recoveries	1,534		585		216		11		2,595		72		5,013
Provision for credit losses	32,420		(619)		(3,536)		2,152		(6,337)		438		24,518
Allowance for credit losses at period end	$	142,919	$	143,732	$	6,990	$	10,479	$	7,502	$	487	$	312,109

For the three and six months ended June 30, 2023, the Company recognized approximately $28.6 million and $51.6 million of provision for credit losses, respectively, related to loans and lending agreements. The provision for each period was primarily the result of loan growth as well as the Company’s macroeconomic forecasts of key model inputs, most notably, Baa corporate credit spreads and the Commercial Real Estate Pricing Index (“CREPI”). Uncertainties remain regarding expected economic performance and macroeconomic forecasts utilized in the measurement of the allowance for credit losses as of June 30, 2023. Other key drivers of provision for credit losses in these portfolios include, but are not limited to, stable loan risk rating migration. Net charge-offs in the three and six month periods ending June 30, 2023, totaled $17.0 million and $22.5 million, respectively.

Held-to-maturity debt securities

The allowance for credit losses on the Company’s held-to-maturity debt securities is presented as a reduction to the amortized cost basis of held-to-maturity securities on the Company's Consolidated Statements of Condition. For the three and six month period ended June 30, 2023, the Company recognized approximately $(57,000) and $(82,000), respectively, of provision for credit losses related to held-to-maturity securities. At June 30, 2023, the Company did not identify any losses within its portfolio that it would deem a credit loss and require additional measurement of an allowance for credit losses.

Loan Modifications to Borrowers Experiencing Financial Difficulties

The Company’s approach to restructuring or modifying loans is built on its credit risk rating system, which requires credit management personnel to assign a credit risk rating to each loan. In each case, the loan officer is responsible for recommending a credit risk rating for each loan and ensuring the credit risk ratings are appropriate. These credit risk ratings are then reviewed and approved by the bank’s chief credit officer and/or concurrence credit officer. Credit risk ratings are determined by evaluating a number of factors, including a borrower’s financial strength, cash flow coverage, collateral protection and guarantees. The Company’s credit risk rating scale is one through ten with higher scores indicating higher risk. In the case of loans rated six or worse following modification, the Company’s Managed Assets Division evaluates the loan and the credit risk rating and determines that the loan has been restructured to be reasonably assured of repayment and of performance according to the modified terms and is supported by a current, well-documented credit assessment of the borrower’s financial condition and prospects for repayment under the revised terms. Based on the Company’s credit risk rating system, it considers that borrowers whose credit risk rating is 5 or better are not experiencing financial difficulties.

Restructurings may arise when, due to financial difficulties experienced by the borrower, the Company obtains through physical possession one or more collateral assets in satisfaction of all or part of an existing credit. Once possession is obtained, the Company reclassifies the appropriate portion of the remaining balance of the credit from loans to other real estate owned

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(“OREO”), which is included within other assets in the Consolidated Statements of Condition. For any residential real estate property collateralizing a consumer mortgage loan, the Company is considered to possess the related collateral only if legal title is obtained upon completion of foreclosure, or the borrower conveys all interest in the residential real estate property to the Company through completion of a deed in lieu of foreclosure or similar legal agreement. At June 30, 2023, the Company had $318,000 of foreclosed residential real estate properties included within OREO. Further, the recorded investment in residential mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process totaled $50.4 million and $10.9 million at June 30, 2023 and 2022, respectively.

The table below presents a summary of the balance immediately following the modification of loans to borrowers experiencing financial difficulties during the three months and six months ended June 30, 2023:


Three months ended June 30, 2023 (Dollars in thousands)	Total (1)			Percentage of Total Class of Loan		Extension of Term (1)		Reduction of Interest Rate (1)		Delay in Contractual Payments (1)		Extension of Term and Reduction of Interest Rate (1)

Commercial
Commercial, industrial and other	$	423		0.0	%	$	—	$	—	$	—	$	423
Commercial real estate

Non-construction	4,376			0.0		—		—		—		4,376
Home equity	—			—		—		—		—		—
Residential real estate	264			0.0		143		—		—		121
Premium finance receivables
Property and casualty insurance loans	—			—		—		—		—		—
Total loans	$	5,063		0.0	%	$	143	$	—	$	—	$	4,920

Weighted average magnitude of modifications:
Duration of extension of term	43 months
Reduction of interest rate	207		bps


Six months ended June 30, 2023 (Dollars in thousands)	Total (1)			Percentage of Total Class of Loan		Extension of Term (1)		Reduction of Interest Rate (1)		Delay in Contractual Payments (1)		Extension of Term and Reduction of Interest Rate (1)

Commercial
Commercial, industrial and other	$	37,897		0.3	%	$	1,938	$	221	$	35,265	$	473
Commercial real estate

Non-construction	5,709			0.1		467		827		39		4,376
Home equity	203			0.1		203		—		—		—
Residential real estate	1,972			0.1		1,396		271		—		305
Premium finance receivables
Property and casualty insurance loans	11			—		3		—		—		8
Total loans	$	45,792		0.1	%	$	4,007	$	1,319	$	35,304	$	5,162

Weighted average magnitude of modifications:
Duration of extension of term	36 months
Reduction of interest rate	223		bps
Duration of delayed contractual payment terms	17 months

(1)Balances represent the recorded investment in the loan at the time of the restructuring.

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The following table presents a summary of all loans for borrowers experiencing financial difficulties modified during the six months ended June 30, 2023, and such loans that were in payment default under the restructured terms during the respective periods below:


(Dollars in thousands)	As of June 30, 2023		Three Months Ended June 30, 2023		Six Months Ended June 30, 2023
	Total (2)		Payments in Default (1)(2)		Payments in Default (1)(2)
Commercial
Commercial, industrial and other	$	37,897	$	18,729	$	18,729
Commercial real estate

Non-construction	5,709		923		923
Home equity	203		203		203
Residential real estate	1,972		541		541
Premium finance receivables
Property and casualty insurance loans	11		11		11
Total loans	$	45,792	$	20,407	$	20,407

(1)Modified loans considered to be in payment default are over 30 days past due subsequent to the restructuring.

(2)Balances represent the recorded investment in the loan at the time of the restructuring.

TDRs

Reporting periods prior to the adoption of ASU 2022-02 as of January 1, 2023 present information on loan modifications representing TDRs under the prior accounting standards and related disclosure requirements.

The table below presents a summary of the balance immediately following the modification of loans restructured during the three months ended June 30, 2022 which represent TDRs:


Three months ended June 30, 2022 (Dollars in thousands)	Total (1)(2)			Extension at Below Market Terms (2)			Reduction of Interest Rate (2)			Modification to Interest-only Payments (2)			Forgiveness of Debt (2)
	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	2	$	186	2	$	185	—	$	—	—	$	—	—	$	—


Commercial real estate




Non-construction	—	—		—	—		—	—		—	—		—	—
Residential real estate and other	14	2,235		14	2,235		10	1,805		—	—		—	—
Total loans	16	$	2,421	16	$	2,420	10	$	1,805	—	$	—	—	$	—


Six months ended June 30, 2022 (Dollars in thousands)	Total (1)(2)			Extension at Below Market Terms (2)			Reduction of Interest Rate (2)			Modification to Interest-only Payments (2)			Forgiveness of Debt(2)
	Count	Balance		Count	Balance		Count	Balance		Count	Balance		Count	Balance
Commercial
Commercial, industrial and other	5	$	468	4	$	305	1	$	85	2	$	247	—	$	—


Commercial real estate




Non-construction	2	1,907		1	1,178		1	1,178		2	1,907		—	—
Residential real estate and other	22	3,143		22	3,143		17	2,567		—	—		—	—
Total loans	29	$	5,518	27	$	4,626	19	$	3,830	4	$	2,154	—	$	—

(1)TDRs may have more than one modification representing a concession. As such, TDRs during the period may be represented in more than one of the categories noted above.

(2)Balances represent the recorded investment in the loan at the time of the restructuring.

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During the three months ended June 30, 2022, 16 loans totaling $2.4 million were determined to be TDRs. Of these loans extended at below market terms, the weighted average extension had a term of 63 months for the quarter ended June 30, 2022. Further, the weighted average decrease in the stated interest rate for loans with a reduction of interest rate during the period was approximately 96 basis points during the three months ended June 30, 2022. Additionally, no principal balances were forgiven during the quarter ended June 30, 2022.

The following table presents a summary of all loans restructured in TDRs during the twelve months ended June 30, 2022 and such loans that were in payment default under the restructured terms during the respective periods below:


(Dollars in thousands)	As of June 30, 2022			Three Months Ended June 30, 2022			Six months ended June 30, 2022
	Total (1)(3)			Payments in Default (2)(3)			Payments in Default (2)(3)
	Count	Balance		Count	Balance			Count	Balance
Commercial
Commercial, industrial and other	16	$	4,995	10	$	4,469		11	$	4,711



Commercial real estate


Non-construction	2	1,907		—	—			—	—




Residential real estate and other	39	6,159		2	345			2	345
Total loans	57	$	13,061	12	$	4,814		13	$	5,056

(1)Total TDRs represent all loans restructured om TDRs during the previous twelve months from the date indicated.

(2)TDRs considered to be in payment default are over 30 days past due subsequent to the restructuring.

(3)Balances represent the recorded investment in the loan at the time of the restructuring.

(8) Goodwill and Other Acquisition-Related Intangible Assets

A summary of the Company’s goodwill assets by reporting unit is presented in the following table:


(In thousands)	December 31, 2022		Goodwill Acquired		Impairment Loss		Goodwill Adjustments		June 30, 2023
Community banking	$	545,671	$	—	$	—	$	—	$	545,671
Specialty finance	38,480		—		—		528		39,008
Wealth management	69,373		2,622		—		—		71,995
Total	$	653,524	$	2,622	$	—	$	528	$	656,674

The wealth management unit’s goodwill increased $2.6 million in the first six months of 2023 as a result of the Rothschild & Co Asset Management U.S. acquisition. The specialty finance unit’s goodwill increased $528,000 in the first six months of 2023 as a result of foreign currency translation adjustments related to the Canadian acquisitions.

The Company assesses each reporting unit’s goodwill for impairment on at least an annual basis and considers potential indicators of impairment at each reporting date between annual goodwill impairment tests. At October 1, 2022, the Company utilized a qualitative approach for its annual goodwill impairment tests of the banking, specialty finance and wealth management reporting units and determined that no impairment existed at that time.

At each reporting date between annual goodwill impairment tests, the Company considers potential indicators of impairment. The Company assessed whether events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value. Potential impairment indicators considered include the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting units; performance of the Company’s stock and other relevant events.

At the conclusion of this assessment of all reporting units, the Company determined that as of June 30, 2023, it was more likely than not that the fair value of all reporting units exceeded the respective carrying value of such reporting unit.

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A summary of acquisition-related intangible assets as of the dates shown and the expected amortization of finite-lived acquisition-related intangible assets as of June 30, 2023 is as follows:


(In thousands)	June 30, 2023		December 31, 2022		June 30, 2022
Community banking segment:
Core deposit intangibles with finite lives:
Gross carrying amount	$	55,206	$	55,206	$	55,206
Accumulated amortization	(44,432)		(42,501)		(40,404)
Net carrying amount	$	10,774	$	12,705	$	14,802
Trademark with indefinite lives:
Carrying amount	5,800		5,800		5,800
Total net carrying amount	$	16,574	$	18,505	$	20,602
Specialty finance segment:
Customer list intangibles with finite lives:
Gross carrying amount	$	1,963	$	1,962	$	1,966
Accumulated amortization	(1,813)		(1,785)		(1,756)
Net carrying amount	$	150	$	177	$	210
Wealth management segment:
Customer list and other intangibles with finite lives:
Gross carrying amount	$	26,630	$	20,430	$	20,430
Accumulated amortization	(17,701)		(16,926)		(16,124)
Net carrying amount	$	8,929	$	3,504	$	4,306
Total acquisition-related intangible assets:
Gross carrying amount	$	89,599	$	83,398	$	83,402
Accumulated amortization	(63,946)		(61,212)		(58,284)
Total other acquisition-related intangible assets, net	$	25,653	$	22,186	$	25,118


Estimated amortization
Actual in six months ended June 30, 2023	$	2,734
Estimated remaining in 2023	2,769
Estimated—2024	4,301
Estimated—2025	3,482
Estimated—2026	2,772
Estimated—2027	2,157

The core deposit intangibles recognized in connection with prior bank acquisitions are amortized over a ten-year period on an accelerated basis. The customer list intangibles recognized in connection with the purchase of life insurance premium finance assets in 2009 are being amortized over an 18-year period on an accelerated basis. The customer list and other intangibles recognized in connection with prior acquisitions within the wealth management segment are being amortized over a period of up to ten years on a straight-line basis. The increase in wealth management segment customer list and other intangibles relates to the acquisition in the second quarter 2023 which is being amortized over a period of ten years on an accelerated basis. Indefinite-lived intangible assets consist of certain trade and domain names recognized in connection with the acquisition of certain assets of Veterans First Mortgage in 2018. As indefinite-lived intangible assets are not amortized, the Company assesses impairment on at least an annual basis.

Total amortization expense associated with finite-lived acquisition-related intangibles totaled approximately $2.7 million and $3.2 million for the six months ended June 30, 2023 and 2022, respectively.

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(9) Mortgage Servicing Rights (“MSRs”)

The following is a summary of the changes in the carrying value of MSRs, accounted for at fair value, for the periods indicated:


	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(In thousands)	2023		2022		2023		2022
Fair value at beginning of the period	$	224,470	199,146		$	230,225	$	147,571
Additions from loans sold with servicing retained	8,720		11,210		13,827		25,611
Servicing rights sold	(30,170)		—		(30,170)		—
Estimate of changes in fair value due to:
Early buyout options (“EBO”) exercised	—		(1)		—		(176)

Payoffs and paydowns	(5,043)		(6,838)		(8,952)		(12,854)
Changes in valuation inputs or assumptions	2,715		9,147		(4,238)		52,512
Fair value at end of the period	$	200,692	$	212,664	$	200,692	$	212,664
Unpaid principal balance of mortgage loans serviced for others	$	11,752,223	$	13,643,623

The Company recognizes MSR assets upon the sale of residential real estate loans to external third parties when it retains the obligation to service the loans and the servicing fee is more than adequate compensation. MSRs are included in other assets in the Consolidated Statements of Condition. The initial recognition of MSR assets from loans sold with servicing retained and subsequent changes in fair value of all MSRs are recognized in mortgage banking revenue. MSRs are subject to changes in value from actual and expected prepayment of the underlying loans.

The estimation of fair value related to MSRs is partly impacted by the Company exercising its EBO on eligible loans previously sold to the Government National Mortgage Association (“GNMA”). Under such optional repurchase program, financial institutions acting as servicers are allowed to buy back from the securitized loan pool individual delinquent mortgage loans meeting certain criteria for which the institution was the original transferor of such loans. At the option of the servicer and without prior authorization from GNMA, the servicer may repurchase such delinquent loans for an amount equal to the remaining principal balance of the loan. At the time of such repurchase, any MSR value related to such loans is derecognized.

The MSR asset fair value is determined by using a discounted cash flow model that incorporates the objective characteristics of the portfolio as well as subjective valuation parameters that purchasers of servicing would apply to such portfolios sold into the secondary market. The subjective factors include loan prepayment speeds, discount rates, servicing costs and other economic factors. The Company uses a third party to assist in the valuation of MSRs.

Periodically, the Company will purchase options for the right to purchase securities not currently held within the banks’ investment portfolios or enter into interest rate swaps in which the Company elects not to designate such derivatives as hedging instruments. These option and swap transactions are designed primarily to economically hedge a portion of the fair value adjustments related to the Company’s MSRs. The gain or loss associated with these derivative contracts is included in mortgage banking revenue. For more information regarding these hedges outstanding as of June 30, 2023, see Note (14) “Derivative Financial Instruments” in Item 1 of this report. There were no such options or swaps outstanding as of June 30, 2022.

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(10) Deposits

The following table is a summary of deposits as of the dates shown:


(Dollars in thousands)	June 30, 2023			December 31, 2022			June 30, 2022
Balance:
Non-interest-bearing	$	10,604,915		$	12,668,160		$	13,855,844
NOW and interest-bearing demand deposits	5,814,836			5,591,986			5,918,908
Wealth management deposits	1,417,984			2,463,833			3,182,407
Money market	14,523,124			12,886,795			12,273,350
Savings	5,321,578			4,556,635			3,686,596
Time certificates of deposit	6,356,270			4,735,135			3,676,221
Total deposits	$	44,038,707		$	42,902,544		$	42,593,326
Mix:
Non-interest-bearing	24		%	30		%	33		%
NOW and interest-bearing demand deposits	13			13			13
Wealth management deposits	3			5			7
Money market	33			30			29
Savings	12			11			9
Time certificates of deposit	15			11			9
Total deposits	100		%	100		%	100		%

Wealth management deposits represent deposit balances (primarily money market accounts) at the Company’s subsidiary banks from brokerage customers of Wintrust Investments, LLC (“Wintrust Investments”), Chicago Deferred Exchange Company (“CDEC”) and trust and asset management customers of the Company.

(11) FHLB Advances, Other Borrowings and Subordinated Notes

The following table is a summary of FHLB advances, other borrowings and subordinated notes as of the dates shown:


(In thousands)	June 30, 2023		December 31, 2022		June 30, 2022
FHLB advances	$	2,026,071	$	2,316,071	$	1,166,071
Other borrowings:
Notes payable	185,539		199,793		69,619
Short-term borrowings	17,773		17,612		16,418
Secured borrowings	326,348		317,942		334,467
Other	135,559		61,267		62,283
Total other borrowings	665,219		596,614		482,787
Subordinated notes	437,628		437,392		437,162
Total FHLB advances, other borrowings and subordinated notes	$	3,128,918	$	3,350,077	$	2,086,020

Descriptions of the Company’s FHLB advances, other borrowings, and subordinated notes are included in Note (11) “Federal Home Loan Bank Advances”, Note (12) “Subordinated Notes” and Note (13) “Other Borrowings” of the 2022 Form 10-K.

Notes Payable

Notes payable balances represent the balances on a credit agreement (as amended, the “Credit Agreement”) with certain unaffiliated banks. The Credit Agreement consisted of a $150.0 million term loan facility and a $100.0 million revolving credit facility. On December 12, 2022, the Company entered into an amendment and restatement of the Credit Agreement pursuant to the Amended and Restated Credit Agreement dated as of December 12, 2022, among the Company and the unaffiliated banks named therein as lenders and agents (the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement provides for, among other things, an increase to the term loan facility to $200.0 million. In connection with the entry into the Amended and Restated Credit Agreement, the outstanding term loan under the existing Credit Agreement was paid in

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full pursuant to the terms thereof. On, July 17, 2023 the Company entered into an amendment (the “Amendment”) to the Amended and Restated Credit Agreement dated December 12, 2022. The Amendment designates 450 Northbrook Trust, a subsidiary of the Company, as a “Specified Subsidiary” under the Amended and Restated Credit Agreement, which excludes it from the scope of certain provisions of the burdensome agreements covenant in the Amended and Restated Credit Agreement. At June 30, 2023, the outstanding principal balance under the term loan facility was $185.5 million and there was no outstanding balance under the revolving credit facility. Borrowings under notes payable are secured by pledges of and first priority perfected security interests in the Company’s equity interest in its bank subsidiaries and contain several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and other indebtedness. At June 30, 2023, the Company was in compliance with all such covenants.

Short-term Borrowings

Short-term borrowings include securities sold under repurchase agreements of customer sweep accounts in connection with master repurchase agreement at the banks. These borrowings totaled $16.3 million at June 30, 2023 compared to $17.6 million and $16.4 million at December 31, 2022 and June 30, 2022, respectively. As of June 30, 2023, the Company had pledged securities related to its customer balances in sweep accounts of $17.8 million. Securities pledged for customer balances in sweep accounts and short-term borrowings from brokers are maintained under the Company’s control and consist of mortgage-backed securities. These securities are included in the available-for-sale portfolio as reflected on the Company’s Consolidated Statements of Condition.

The following is a summary of these securities pledged as of June 30, 2023 disaggregated by investment category and maturity of the related customer sweep account, and reconciled to the outstanding balance of securities sold under repurchase agreements:


(In thousands)	Overnight Sweep Collateral
Available-for-sale securities pledged






Mortgage-backed securities	$	17,819





Excess collateral	1,546
Securities sold under repurchase agreements	$	16,273

Secured Borrowings

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

At June 30, 2023, the translated balance of the secured borrowings totaled $317.1 million compared to $309.7 million at December 31, 2022 and $326.0 million at June 30, 2022. The interest rate under the receivables purchase agreement is the Canadian Commercial Paper Rate plus 0.825%.

The remaining $9.2 million within secured borrowings at June 30, 2023 represents other sold interests in certain loans by the Company that were not considered sales and, as such, related proceeds received are reflected on the Company’s Consolidated Statements of Condition as a secured borrowing owed to the various unrelated third parties.

Other Borrowings

Other borrowings contain several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and indebtedness. At June 30, 2023, the Company was in compliance with all such covenants.

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(12) Junior Subordinated Debentures

The following table provides a summary of the Company’s junior subordinated debentures as of June 30, 2023. The junior subordinated debentures represent the par value of the obligations owed to the Trusts.


(Dollars in thousands)	Common Securities		Trust Preferred Securities		Junior Subordinated Debentures		Rate Structure	Contractual Rate at 6/30/2023		Issue Date	Maturity Date	Earliest Redemption Date
Wintrust Capital Trust III	$	774	$	25,000	$	25,774	L+3.25	8.51	%	04/2003	04/2033	04/2008
Wintrust Statutory Trust IV	619		20,000		20,619		L+2.80	8.34	%	12/2003	12/2033	12/2008
Wintrust Statutory Trust V	1,238		40,000		41,238		L+2.60	8.14	%	05/2004	05/2034	06/2009
Wintrust Capital Trust VII	1,550		50,000		51,550		L+1.95	7.50	%	12/2004	03/2035	03/2010
Wintrust Capital Trust VIII	1,238		25,000		26,238		L+1.45	6.99	%	08/2005	09/2035	09/2010
Wintrust Capital Trust IX	1,547		50,000		51,547		L+1.63	7.18	%	09/2006	09/2036	09/2011
Northview Capital Trust I	186		6,000		6,186		L+3.00	8.30	%	08/2003	11/2033	08/2008
Town Bankshares Capital Trust I	186		6,000		6,186		L+3.00	8.30	%	08/2003	11/2033	08/2008
First Northwest Capital Trust I	155		5,000		5,155		L+3.00	8.54	%	05/2004	05/2034	05/2009
Suburban Illinois Capital Trust II	464		15,000		15,464		L+1.75	7.30	%	12/2006	12/2036	12/2011
Community Financial Shares Statutory Trust II	109		3,500		3,609		L+1.62	7.17	%	06/2007	09/2037	06/2012
Total					$	253,566		7.70	%

The junior subordinated debentures totaled $253.6 million at June 30, 2023, December 31, 2022 and June 30, 2022.

The interest rates on the variable rate junior subordinated debentures are based on the three-month London Interbank Offered Rate (“LIBOR”) and reset on a quarterly basis. At June 30, 2023, the weighted average contractual interest rate on the junior subordinated debentures was 7.70%.

Under the Adjustable Interest Rate (LIBOR) Act (“AIRLA”) and Part 253 of Regulation ZZ (Rule 253), after June 30, 2023, the interest rate on the junior subordinated debentures will, by operation of law, change their base rate from USD LIBOR to Chicago Mercantile Exchange (“CME”) Term Secured Overnight Financing Rate (“SOFR”) of the same tenor, plus an applicable tenor spread adjustment. CME Term SOFR is an indicative, forward-looking measurement of daily overnight SOFR. CME Term SOFR is published by CME Group Inc., as administrator of that rate. The calculation agent for any series of the junior subordinated debentures may also make additional administrative conforming changes to the terms of that series of the junior subordinated debentures under AIRLA and Rule 253.

(13) Segment Information

The Company’s operations consist of three primary segments: community banking, specialty finance and wealth management.

The three reportable segments are strategic business units that are separately managed as they offer different products and services and have different marketing strategies. In addition, each segment’s customer base has varying characteristics and each segment has a different regulatory environment. While the Company’s management monitors each of the fifteen bank subsidiaries’ operations and profitability separately, these subsidiaries have been aggregated into one reportable operating segment due to the similarities in products and services, customer base, operations, profitability measures, and economic characteristics.

For purposes of internal segment profitability, management allocates certain intersegment and parent company balances. Management allocates a portion of revenues to the specialty finance segment related to loans and leases originated by the specialty finance segment and sold or assigned to the community banking segment. Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates a portion of the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. See Note (10) “Deposits” for more information on these deposits. Finally, expenses incurred at the Wintrust parent company are allocated to each segment based on each segment’s risk-weighted assets.

The segment financial information provided in the following table has been derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. The accounting policies of the segments are substantially similar to those described in Note (1) “Summary of Significant Accounting Policies” of the 2022 Form 10-K. The Company evaluates segment performance based on after-tax profit or loss and other appropriate profitability measures common to each segment.

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The following is a summary of certain operating information for reportable segments:


	Three Months Ended				$ Change in Contribution		% Change in Contribution
(Dollars in thousands)	June 30, 2023		June 30, 2022
Net interest income:
Community Banking	$	346,232	$	261,726	$	84,506	32	%
Specialty Finance	84,993		58,718		26,275		45
Wealth Management	7,404		9,534		(2,130)		(22)
Total Operating Segments	438,629		329,978		108,651		33
Intersegment Eliminations	8,908		7,826		1,082		14
Consolidated net interest income	$	447,537	$	337,804	$	109,733	32	%
Provision for credit losses:
Community Banking	$	26,713	$	20,225	$	6,488	32	%
Specialty Finance	1,801		192		1,609		NM
Wealth Management	—		—		—		—
Total Operating Segments	28,514		20,417		8,097		40
Intersegment Eliminations	—		—		—		—
Consolidated provision for credit losses	$	28,514	$	20,417	$	8,097	40	%
Non-interest income:
Community Banking	$	68,130	$	62,714	$	5,416	9	%
Specialty Finance	31,737		24,992		6,745		27
Wealth Management	33,391		30,226		3,165		10
Total Operating Segments	133,258		117,932		15,326		13
Intersegment Eliminations	(20,228)		(14,990)		(5,238)		35
Consolidated non-interest income	$	113,030	$	102,942	$	10,088	10	%
Net revenue:
Community Banking	$	414,362	$	324,440	$	89,922	28	%
Specialty Finance	116,730		83,710		33,020		39
Wealth Management	40,795		39,760		1,035		3
Total Operating Segments	571,887		447,910		123,977		28
Intersegment Eliminations	(11,320)		(7,164)		(4,156)		58
Consolidated net revenue	$	560,567	$	440,746	$	119,821	27	%
Segment profit:
Community Banking	$	102,517	$	54,647	$	47,870	88	%
Specialty Finance	46,402		30,558		15,844		52
Wealth Management	5,831		9,308		(3,477)		(37)
Consolidated net income	$	154,750	$	94,513	$	60,237	64	%
Segment assets:
Community Banking	$	42,452,673	$	40,098,458	$	2,354,215	6	%
Specialty Finance	10,549,819		9,207,215		1,342,604		15
Wealth Management	1,283,684		1,663,659		(379,975)		(23)
Consolidated total assets	$	54,286,176	$	50,969,332	$	3,316,844	7	%

NM - Not meaningful

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	Six Months Ended				$ Change in Contribution		% Change in Contribution
(Dollars in thousands)	June 30, 2023		June 30, 2022
Net interest income:
Community Banking	$	716,080	$	490,341	$	225,739	46	%
Specialty Finance	155,344		114,088		41,256		36
Wealth Management	16,359		17,910		(1,551)		(9)
Total Operating Segments	887,783		622,339		265,444		43
Intersegment Eliminations	17,749		14,759		2,990		20
Consolidated net interest income	$	905,532	$	637,098	$	268,434	42	%
Provision for credit losses:
Community Banking	$	47,812	$	24,343	$	23,469	96	%
Specialty Finance	3,747		180		3,567		NM
Wealth Management	—		—		—		—
Total Operating Segments	51,559		24,523		27,036		110
Intersegment Eliminations			—		—		—
Consolidated provision for credit losses	$	51,559	$	24,523	$	27,036	110	%
Non-interest income:
Community Banking	$	136,863	$	184,602	$	(47,739)	(26)	%
Specialty Finance	57,527		49,114		8,413		17
Wealth Management	63,688		60,804		2,884		5
Total Operating Segments	258,078		294,520		(36,442)		(12)
Intersegment Eliminations	(37,279)		(28,788)		(8,491)		29
Consolidated non-interest income	$	220,799	$	265,732	$	(44,933)	(17)	%
Net revenue:
Community Banking	$	852,943	$	674,943	$	178,000	26	%
Specialty Finance	212,871		163,202		49,669		30
Wealth Management	80,047		78,714		1,333		2
Total Operating Segments	1,145,861		916,859		229,002		25
Intersegment Eliminations	(19,530)		(14,029)		(5,501)		39
Consolidated net revenue	$	1,126,331	$	902,830	$	223,501	25	%
Segment profit:
Community Banking	$	236,749	$	144,746	$	92,003	64	%
Specialty Finance	83,139		60,162		22,977		38
Wealth Management	15,060		16,996		(1,936)		(11)
Consolidated net income	$	334,948	$	221,904	$	113,044	51	%

NM - Not meaningful

(14) Derivative Financial Instruments

The Company primarily enters into derivative financial instruments as part of its strategy to manage its exposure to changes in interest rates. Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying term (such as a rate, security price or price index or commodity price) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying term. Derivatives are also implicit in certain contracts and commitments.

The derivative financial instruments currently used by the Company to manage its exposure to interest rate risk include: (1) interest rate swaps and collars to manage the interest rate risk of certain fixed and variable rate assets and variable rate liabilities; (2) interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market; (3) forward commitments for the future delivery of such mortgage loans to protect the Company from adverse changes in interest rates and corresponding changes in the value of mortgage loans held-for-sale; (4) covered call options to economically hedge specific investment securities and receive fee income, effectively enhancing the overall yield on such securities to compensate for net interest margin compression; and (5) options and swaps to economically hedge a portion of the fair value adjustments related to the Company’s mortgage servicing rights portfolio. The Company also enters into derivatives (typically interest rate swaps and commodity forward contracts) with certain qualified borrowers to facilitate the borrowers’ risk management strategies and concurrently enters into mirror-image derivatives with a third party counterparty, effectively making a market in the derivatives for such borrowers. Additionally, the Company enters into foreign currency contracts to manage foreign exchange risk associated with certain foreign currency denominated assets.

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The Company recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. The Company records derivative assets and derivative liabilities on the Consolidated Statements of Condition within accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively. Changes in the fair value of derivative financial instruments are either recognized in income or in shareholders’ equity as a component of accumulated other comprehensive income or loss depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge.

Changes in fair values of derivatives accounted for as fair value hedges are recorded in income in the same period and in the same income statement line as changes in the fair values of the hedged items that relate to the hedged risk(s). Changes in fair values of derivative financial instruments accounted for as cash flow hedges are recorded as a component of accumulated other comprehensive income or loss, net of deferred taxes, and reclassified to earnings when the hedged transaction affects earnings. Changes in fair values of derivative financial instruments not designated in a hedging relationship pursuant to ASC 815 are reported in non-interest income during the period of the change. Derivative financial instruments are valued by a third party and are corroborated by comparison with valuations provided by the respective counterparties. Fair values of certain mortgage banking derivatives (interest rate lock commitments and forward commitments to sell mortgage loans) are estimated based on changes in mortgage interest rates from the date of the loan commitment. The fair value of foreign currency derivatives is computed based on changes in foreign currency rates stated in the contract compared to those prevailing at the measurement date. Commodity derivative fair values are computed based on changes in the price per unit stated in the contract compared to those prevailing at the measurement date.

The table below presents the fair value of the Company’s derivative financial instruments as of June 30, 2023, December 31, 2022 and June 30, 2022:


	Derivative Assets						Derivative Liabilities
(In thousands)	June 30, 2023		December 31, 2022		June 30, 2022		June 30, 2023		December 31, 2022		June 30, 2022
Derivatives designated as hedging instruments under ASC 815:
Interest rate derivatives designated as Cash Flow Hedges	$	2,154	$	—	$	151	$	121,347	$	58,198	$	—
Interest rate derivatives designated as Fair Value Hedges	16,255		16,768		10,396		—		—		128
Total derivatives designated as hedging instruments under ASC 815	$	18,409	$	16,768	$	10,547	$	121,347	$	58,198	$	128
Derivatives not designated as hedging instruments under ASC 815:
Interest rate derivatives	$	261,205	$	269,670	$	165,209	$	261,066	$	271,109	$	164,979
Interest rate lock commitments	3,487		1,711		6,649		172		58		173
Forward commitments to sell mortgage loans	2,769		220		906		38		414		1,963
Commodity forward contracts	434		257		—		214		162		—
Foreign exchange contracts	8,444		8,222		614		8,335		8,137		614
Total derivatives not designated as hedging instruments under ASC 815	$	276,339	$	280,080	$	173,378	$	269,825	$	279,880	$	167,729
Total Derivatives	$	294,748	$	296,848	$	183,925	$	391,172	$	338,078	$	167,857

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to net interest income and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and interest rate collars as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts to or from a counterparty in exchange for the Company receiving or paying fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. Interest rate collars designated as cash flow hedges involve the settlement of amounts in which the interest rate index specified in the contract exceeds the agreed upon cap strike price or in which the interest rate index specified in the contract is below the agreed upon floor strike price at the end of each period.

As of June 30, 2023, the Company had various interest rate collar and swap derivatives designated as cash flow hedges of variable rate loans and various interest rate swap derivatives designated as cash flow hedges of variable rate deposits. When the relationship between the hedged item and hedging instrument is highly effective at achieving offsetting changes in cash flows attributable to the hedged risk, changes in the fair value of these cash flow hedges are recorded in accumulated other comprehensive income or loss and are subsequently reclassified to interest income as interest payments are made on such

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variable rate loans or interest expense as interest payments are made on such variable rate deposits. The changes in fair value (net of tax) are separately disclosed in the Consolidated Statements of Comprehensive Income.

The table below provides details on these cash flow hedges, summarized by derivative type and maturity, as of June 30, 2023:


	June 30, 2023
	Notional		Fair Value
(In thousands)	Amount		Asset (Liability)
Interest Rate Collars at 1-month CME term SOFR:

Buy 2.250% floor, sell 3.743% cap; matures September 2025	$	1,250,000	$	(29,186)
Buy 2.750% floor, sell 4.320% cap; matures October 2026	500,000		(6,375)
Buy 2.000% floor, sell 3.450% cap; matures September 2027	1,250,000		(45,700)
Interest Rate Swaps at 1-month CME term SOFR:
Fixed 3.748%; matures December 2025	250,000		(4,422)
Fixed 3.759%; matures December 2025	250,000		(4,356)
Fixed 3.680%; matures February 2026	250,000		(4,762)
Fixed 4.176%; matures March 2026	250,000		(1,563)
Fixed 3.915%; matures March 2026	250,000		(3,211)
Fixed 4.450%; matures July 2026	250,000		1,046
Fixed 3.515%, matures December 2026	250,000		(5,208)
Fixed 3.512%; matures December 2026	250,000		(5,233)
Fixed 3.453%; matures February 2027	250,000		(5,654)
Fixed 4.150%; matures July 2027	250,000		1,108
Fixed 3.748%; matures March 2028	250,000		(1,652)
Fixed 3.526%; matures March 2028	250,000		(4,025)
Total Cash Flow Hedges	$	6,000,000	$	(119,193)

In the first quarter of 2022, the Company terminated interest rate swap derivative contracts designated as cash flow hedges of variable rate deposits with a total notional value of $1.0 billion and a five-year term effective July 2022. At the time of termination, the fair value of the derivative contracts totaled an asset of $66.5 million, with such adjustments to fair value recorded in accumulated other comprehensive income or loss. In the second quarter of 2022, the Company terminated two additional interest rate swap derivative contracts designated as cash flow hedges of variable rate deposits with a total notional value of $500.0 million each effective since April 2020. The remaining terms of such derivative contracts were through March 2023 and April 2024 and, at the time of termination, the fair value of the derivative contracts totaled assets of $3.7 million and $10.7 million, respectively, with such adjustments to fair value recorded in accumulated other comprehensive income or loss. In the fourth quarter of 2022, the Company terminated one additional interest rate collar derivative contract designated as a cash flow hedge of the term facility with a total notional value of $64.3 million effective since September 2018. The remaining term of such derivative contract was through September 2023 and, at the time of termination, the fair value of the derivative contract totaled an asset of $875,000, with such adjustments to fair value recorded in accumulated other comprehensive income or loss.

For all such terminations, as the hedged forecasted transactions (interest payments on variable rate deposits and the term facility) are still expected to occur over the remaining term of such terminated derivatives, such adjustments will remain in accumulated other comprehensive income or loss and be reclassified as a reduction to interest expense on a straight-line basis over the original term of the terminated derivative contracts.

A rollforward of the amounts in accumulated other comprehensive income or loss related to interest rate derivatives designated as cash flow hedges, including such derivative contracts terminated during the period, follows:


	Three Months Ended				Six Months Ended
(In thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Unrealized gain at beginning of period	$	44,692	$	76,389	$	10,026	$	36,908
Amount reclassified from accumulated other comprehensive income or loss to interest income or expense on deposits, loans, and other borrowings	14,092		1,012		17,664		6,365
Amount of gain recognized in other comprehensive income or loss	(120,523)		1,363		(89,429)		35,491
Unrealized gain at end of period	$	(61,739)	$	78,764	$	(61,739)	$	78,764

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As of June 30, 2023, the Company estimated that during the next 12 months $68.9 million will be reclassified from accumulated other comprehensive income or loss as a decrease to net interest income. Such estimate consists of $17.6 million reclassified as a reduction to interest expense on the terminated cash flow hedges discussed above and $86.5 million reclassified as a reduction to interest income related to the interest rate collars and swaps noted above that remain outstanding.

Fair Value Hedges of Interest Rate Risk

Interest rate swaps designated as fair value hedges involve the payment of fixed amounts to a counterparty in exchange for the Company receiving variable payments over the life of the agreements without the exchange of the underlying notional amount. As of June 30, 2023, the Company had 13 interest rate swaps with an aggregate notional amount of $204.1 million that were designated as fair value hedges primarily associated with fixed rate commercial and industrial and commercial real estate loans as well as life insurance premium finance receivables.

For derivatives designated and that qualify as fair value hedges, the net gain or loss from the entire change in the fair value of the derivative instrument is recognized in the same income statement line item as the earnings effect, including the net gain or loss, of the hedged item (interest income earned on fixed rate loans) when the hedged item affects earnings.

The following table presents the carrying amount of the hedged assets/(liabilities) and the cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities) that are designated as a fair value hedge accounting relationship as of June 30, 2023:


		June 30, 2023
(In thousands) Derivatives in Fair Value Hedging Relationships	Location in the Statement of Condition	Carrying Amount of the Hedged Assets/(Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)		Cumulative Amount of Fair Value Hedging Adjustment Remaining for any Hedged Assets/(Liabilities) for which Hedge Accounting has been Discontinued
Interest rate swaps	Loans, net of unearned income	$	187,102	$	(16,202)	$	(94)
	Available-for-sale debt securities	828		(25)		—

The following table presents the loss or gain recognized related to derivative instruments that are designated as fair value hedges for the respective period:


(In thousands) Derivatives in Fair Value Hedging Relationships	Location of (Loss)/Gain Recognized in Income on Derivative	Three Months Ended		Six Months Ended
		June 30, 2023		June 30, 2023
Interest rate swaps	Interest and fees on loans	$	(7)	$	2
	Interest income - investment securities	—		—

Non-Designated Hedges

The Company does not use derivatives for speculative purposes. Derivatives not designated as accounting hedges are used to manage the Company’s economic exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of ASC 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.

Interest Rate Derivatives—Periodically, the Company may purchase interest rate cap derivatives designed to act as an economic hedge of the risk of the negative impact on its fixed-rate loan portfolios from rising interest rates. As of June 30, 2023, there were no interest rate caps outstanding that were designed to act as an economic hedge. During 2022, the Company terminated an interest rate cap derivative contract related to LIBOR that was not designated as an accounting hedge with a total notional value of $1.0 billion.

Additionally, the Company has interest rate derivatives, including swaps and option products, resulting from a service the Company provides to certain qualified borrowers. The Company’s banking subsidiaries execute certain derivative products (typically interest rate swaps) directly with qualified commercial borrowers to facilitate their respective risk management strategies. For example, these arrangements allow the Company’s commercial borrowers to effectively convert a variable rate loan to a fixed rate. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes

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offsetting derivatives with third parties. In most cases, the offsetting derivatives have mirror-image terms, which result in the positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest income. At June 30, 2023 and December 31, 2022, the Company had interest rate derivative transactions with an aggregate notional amount of approximately $11.2 billion and $9.6 billion, respectively, (all interest rate swaps and caps with customers and third parties) related to this program. At June 30, 2023 these interest rate derivatives had maturity dates ranging from July 2023 to January 2037.

Mortgage Banking Derivatives—These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. It is the Company’s practice to enter into forward commitments for the future delivery of a portion of its residential mortgage loan production when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale. The Company’s mortgage banking derivatives have not been designated as being in hedge relationships. At June 30, 2023 and December 31, 2022, the Company had interest rate lock commitments with an aggregate notional amount of approximately $225.1 million and $121.6 million, and forward commitments to sell mortgage loans with an aggregate notional amount of approximately $693.5 million and $321.0 million, respectively. The fair values of these derivatives were estimated based on changes in mortgage rates from the dates of the commitments. Changes in the fair value of these mortgage banking derivatives are included in mortgage banking revenue.

Commodity Derivatives—The Company has commodity forward contracts resulting from a service the Company provides to certain qualified borrowers. The Company’s banking subsidiaries execute certain derivative products directly with qualified commercial borrowers to facilitate their respective risk management strategies. For example, these arrangements allow the Company’s commercial borrowers to effectively purchase or sell a given commodity at an agreed-upon price on an agreed-upon settlement date. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes offsetting derivatives with third parties. In most cases, the offsetting derivatives have mirror-image terms, which result in the positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest income. At June 30, 2023 and December 31, 2022, the Company had commodity derivative transactions with an aggregate notional amount of approximately $6.6 million and $3.6 million, respectively, (all forward contracts with customers and third parties) related to this program. At June 30, 2023, these commodity derivatives had maturity dates ranging from July 2023 to May 2024.

Foreign Currency Derivatives—The Company has foreign currency derivative contracts resulting from a service the Company provides to certain qualified customers. The Company’s banking subsidiaries execute certain derivative products directly with qualified customers to facilitate their respective risk management strategies related to foreign currency fluctuations. For example, these arrangements allow the Company’s customers to effectively exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes offsetting derivatives with third parties. In most cases, the offsetting derivatives have mirror-image terms, which result in the positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest income. As of June 30, 2023 and December 31, 2022, the Company held foreign currency derivatives with an aggregate notional amount of approximately $205.3 million and $226.2 million, respectively.

Other Derivatives—Periodically, the Company will sell options to a bank or dealer for the right to purchase certain securities held within the banks’ investment portfolios (covered call options). These option transactions are designed to increase the total return associated with the investment securities portfolio. These options do not qualify as accounting hedges pursuant to ASC 815 and, accordingly, changes in the fair value of these contracts are recognized as other non-interest income. There were no covered call options outstanding as of June 30, 2023, December 31, 2022 or June 30, 2022.

Periodically, the Company will purchase options for the right to purchase securities not currently held within the banks’ investment portfolios or enter into interest rate swaps in which the Company elects to not designate such derivatives as hedging instruments. These option and swap transactions are designed primarily to economically hedge a portion of the fair value adjustments related to the Company's mortgage servicing rights portfolio. The gain or loss associated with these derivative contracts are included in mortgage banking revenue. At both June 30, 2023 and December 31, 2022, the Company held three

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interest rate derivatives with an aggregate notional value of $190.0 million for such purpose of economically hedging a portion of the fair value adjustment related to its mortgage servicing rights portfolio.

Amounts included in the Consolidated Statements of Income related to derivative instruments not designated in hedge relationships were as follows:


(In thousands)		Three Months Ended				Six Months Ended
Derivative	Location in income statement	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Interest rate swaps and caps	Trading gains, net	$	12	$	161	$	812	$	4,185
Mortgage banking derivatives	Mortgage banking revenue	4,791		(7,550)		8,431		(14,919)
Commodity contracts	Trading gains, net	49		—		226		—
Foreign exchange contracts	Trading gains, net	—		—		—		—
Covered call options	Fees from covered call options	2,578		1,069		12,969		4,811
Derivative contract held as economic hedge on MSRs	Mortgage banking revenue	(726)		—		220		—

Credit Risk

Derivative instruments have inherent risks, primarily market risk and credit risk. Market risk is associated with changes in interest rates and credit risk relates to the risk that the counterparty will fail to perform according to the terms of the agreement. The amounts potentially subject to market and credit risks are the streams of interest payments under the contracts and the market value of the derivative instrument and not the notional principal amounts used to express the volume of the transactions. Market and credit risks are managed and monitored as part of the Company’s overall asset-liability management process, except that the credit risk related to derivatives entered into with certain qualified borrowers is managed through the Company’s standard loan underwriting process since these derivatives are secured through collateral provided by the loan agreements. Actual exposures are monitored against various types of credit limits established to contain risk within parameters. When deemed necessary, appropriate types and amounts of collateral are obtained to minimize credit exposure.

The Company has agreements with certain of its interest rate derivative counterparties that contain cross-default provisions, which provide that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain of its derivative counterparties that contain a provision allowing the counterparty to terminate the derivative positions if the Company fails to maintain its status as a well or adequately capitalized institution, which would require the Company to settle its obligations under the agreements. As of June 30, 2023, there were no interest rate derivatives in a net liability position that were subject to such agreements. The fair value of such derivatives includes accrued interest related to these agreements.

The Company is also exposed to the credit risk of its commercial borrowers who are counterparties to interest rate derivatives with the banks. This counterparty risk related to the commercial borrowers is managed and monitored through the banks’ standard underwriting process applicable to loans since these derivatives are secured through collateral provided by the loan agreement. The counterparty risk associated with the mirror-image swaps executed with third parties is monitored and managed in connection with the Company’s overall asset liability management process.

The Company records interest rate derivatives subject to master netting agreements at their gross value and does not offset derivative assets and liabilities on the Consolidated Statements of Condition. The table below summarizes the Company’s interest rate derivatives and offsetting positions as of the dates shown.

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	Derivative Assets						Derivative Liabilities
	Fair Value						Fair Value
(In thousands)	June 30, 2023		December 31, 2022		June 30, 2022		June 30, 2023		December 31, 2022		June 30, 2022
Gross Amounts Recognized	$	279,614	$	286,438	$	175,756	$	382,413	$	329,307	$	165,107
Less: Amounts offset in the Statements of Condition	—		—		—		—		—		—
Net amount presented in the Statements of Condition	$	279,614	$	286,438	$	175,756	$	382,413	$	329,307	$	165,107
Gross amounts not offset in the Statements of Condition
Offsetting Derivative Positions	(125,159)		(64,100)		(6,009)		(125,159)		(64,100)		(6,009)
Collateral Posted	(145,735)		(194,666)		(163,412)		—		—		(91)
Net Credit Exposure	$	8,720	$	27,672	$	6,335	$	257,254	$	265,207	$	159,007

(15) Fair Values of Assets and Liabilities

The Company measures, monitors and discloses certain of its assets and liabilities on a fair value basis. These financial assets and financial liabilities are measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:

•Level 1—unadjusted quoted prices in active markets for identical assets or liabilities.

•Level 2—inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•Level 3—significant unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the above valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the assets or liabilities. The following is a description of the valuation methodologies used for the Company’s assets and liabilities measured at fair value on a recurring basis.

Available-for-sale debt securities, trading account securities and equity securities with readily determinable fair value—Fair values for available-for-sale debt securities, trading account securities and equity securities with readily determinable fair value are typically based on prices obtained from independent pricing vendors. Securities measured with these valuation techniques are generally classified as Level 2 of the fair value hierarchy. Typically, standard inputs such as benchmark yields, reported trades for similar securities, issuer spreads, benchmark securities, bids, offers and reference data including market research publications are used to determine the fair value of these securities. When these inputs are not available, broker/dealer quotes may be obtained by the vendor to determine the fair value of the security. We review the vendor’s pricing methodologies to determine if observable market information is being used, versus unobservable inputs. Fair value measurements using significant inputs that are unobservable in the market due to limited activity or a less liquid market are classified as Level 3 in the fair value hierarchy. The fair value of U.S. Treasury securities and certain equity securities with readily determinable fair value are based on unadjusted quoted prices in active markets for identical securities. As such, these securities are classified as Level 1 in the fair value hierarchy.

The Company’s Investment Operations Department is responsible for the valuation of Level 3 available-for-sale debt securities. The methodology and variables used as inputs in pricing Level 3 securities are derived from a combination of observable and unobservable inputs. The unobservable inputs are determined through internal assumptions that may vary from period to period due to external factors, such as market movement and credit rating adjustments.

At June 30, 2023, the Company classified $114.2 million of municipal securities as Level 3. These municipal securities are bond issues for various municipal government entities primarily located in the Chicago metropolitan area and southern

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Wisconsin and are privately placed, non-rated bonds without CUSIP numbers. The Company’s methodology for pricing these securities focuses on three distinct inputs: equivalent rating, yield and other pricing terms. To determine the rating for a given non-rated investment debt security, the Investment Operations Department references a rated, publicly issued bond by the same issuer if available. A reduction is then applied to the rating obtained from the comparable bond, as the Company believes if liquidated, a non-rated bond would be valued less than a similar bond with a verifiable rating. The reduction applied by the Company is one complete rating grade (i.e. a “AA” rating for a comparable bond would be reduced to “A” for the Company’s valuation). For bond issues without comparable bond proxies, a rating of “BBB” was assigned. In the second quarter of 2023, all of the ratings derived by the Investment Operations Department using the above process were “BBB” or better. The fair value measurement noted above is sensitive to the rating input, as a higher rating typically results in an increased valuation. The remaining pricing inputs used in the bond valuation are observable. Based on the rating determined in the above process, Investment Operations obtains a corresponding current market yield curve available to market participants. Other terms including coupon, maturity date, redemption price, number of coupon payments per year, and accrual method are obtained from the individual bond term sheets. Certain municipal bonds held by the Company at June 30, 2023 are continuously callable. When valuing these bonds, the fair value is capped at par value as the Company assumes a market participant would not pay more than par for a continuously callable bond.

Mortgage loans held-for-sale—The fair value of mortgage loans held-for-sale is typically determined by reference to investor price sheets for loan products with similar characteristics. Loans measured with this valuation technique are classified as Level 2 in the fair value hierarchy.

At June 30, 2023, the Company classified $29.4 million of certain delinquent mortgage loans held-for-sale as Level 3. For such delinquent loans in which investor interest may be limited, the Company estimates fair value by discounting future scheduled cash flows for the specific loan through its life, adjusted for estimated credit losses. The Company uses a discount rate based on prevailing market coupon rates on loans with similar characteristics. The assumed weighted average discount rate used as an input to value these loans at June 30, 2023 was 6.50%. The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. Additionally, the weighted average credit discount used as an input to value the specific loans was 0.42% with credit loss discount ranging from 0%-13% at June 30, 2023.

Loans held-for-investment—The fair value for certain loans in which the Company previously elected the fair value option is estimated by discounting future scheduled cash flows for the specific loan through maturity, adjusted for estimated credit losses and prepayment or life assumptions. These loans primarily consist of early buyout loans guaranteed by U.S. government agencies that are delinquent and, as a result, investor interest may be limited. The Company uses a discount rate based on the actual coupon rate of the underlying loan. At June 30, 2023, the Company classified $61.1 million of loans held-for-investment carried at fair value as Level 3. The assumed weighted average discount rate used as an input to value these loans at June 30, 2023 was 6.57%. The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. As noted above, the fair value estimate also includes assumptions of prepayment speeds and average life as well as credit losses. The weighted average prepayments speed used as an input to value current loans was 7.01% at June 30, 2023. Prepayment speeds are inversely related to the fair value of these loans as an increase in prepayment speeds results in a decreased valuation. For delinquent loans in which performance is not assumed and there is a higher probability of resolution of the loan ending in foreclosure, the weighted average life of such loans was 6.2 years. Average life is inversely related to the fair value of these loans as an increase in estimated life results in a decreased valuation. Additionally, the weighted average credit discount used as an input to value the specific loans was 0.89% with credit loss discounts ranging from 0%-14% at June 30, 2023.

MSRs—Fair value for MSRs is determined utilizing a valuation model which calculates the fair value of each servicing right based on the present value of estimated future cash flows. The Company uses a discount rate commensurate with the risk associated with each servicing right, given current market conditions. At June 30, 2023, the Company classified $200.7 million of MSRs as Level 3. The weighted average discount rate used as an input to value the pool of MSRs at June 30, 2023 was 10.50% with discount rates applied ranging from 2%-21%. The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. The fair value of MSRs was also estimated based on other assumptions including prepayment speeds and the cost to service. Prepayment speeds ranged from 0%-100% or a weighted average prepayment speed of 7.01%. Further, for current and delinquent loans, the Company assumed a weighted average cost of servicing of $77 and $405, respectively, per loan. Prepayment speeds and the cost to service are both inversely related to the fair value of MSRs as an increase in prepayment speeds or the cost to service results in a decreased valuation. See Note (9) “Mortgage Servicing Rights (“MSRs”)” for further discussion of MSRs.

Derivative instruments—The Company’s derivative instruments include interest rate swaps, caps and collars, commitments to fund mortgages for sale into the secondary market (interest rate locks), forward commitments to end investors for the sale of mortgage loans, commodity future contracts and foreign currency contracts. Interest rate swaps, caps and collars and commodity future contracts are valued by a third party, using models that primarily use market observable inputs, such as yield

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curves and commodity prices prevailing at the measurement date, and are classified as Level 2 in the fair value hierarchy. The credit risk associated with derivative financial instruments that are subject to master netting agreements is measured on a net basis by counterparty portfolio. The fair value for mortgage-related derivatives is based on changes in mortgage rates from the date of the commitments. The fair value of foreign currency derivatives is computed based on change in foreign currency rates stated in the contract compared to those prevailing at the measurement date.

At June 30, 2023, the Company classified $3.5 million of derivative assets related to interest rate locks as Level 3. The fair value of interest rate locks is based on prices obtained for loans with similar characteristics from third parties, adjusted for the pull-through rate, which represents the Company’s best estimate of the likelihood that a committed loan will ultimately fund. The weighted-average pull-through rate at June 30, 2023 was 83.16% with pull-through rates applied ranging from 13% to 100%. Pull-through rates are directly related to the fair value of interest rate locks as an increase in the pull-through rate results in an increased valuation.

Nonqualified deferred compensation assets—The underlying assets relating to the nonqualified deferred compensation plan are included in a trust and primarily consist of non-exchange traded institutional funds which are priced based by an independent third party service. These assets are classified as Level 2 in the fair value hierarchy.

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented:


	June 30, 2023
(In thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	—	$	—	$	—	$	—
U.S. government agencies	74,275		—		74,275		—
Municipal	167,411		—		53,256		114,155
Corporate notes	72,060		—		72,060		—
Mortgage-backed	3,178,735		—		3,178,735		—
Trading account securities	3,027		—		3,027		—
Equity securities with readily determinable fair value	116,275		108,209		8,066		—
Mortgage loans held-for-sale	338,728		—		309,322		29,406
Loans held-for-investment	193,953		—		132,830		61,123
MSRs	200,692		—		—		200,692
Nonqualified deferred compensation assets	14,796		—		14,796		—
Derivative assets	294,748		—		291,261		3,487
Total	$	4,654,700	$	108,209	$	4,137,628	$	408,863
Derivative liabilities	$	391,172	$	—	$	391,172	$	—


	December 31, 2022
(In thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	14,948	$	14,948	$	—	$	—
U.S. government agencies	74,222		—		74,222		—
Municipal	168,655		—		51,118		117,537
Corporate notes	85,705		—		85,705		—
Mortgage-backed	2,899,487		—		2,899,487		—
Trading account securities	1,127		—		1,127		—
Equity securities with readily determinable fair value	110,365		102,299		8,066		—
Mortgage loans held-for-sale	299,935		—		251,280		48,655
Loans held-for-investment	179,932		—		95,767		84,165
MSRs	230,225		—		—		230,225
Nonqualified deferred compensation assets	13,899		—		13,899		—
Derivative assets	296,848		—		295,137		1,711
Total	$	4,375,348	$	117,247	$	3,775,808	$	482,293
Derivative liabilities	$	338,078	$	—	$	338,078	$	—

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	June 30, 2022
(In thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	—	$	—	$	—	$	—
U.S. government agencies	48,087		—		48,087		—
Municipal	166,705		—		53,220		113,485
Corporate notes	89,813		—		89,813		—
Mortgage-backed	2,665,516		—		2,665,516		—
Trading account securities	1,010		—		1,010		—
Equity securities with readily determinable fair value	93,295		85,229		8,066		—
Mortgage loans held-for-sale	513,232		—		424,269		88,963
Loans held-for-investment	122,757		—		37,959		84,798
MSRs	212,664		—		—		212,664
Nonqualified deferred compensation assets	13,936		—		13,936		—
Derivative assets	183,925		—		177,276		6,649
Total	$	4,110,940	$	85,229	$	3,519,152	$	506,559
Derivative liabilities	$	167,857	$	—	$	167,857	$	—

The aggregate remaining contractual principal balance outstanding as of June 30, 2023, December 31, 2022 and June 30, 2022 for mortgage loans held-for-sale measured at fair value under ASC 825 was $345.7 million, $308.9 million and $510.7 million, respectively, while the aggregate fair value of mortgage loans held-for-sale was $338.7 million, $299.9 million and $513.2 million, for the same respective periods, as shown in the above tables. At June 30, 2023, $582,000 of mortgage loans held-for-sale were classified as nonaccrual as compared to $5.8 million as of December 31, 2022 and $6.0 million as of June 30, 2022. Additionally, there were $29.6 million of loans past due greater than 90 days and still accruing in the mortgage loans held-for-sale portfolio as of June 30, 2023 compared to $44.0 million as of December 31, 2022 and $55.6 million as of June 30, 2022. All of the nonaccrual loans and loans past due greater than 90 days and still accruing within the mortgage loans held-for-sale portfolio at June 30, 2023, December 31, 2022, and June 30, 2022 were individual delinquent mortgage loans bought back from GNMA at the unconditional option of the Company as servicer for those loans.

The aggregate remaining contractual principal balance outstanding as of June 30, 2023, December 31, 2022 and June 30, 2022 for loans held-for-investment measured at fair value under ASC 825 was $196.6 million, $184.0 million and $125.1 million, respectively, while the aggregate fair value of loans held-for-investment was $194.0 million, $179.9 million and $122.8 million, respectively, as shown in the above tables.

The changes in Level 3 assets measured at fair value on a recurring basis during the three and six months ended June 30, 2023 and 2022 are summarized as follows:


			Mortgage loans held-for-sale		Loans held-for- investment		Mortgage servicing rights		Derivative assets
(In thousands)	Municipal
Balance at April 1, 2023	$	112,257	$	44,250	$	69,493	$	224,470	$	5,356
Total net (losses) gains included in:
Net income (1)	—		402		(619)		6,392		(1,869)
Other comprehensive income or loss	(3,161)		—		—		—		—
Purchases	6,978		—		—		—		—
Issuances	—		—		—		—		—
Sales	—		—		—		(30,170)		—
Settlements	(1,919)		(23,973)		(16,593)		—		—
Net transfers into Level 3	—		8,727		8,842		—		—
Balance at June 30, 2023	$	114,155	$	29,406	$	61,123	$	200,692	$	3,487

(1)Changes in the balance of mortgage loans held-for-sale, MSRs, and derivative assets related to fair value adjustments are recorded as components of mortgage banking revenue. Changes in the balance of loans held-for-investment related to fair value adjustments are recorded as other non-interest income.

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			Mortgage loans held-for-sale		Loans held-for- investment		Mortgage servicing rights		Derivative assets
(In thousands)	Municipal
Balance at April 1, 2022	$	100,401	$	—	$	44,464	$	199,146	$	3,447
Total net (losses) gains included in:
Net income (1)	—		(2,900)		(1,775)		13,518		3,202
Other comprehensive income or loss	(685)		—		—		—		—
Purchases	15,497		—		—		—		—
Issuances	—		—		—		—		—
Sales	—		—		—		—		—
Settlements	(1,728)		—		(7,231)		—		—
Net transfers into Level 3	—		91,863		49,340		—		—
Balance at June 30, 2022	$	113,485	$	88,963	$	84,798	$	212,664	$	6,649


			Mortgage loans held-for-sale		Loans held-for- investment		Mortgage servicing rights		Derivative Assets
(In thousands)	Municipal
Balance at January 1, 2023	$	117,537	$	48,655	$	84,165	$	230,225	$	1,711
Total net (losses) gains included in:
Net income (1)	—		868		(255)		637		1,776
Other comprehensive income or loss	(4,823)		—		—		—		—
Purchases	11,396		—		—		—		—
Issuances	—		—		—		—		—
Sales	—		—		—		(30,170)		—
Settlements	(9,955)		(42,592)		(36,915)		—		—
Net transfers into Level 3	—		22,475		14,128		—		—
Balance at June 30, 2023	$	114,155	$	29,406	$	61,123	$	200,692	$	3,487


			Mortgage loans held-for-sale		Loans held-for- investment		Mortgage servicing rights		Derivative Assets
(In thousands)	Municipal
Balance at January 1, 2022	$	105,687	$	—	$	15,891	$	147,571	$	10,560
Total net (losses) gains included in:
Net income (1)	—		(2,900)		(2,547)		65,093		(3,911)
Other comprehensive income or loss	(6,134)		—		—		—		—
Purchases	16,743		—		—		—		—
Issuances	—		—		—		—		—
Sales	—		—		—		—		—
Settlements	(2,811)		—		(8,898)		—		—
Net transfers into Level 3	—		91,863		80,352		—		—
Balance at June 30, 2022	$	113,485	$	88,963	$	84,798	$	212,664	$	6,649

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Also, the Company may be required, from time to time, to measure certain other assets at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair value usually result from impairment charges on individual assets. For assets measured at fair value on a non-recurring basis that were still held in the balance sheet at the end of the period, the following table provides the carrying value of the related individual assets or portfolios at June 30, 2023:


	June 30, 2023								Three Months Ended June 30, 2023 Fair Value Losses Recognized, net		Six Months Ended June 30, 2023 Fair Value Losses Recognized, net
(In thousands)	Total		Level 1		Level 2		Level 3
Individually assessed loans - foreclosure probable and collateral-dependent	$	73,804	$	—	$	—	$	73,804	$	11,635	$	14,136
Other real estate owned (1)	11,586		—		—		11,586		—		104
Total	$	85,390	$	—	$	—	$	85,390	$	11,635	$	14,240

(1)Fair value losses recognized, net on other real estate owned include valuation adjustments and charge-offs during the respective period.

Individually assessed loans—In accordance with ASC 326, the allowance for credit losses for loans and other financial assets held at amortized cost should be measured on a collective or pooled basis when such assets exhibit similar risk characteristics. In instances in which a financial asset does not exhibit similar risk characteristics to a pool, the Company is required to measure such allowance for credit losses on an individual asset basis. For the Company’s loan portfolio, nonaccrual loans are considered to not exhibit similar risk characteristics as pools and thus are individually assessed. Credit losses are measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the fair value of the underlying collateral. Individually assessed loans are considered a fair value measurement where an allowance for credit loss is established based on the fair value of collateral. Appraised values on relevant real estate properties, which may require adjustments to market-based valuation inputs, are generally used on foreclosure probable and collateral-dependent loans within the real estate portfolios.

The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 inputs of individually assessed loans. For more information on individually assessed loans refer to Note (7) “Allowance for Credit Losses”. At June 30, 2023, the Company had $73.8 million of individually assessed loans classified as Level 3. All of the $73.8 million of individually assessed loans were measured at fair value based on the underlying collateral of the loan as shown in the table above. None were valued based on discounted cash flows in accordance with ASC 310.

Other real estate owned —Other real estate owned is comprised of real estate acquired in partial or full satisfaction of loans and is included in other assets. Other real estate owned is recorded at its estimated fair value less estimated selling costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the allowance for loan losses. Subsequent changes in value are reported as adjustments to the carrying amount and are recorded in other non-interest expense. Gains and losses upon sale, if any, are also charged to other non-interest expense. Fair value is generally based on third party appraisals and internal estimates that are adjusted by a discount representing the estimated cost of sale and is therefore considered a Level 3 valuation.

The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 inputs for other real estate owned. At June 30, 2023, the Company had $11.6 million of other real estate owned classified as Level 3. The unobservable input applied to other real estate owned relates to the 10% reduction to the appraisal value representing the estimated cost of sale of the foreclosed property. A higher discount for the estimated cost of sale results in a decreased carrying value.

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The valuation techniques and significant unobservable inputs used to measure both recurring and non-recurring Level 3 fair value measurements at June 30, 2023 were as follows:

(Dollars in thousands)

Fair Value

Valuation Methodology

Significant Unobservable Input

Range
of Inputs

Weighted
Average
of Inputs

Impact to valuation
from an increased or
higher input value

Measured at fair value on a recurring basis:

Municipal securities

114,155

Bond pricing

Equivalent rating

BBB-AA+

N/A

Increase

Mortgage loans held-for-sale

29,406

Discounted cash flows

Discount rate

6.50%

Decrease

Credit discount

0% - 13%

0.42%

Decrease

Loans held-for-investment

61,123

Discounted cash flows

Discount rate

6.50% - 7.25%

6.57%

Decrease

Credit discount

0% - 14%

0.89%

Decrease

Constant prepayment rate (CPR) - current loans

7.01%

Decrease

Average life - delinquent loans (in years)

2.7 years - 10.5 years

6.2 years

Decrease

MSRs

200,692

Discounted cash flows

Discount rate

2% - 21%

10.50%

Decrease

Constant prepayment rate (CPR)

0% - 100%

7.01%

Decrease

Cost of servicing

$70 - $200

Decrease

Cost of servicing - delinquent

$200 - 1,000

405

Decrease

Derivatives

3,487

Discounted cash flows

Pull-through rate

13% - 100%

83.16

Increase

Measured at fair value on a non-recurring basis:

Individually assessed loans - foreclosure probable and collateral-dependent

73,804

Appraisal value

Appraisal adjustment - cost of sale

10%

10.00%

Decrease

Other real estate owned

11,586

Appraisal value

Appraisal adjustment - cost of sale

10%

10.00%

Decrease

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The Company is required under applicable accounting guidance to report the fair value of all financial instruments on the Consolidated Statements of Condition, including those financial instruments carried at cost. The table below presents the carrying amounts and estimated fair values of the Company’s financial instruments as of the dates shown:


	At June 30, 2023				At December 31, 2022				At June 30, 2022
	Carrying		Fair		Carrying		Fair		Carrying		Fair
(In thousands)	Value		Value		Value		Value		Value		Value
Financial Assets:
Cash and cash equivalents	$	513,917	$	513,917	$	490,966	$	490,966	$	498,947	$	498,947
Securities sold under agreements to repurchase with original maturities exceeding three months	—		—		—		—		475,000		475,000
Interest-bearing deposits with banks	2,163,708		2,163,708		1,988,719		1,988,719		3,266,541		3,266,541
Available-for-sale securities	3,492,481		3,492,481		3,243,017		3,243,017		2,970,121		2,970,121
Held-to-maturity securities	3,564,473		2,887,891		3,640,567		2,949,821		3,413,469		2,900,269
Trading account securities	3,027		3,027		1,127		1,127		1,010		1,010
Equity securities with readily determinable fair value	116,275		116,275		110,365		110,365		93,295		93,295
FHLB and FRB stock, at cost	195,117		195,117		224,759		224,759		136,138		136,138
Brokerage customer receivables	15,722		15,722		16,387		16,387		21,527		21,527
Mortgage loans held-for-sale, at fair value	338,728		338,728		299,935		299,935		513,232		513,232
Loans held-for-investment, at fair value	193,953		193,953		179,932		179,932		122,757		122,757
Loans held-for-investment, at amortized cost	40,829,455		40,142,976		39,016,553		38,018,678		36,930,346		36,165,838
Nonqualified deferred compensation assets	14,796		14,796		13,899		13,899		13,936		13,936
Derivative assets	294,748		294,748		296,848		296,848		183,925		183,925
Accrued interest receivable and other	434,553		434,553		379,719		379,719		283,626		283,626
Total financial assets	$	52,170,953	$	50,807,892	$	49,902,793	$	48,214,172	$	48,923,870	$	47,646,162
Financial Liabilities
Non-maturity deposits	$	37,682,437	$	37,682,437	$	38,167,409	$	38,167,409	$	38,917,105	$	38,917,105
Deposits with stated maturities	6,356,270		6,300,161		4,735,135		4,085,058		3,676,221		3,683,452
FHLB advances	2,026,071		2,072,317		2,316,071		2,219,983		1,166,071		1,116,429
Other borrowings	665,219		662,156		596,614		569,342		482,787		483,592
Subordinated notes	437,628		405,762		437,392		409,395		437,162		434,809
Junior subordinated debentures	253,566		253,562		253,566		253,405		253,566		281,085
Derivative liabilities	391,172		391,172		338,078		338,078		167,857		167,857
Accrued interest payable	45,359		45,359		22,176		22,176		8,233		8,233
Total financial liabilities	$	47,857,722	$	47,812,926	$	46,866,441	$	46,064,846	$	45,109,002	$	45,092,562

Not all the financial instruments listed in the table above are subject to the disclosure provisions of ASC Topic 820, as certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash equivalents, interest-bearing deposits with banks, brokerage customer receivables, FHLB and FRB stock, accrued interest receivable and accrued interest payable and non-maturity deposits.

The following methods and assumptions were used by the Company in estimating fair values of financial instruments that were not previously disclosed.

Held-to-maturity securities. Held-to-maturity securities include U.S. government-sponsored agency securities, municipal bonds issued by various municipal government entities primarily located in the Chicago metropolitan area and southern Wisconsin and mortgage-backed securities. Fair values for held-to-maturity securities are typically based on prices obtained from independent pricing vendors. In accordance with ASC 820, the Company has generally categorized these held-to-maturity securities as a Level 2 fair value measurement. Fair values for certain other held-to-maturity securities are based on the bond pricing methodology discussed previously related to certain available-for-sale securities. In accordance with ASC 820, the Company has categorized these held-to-maturity securities as a Level 3 fair value measurement.

Loans held-for-investment, at amortized cost. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are analyzed by type such as commercial, residential real estate, etc. Each category is further segmented by interest rate type (fixed and variable) and term. For variable-rate loans that reprice frequently, estimated fair values are based

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on carrying values. The fair value of residential loans is based on secondary market sources for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value for other fixed rate loans is estimated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect credit and interest rate risks inherent in the loan. In accordance with ASC 820, the Company has categorized loans as a Level 3 fair value measurement.

Deposits with stated maturities. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently in effect for deposits of similar remaining maturities. In accordance with ASC 820, the Company has categorized deposits with stated maturities as a Level 3 fair value measurement.

FHLB advances. The fair value of FHLB advances is obtained from the FHLB which uses a discounted cash flow analysis based on current market rates of similar maturity debt securities to discount cash flows. In accordance with ASC 820, the Company has categorized FHLB advances as a Level 3 fair value measurement.

Subordinated notes. The fair value of the subordinated notes is based on a market price obtained from an independent pricing vendor. In accordance with ASC 820, the Company has categorized subordinated notes as a Level 2 fair value measurement.

Junior subordinated debentures. The fair value of the junior subordinated debentures is based on the discounted value of contractual cash flows. In accordance with ASC 820, the Company has categorized junior subordinated debentures as a Level 3 fair value measurement.

(16) Stock-Based Compensation Plans

As of June 30, 2023, approximately 1.2 million shares were available for future grants, assuming the maximum number of shares are issued for the performance awards outstanding, approved under the Company Stock Incentive Plans (“the Plans”). Descriptions of the Plans are included in Note (18) “Stock Compensation Plans and Other Employee Benefit Plans” of the 2022 Form 10-K.

Stock-based compensation expense recognized in the Consolidated Statements of Income was $8.1 million in the second quarter of 2023 and $7.0 million in the second quarter of 2022, and $16.4 million and $14.9 million in the six months ended June 30, 2023 and 2022, respectively.

A summary of the Plans’ stock option activity for the six months ended June 30, 2023 and June 30, 2022 is presented below:


Stock Options	Common Shares	Weighted Average Strike Price		Remaining Contractual Term (1)	Intrinsic Value (2) (in thousands)
Outstanding at January 1, 2023	68,093	$	41.14
Granted	—	—
Exercised	(54,218)	40.87
Forfeited or canceled	—	—
Outstanding at June 30, 2023	13,875	$	42.18	4.5	$	422
Exercisable at June 30, 2023	13,875	$	42.18	4.5	$	422


Stock Options	Common Shares	Weighted Average Strike Price		Remaining Contractual Term (1)	Intrinsic Value (2) (in thousands)
Outstanding at January 1, 2022	193,447	$	41.62

Granted	—	—
Exercised	(83,507)	42.39
Forfeited or canceled	(1,430)	40.87
Outstanding at June 30, 2022	108,510	$	41.04	1.2	$	4,244
Exercisable at June 30, 2022	108,510	$	41.04	1.2	$	4,244

(1)Represents the remaining weighted average contractual life in years.

(2)Aggregate intrinsic value represents the total pre-tax intrinsic value (i.e., the difference between the Company’s stock price on the last trading day of the quarter and the option exercise price, multiplied by the number of shares) that would have been received by the option holders if they had exercised their options on the last day of the quarter. Options with exercise prices above the stock price on the last trading day of the quarter are excluded from the calculation of intrinsic value. The intrinsic value will change based on the fair market value of the Company’s stock.

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The aggregate intrinsic value of options exercised during the six months ended June 30, 2023 and June 30, 2022, was $2.5 million and $4.7 million, respectively. Cash received from option exercises under the Plans for the six months ended June 30, 2023 and June 30, 2022 was $2.2 million and $3.5 million, respectively.

A summary of the Plans’ restricted share activity for the six months ended June 30, 2023 and June 30, 2022 is presented below:


	Six months ended June 30, 2023			Six months ended June 30, 2022
Restricted Shares	Common Shares	Weighted Average Grant-Date Fair Value		Common Shares	Weighted Average Grant-Date Fair Value
Outstanding at January 1	610,155	$	73.21	476,813	$	61.33
Granted	260,173	88.29		204,043	96.95
Vested and issued	(103,161)	64.08		(56,380)	64.44
Forfeited or canceled	(7,638)	82.82		(9,722)	72.87
Outstanding at June 30	759,529	$	79.52	614,754	$	72.68
Vested, but deferred, at June 30	98,247	$	53.35	96,400	$	52.83

A summary of the Plans’ performance-based stock award activity, based on the target level of the awards, for the six months ended June 30, 2023 and June 30, 2022 is presented below:


	Six months ended June 30, 2023			Six months ended June 30, 2022
Performance-based Stock	Common Shares	Weighted Average Grant-Date Fair Value		Common Shares	Weighted Average Grant-Date Fair Value
Outstanding at January 1	545,379	$	70.30	557,255	$	62.94
Granted	186,313	92.45		160,326	97.16
Added by performance factor at vesting	23,161	63.64		—	—
Vested and issued	(178,203)	63.64		—	—
Forfeited or canceled	(7,909)	82.73		(163,803)	71.44
Outstanding at June 30	568,741	$	79.20	553,778	$	70.34
Vested, but deferred, at June 30	36,438	$	44.99	35,424	$	44.04

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(17) Accumulated Other Comprehensive Income or Loss and Earnings Per Share

Accumulated Other Comprehensive Income or Loss

The following tables summarize the components of other comprehensive income or loss, including the related income tax effects, and the related amount reclassified to net income for the periods presented:


(In thousands)	Accumulated Unrealized (Losses) Gains on Securities		Accumulated Unrealized Gains (Losses) on Derivative Instruments		Accumulated Foreign Currency Translation Adjustments		Total Accumulated Other Comprehensive (Loss) Income
Balance at April 1, 2023	$	(351,995)	$	32,809	$	(48,250)	$	(367,436)
Other comprehensive (loss) income during the period, net of tax, before reclassifications	(33,909)		(88,405)		5,344		(116,970)
Amount reclassified from accumulated other comprehensive income or loss into net income, net of tax	(1)		10,337		—		10,336
Amount reclassified from accumulated other comprehensive income or loss related to amortization of unrealized gains on investment securities transferred to held-to-maturity from available-for-sale, net of tax	(20)		—		—		(20)
Net other comprehensive (loss) income during the period, net of tax	$	(33,930)	$	(78,068)	$	5,344	$	(106,654)
Balance at June 30, 2023	$	(385,925)	$	(45,259)	$	(42,906)	$	(474,090)

Balance at January 1, 2023	$	(386,057)	$	7,381	$	(48,960)	$	(427,636)
Other comprehensive income (loss) during the period, net of tax, before reclassifications	594		(65,597)		6,054		(58,949)
Amount reclassified from accumulated other comprehensive income or loss into net income, net of tax	(410)		12,957		—		12,547
Amount reclassified from accumulated other comprehensive income or loss related to amortization of unrealized gains on investment securities transferred to held-to-maturity from available-for-sale, net of tax	(52)		—		—		(52)
Net other comprehensive income (loss) during the period, net of tax	$	132	$	(52,640)	$	6,054	$	(46,454)
Balance at June 30, 2023	$	(385,925)	$	(45,259)	$	(42,906)	$	(474,090)



Balance at April 1, 2022	$	(142,604)	$	56,060	$	(29,455)	$	(115,999)
Other comprehensive (loss) income during the period, net of tax, before reclassifications	(122,154)		999		(6,593)		(127,748)
Amount reclassified from accumulated other comprehensive income or loss into net income, net of tax	—		742		—		742
Amount reclassified from accumulated other comprehensive income or loss related to amortization of unrealized gains on investment securities transferred to held-to-maturity from available-for-sale, net of tax	(32)		—		—		(32)
Net other comprehensive (loss) income during the period, net of tax	$	(122,186)	$	1,741	$	(6,593)	$	(127,038)
Balance at June 30, 2022	$	(264,790)	$	57,801	$	(36,048)	$	(243,037)

Balance at January 1, 2022	$	8,724	$	27,111	$	(31,743)	$	4,092
Other comprehensive (loss) income during the period, net of tax, before reclassifications	(273,268)		26,022		(4,305)		(251,551)
Amount reclassified from accumulated other comprehensive income or loss into net income, net of tax	(183)		4,668		—		4,485
Amount reclassified from accumulated other comprehensive income or loss related to amortization of unrealized gains on investment securities transferred to held-to-maturity from available-for-sale, net of tax	(63)		—		—		(63)
Net other comprehensive (loss) income during the period, net of tax	$	(273,514)	$	30,690	$	(4,305)	$	(247,129)
Balance at June 30, 2022	$	(264,790)	$	57,801	$	(36,048)	$	(243,037)

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(In thousands)	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) for the
Details Regarding the Component of Accumulated Other Comprehensive Income (Loss)	Three Months Ended				Six Months Ended				Impacted Line on the Consolidated Statements of Income
	June 30,				June 30,
	2023		2022		2023		2022
Accumulated unrealized gains on securities
Gains included in net income	$	2	$	—	$	562	$	250	Gains (losses) on investment securities, net
	2		—		562		250		Income before taxes
Tax effect	(1)		—		(152)		(67)		Income tax expense
Net of tax	$	1	$	—	$	410	$	183	Net income

Accumulated unrealized gains on derivative instruments
Amount reclassified to interest income on loans	$	18,661	$	—	$	27,733	$	—	Interest on Loans
Amount reclassified to interest expense on deposits	$	(4,657)	$	657	$	(10,245)	$	5,476	Interest on deposits
Amount reclassified to interest expense on other borrowings	88		355		176		889		Interest on other borrowings

	(14,092)		(1,012)		(17,664)		(6,365)		Income before taxes
Tax effect	3,755		270		4,707		1,697		Income tax expense
Net of tax	$	(10,337)	$	(742)	$	(12,957)	$	(4,668)	Net income

Earnings per Share

The following table shows the computation of basic and diluted earnings per share for the periods indicated:


		Three Months Ended				Six Months Ended
(In thousands, except per share data)		June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net income		$	154,750	$	94,513	$	334,948	$	221,904
Less: Preferred stock dividends		6,991		6,991		13,982		13,982
Net income applicable to common shares	(A)	$	147,759	$	87,522	$	320,966	$	207,922

Weighted average common shares outstanding	(B)	61,192		58,063		61,072		57,632
Effect of dilutive potential common shares
Common stock equivalents		902		775		933		823
Weighted average common shares and effect of dilutive potential common shares	(C)	62,094		58,838		62,005		58,455
Net income per common share:
Basic	(A/B)	$	2.41	$	1.51	$	5.26	$	3.61
Diluted	(A/C)	$	2.38	$	1.49	$	5.18	$	3.56

Potentially dilutive common shares can result from stock options, restricted stock unit awards and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect of inclusion would either reduce the loss per share or increase the income per share.

At the January 2023 meeting of the board of directors of the Company (the “Board of Directors”), a quarterly cash dividend of $0.40 per share ($1.60 on an annualized basis) was declared. It was paid on February 23, 2023 to shareholders of record as of February 9, 2023. At the April 2023 meeting of the Board of Directors, a quarterly cash dividend of $0.40 per share ($1.60 on an annualized basis) was declared. It was paid on May 25, 2023 to shareholders of record as of May 11, 2023.

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition of Wintrust Financial Corporation and its subsidiaries (collectively, “Wintrust” or the “Company”) as of June 30, 2023 compared with December 31, 2022 and June 30, 2022, and the results of operations for the three and six month periods ended June 30, 2023 and June 30, 2022, should be read in conjunction with the unaudited consolidated financial statements and notes contained in this report and the risk factors discussed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”) and in Part II, Item 1A, of this Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties and, as such, future results could differ significantly from management’s current expectations. See the last section of this discussion for further information on forward-looking statements.

Introduction

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

Overview

Second Quarter Highlights

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

The Company increased its loan portfolio from $37.1 billion at June 30, 2022 and $39.2 billion at December 31, 2022 to $41.0 billion at June 30, 2023. The increase in the current period compared to the prior periods was primarily a result of organic growth in several portfolios, including the commercial, industrial and other, commercial real estate, residential real estate loans held for investment and property and casualty insurance premium finance portfolios. For more information regarding changes in the Company’s loan portfolio, see Financial Condition – Interest Earning Assets and Note (6) “Loans” of the Consolidated Financial Statements in Item 1 of this report.

The Company recorded net interest income of $447.5 million in the second quarter of 2023 compared to $337.8 million in the second quarter of 2022. This increase in net interest income recorded in the second quarter of 2023 compared to the second quarter of 2022 resulted primarily from growth in earning assets, specifically a $4.2 billion increase in average loans, and a significant increase in net interest margin. Net interest margin of 3.64% (3.66% on a fully taxable-equivalent basis, non-GAAP) in the second quarter of 2023 compared favorably to 2.92% (2.93% on a fully taxable-equivalent basis, non-GAAP) in the second quarter of 2022, primarily due to higher yields on earning assets, most notably loans held-for-investment, as market interest rates increased (see “Net Interest Income” for further detail).

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

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

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Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during the second quarter of 2023, the Company continued its practice of maintaining appropriate funding capacity to provide the Company with adequate liquidity for its ongoing operations. In this regard, the Company benefited from its strong deposit base, a liquid short-term investment portfolio and its access to funding from a variety of external funding sources. See “Deposits” and “Other Funding Sources” for additional information regarding liquidity sources.

RESULTS OF OPERATIONS

Earnings Summary

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


	Three months ended
(Dollars in thousands, except per share data)	June 30, 2023			June 30, 2022			Percentage (%) or Basis Point (bp) Change
Net income	$	154,750		$	94,513		64	%
Pre-tax income, excluding provision for credit losses (non-GAAP) (1)	239,944			152,078			58

Net income per common share—Diluted	2.38			1.49			60
Net revenue (2)	560,567			440,746			27
Net interest income	447,537			337,804			32
Net interest margin	3.64		%	2.92		%	72	bps
Net interest margin - fully taxable-equivalent (non-GAAP) (1)	3.66			2.93			73
Net overhead ratio (3)	1.58			1.51			7

Return on average assets	1.18			0.77			41
Return on average common equity	12.79			8.53			426
Return on average tangible common equity (non-GAAP) (1)	15.12			10.36			476


	Six months ended
(Dollars in thousands, except per share data)	June 30, 2023			June 30, 2022			Percentage (%) or Basis Point (bp) Change
Net income	$	334,948		$	221,904		51	%
Pre-tax income, excluding provision for credit losses (non-GAAP) (1)	506,539			329,864			54


Net income per common share—Diluted	5.18			3.56			46
Net revenue (2)	1,126,331			902,830			25
Net interest income	905,532			637,098			42
Net interest margin	3.72		%	2.76		%	96	bps
Net interest margin - fully taxable-equivalent (non-GAAP) (1)	3.74			2.77			97
Net overhead ratio (3)	1.54			1.25			29

Return on average assets	1.29			0.91			38
Return on average common equity	14.20			10.22			398
Return on average tangible common equity (non-GAAP) (1)	16.79			12.40			439
At end of period
Total assets	$	54,286,176		$	50,969,332		7	%
Total loans, excluding loans held-for-sale	41,023,408			37,053,103			11
Total loans, including loans held-for-sale	41,362,136			37,566,335			10
Total deposits	44,038,707			42,593,326			3
Total shareholders’ equity	5,041,912			4,727,623			7


Book value per common share (1)	$	75.65		$	71.06		6
Tangible common book value per share (1)	64.50			59.87			8
Market price per common share	72.62			80.15			(9)

Allowance for loan and unfunded lending-related commitment losses to total loans	0.94		%	0.84		%	10	bps

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

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

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

Certain returns, yields, performance ratios, and quarterly growth rates are “annualized” throughout this report to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance

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trends when compared to full-year or year-over-year amounts. For example, balance sheet growth rates are most often expressed in terms of an annual rate. As such, 5% growth during a quarter would represent an annualized growth rate of 20%.

SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES/RATIOS

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

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

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

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	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
(Dollars and shares in thousands)	2023			2022			2022			2023			2022
Reconciliation of Non-GAAP Net Interest Margin and Efficiency Ratio:
(A) Interest Income (GAAP)	$	697,176		$	639,690		$	371,968		$	1,336,866		$	700,220
Taxable-equivalent adjustment:
- Loans	1,882			1,872			568			3,754			995
- Liquidity management assets	551			551			472			1,102			937
- Other earning assets	1			4			1			5			3
(B) Interest Income (non-GAAP)	$	699,610		$	642,117		$	373,009		$	1,341,727		$	702,155
(C) Interest Expense (GAAP)	249,639			181,695			34,164			431,334			63,122
(D) Net Interest Income (GAAP) (A minus C)	$	447,537		$	457,995		$	337,804		$	905,532		$	637,098
(E) Net Interest Income, fully taxable-equivalent (non-GAAP) (B minus C)	$	449,971		$	460,422		$	338,845		$	910,393		$	639,033

Net interest margin (GAAP)	3.64		%	3.81		%	2.92		%	3.72		%	2.76		%
Net interest margin, fully taxable-equivalent (non-GAAP)	3.66			3.83			2.93			3.74			2.77
(F) Non-interest income	$	113,030		$	107,769		$	102,942		$	220,799		$	265,732
(G) (Losses) gains on investment securities, net	0			1,398			(7,797)			1,398			(10,579)
(H) Non-interest expense	320,623			299,169			288,668			619,792			572,966
Efficiency ratio (H/(D+F-G))	57.20		%	53.01		%	64.36		%	55.10		%	62.73		%
Efficiency ratio (non-GAAP) (H/(E+F-G))	56.95			52.78			64.21			54.86			62.60

Reconciliation of Non-GAAP Tangible Common Equity Ratio:
Total shareholders’ equity (GAAP)	$	5,041,912		$	5,015,506		$	4,727,623

Less: Non-convertible preferred stock (GAAP)	(412,500)			(412,500)			(412,500)
Less: Acquisition-related intangible assets (GAAP)	(682,327)			(674,538)			(679,827)
(I) Total tangible common shareholders’ equity (non-GAAP)	$	3,947,085		$	3,928,468		$	3,635,296
(J) Total assets (GAAP)	$	54,286,176		$	52,873,511		$	50,969,332
Less: Acquisition-related intangible assets (GAAP)	(682,327)			(674,538)			(679,827)
(K) Total tangible assets (non-GAAP)	$	53,603,849		$	52,198,973		$	50,289,505
Common equity to assets ratio (GAAP) (L/J)	8.5		%	8.7		%	8.5		%
Tangible common equity ratio (non-GAAP) (I/K)	7.4			7.5			7.2

Reconciliation of Non-GAAP Tangible Book Value per Common Share:
Total shareholders’ equity	$	5,041,912		$	5,015,506		$	4,727,623
Less: Preferred stock	(412,500)			(412,500)			(412,500)
(L) Total common equity	$	4,629,412		$	4,603,006		$	4,315,123
(M) Actual common shares outstanding	61,198			61,176			60,722
Book value per common share (L/M)	$	75.65		$	75.24		$	71.06
Tangible book value per common share (non-GAAP) (I/M)	64.50			64.22			59.87





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


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

Critical Accounting Estimates

The Company’s Consolidated Financial Statements are prepared in accordance with GAAP in the United States, prevailing practices of the banking industry, and the application of accounting policies of which are described in Note (1) “Summary of Significant Accounting Policies” to the Consolidated Financial Statements in Item 8 of the Company’s 2022 Form 10-K. These policies require numerous estimates and strategic or economic assumptions, which may prove inaccurate or subject to

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variations. Changes in underlying factors, assumptions or estimates could have a material impact on the Company’s future financial condition and results of operations. At June 30, 2023, management views critical accounting estimates to include the determination of the allowance for credit losses, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be most subject to revision as new information becomes available. These estimates were reviewed with the Audit Committee of the Board of Directors.

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

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

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

Impact to estimated allowance for credit losses from an increased or higher input value

Baa Credit Spread

Increases

CRE Price Index

Decreases

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


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

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


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

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

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

Net Income

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

The increase in net income for the second quarter of 2023 as compared to the same period in the prior year is primarily attributable to increased net interest income, partially offset by lower mortgage banking revenue. See “Net Interest Income”, “Non-interest Income”, “Non-interest Expense” and “Credit Quality” for further detail.

Net Interest Income

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

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Quarter Ended June 30, 2023 compared to the Quarters Ended March 31, 2023 and June 30, 2022

The following table presents a summary of the Company’s average balances, net interest income and related net interest margins, including a calculation on a fully taxable-equivalent basis, for the second quarter of 2023 as compared to the first quarter of 2023 (sequential quarters) and second quarter of 2022 (linked quarters):


	Average Balance for three months ended,						Interest for three months ended,						Yield/Rate for three months ended,
(Dollars in thousands)	Jun 30, 2023		Mar 31, 2023		Jun 30, 2022		Jun 30, 2023		Mar 31, 2023		Jun 30, 2022		Jun 30, 2023		Mar 31, 2023		Jun 30, 2022
Interest-bearing deposits with banks, securities purchased under resale agreements and cash equivalents(1)	$	1,454,057	$	1,235,748	$	3,265,607	$	16,882	$	13,538	$	7,154	4.66	%	4.44	%	0.88	%
Investment securities(2)	7,252,582		7,956,722		6,589,947		51,795		60,494		37,013		2.86		3.08		2.25
FHLB and FRB stock	223,813		233,615		136,930		3,544		3,680		1,823		6.35		6.39		5.34
Liquidity management assets(3)(8)	$	8,930,452	$	9,426,085	$	9,992,484	$	72,221	$	77,712	$	45,990	3.24	%	3.34	%	1.85	%
Other earning assets(3)(4)(8)	17,401		18,445		24,059		272		313		210		6.27		6.87		3.49
Mortgage loans held-for-sale	307,683		270,966		560,707		4,178		3,528		5,740		5.45		5.28		4.11
Loans, net of unearned income(3)(5)(8)	40,106,393		39,093,368		35,860,329		622,939		560,564		321,069		6.23		5.82		3.59

Total earning assets(8)	$	49,361,929	$	48,808,864	$	46,437,579	$	699,610	$	642,117	$	373,009	5.68	%	5.34	%	3.22	%
Allowance for loan and investment security losses	(302,627)		(282,704)		(260,547)
Cash and due from banks	481,510		488,457		476,741
Other assets	3,061,141		3,060,701		2,699,653
Total assets	$	52,601,953	$	52,075,318	$	49,353,426

NOW and interest-bearing demand deposits	$	5,540,597	$	5,271,740	$	5,230,702	$	29,178	$	18,772	$	2,553	2.11	%	1.44	%	0.20	%
Wealth management deposits	1,545,626		2,167,081		2,835,267		9,097		12,258		3,685		2.36		2.29		0.52
Money market accounts	13,735,924		12,533,468		11,892,948		106,630		68,276		8,559		3.11		2.21		0.29
Savings accounts	5,206,609		4,830,322		3,882,856		25,603		15,816		347		1.97		1.33		0.04
Time deposits	5,603,024		5,041,638		3,687,778		42,987		29,680		3,841		3.08		2.39		0.42
Interest-bearing deposits	$	31,631,780	$	29,844,249	$	27,529,551	$	213,495	$	144,802	$	18,985	2.71	%	1.97	%	0.28	%
Federal Home Loan Bank advances	2,227,106		2,474,882		1,197,390		17,399		19,135		4,878		3.13		3.14		1.63
Other borrowings	625,757		602,937		489,779		8,485		7,854		2,734		5.44		5.28		2.24
Subordinated notes	437,545		437,422		437,084		5,523		5,488		5,517		5.06		5.02		5.05
Junior subordinated debentures	253,566		253,566		253,566		4,737		4,416		2,050		7.49		6.97		3.20
Total interest-bearing liabilities	$	35,175,754	$	33,613,056	$	29,907,370	$	249,639	$	181,695	$	34,164	2.85	%	2.19	%	0.46	%
Non-interest-bearing deposits	10,908,022		12,171,631		13,805,128
Other liabilities	1,473,459		1,395,360		1,114,818
Equity	5,044,718		4,895,271		4,526,110
Total liabilities and shareholders’ equity	$	52,601,953	$	52,075,318	$	49,353,426
Interest rate spread(6)(8)													2.83	%	3.15	%	2.76	%
Less: Fully taxable-equivalent adjustment							(2,434)		(2,427)		(1,041)		(0.02)		(0.02)		(0.01)
Net free funds/contribution(7)	$	14,186,175	$	15,195,808	$	16,530,209							0.83		0.68		0.17
Net interest income/margin (GAAP)(8)							$	447,537	$	457,995	$	337,804	3.64	%	3.81	%	2.92	%
Fully taxable-equivalent adjustment							2,434		2,427		1,041		0.02		0.02		0.01
Net interest income/margin, fully taxable-equivalent (non-GAAP)(8)							$	449,971	$	460,422	$	338,845	3.66	%	3.83	%	2.93	%

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

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

(3)Interest income on tax-advantaged loans, trading securities and investment securities reflects a tax-equivalent adjustment based on the marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022 were $2.4 million, $2.4 million and $1.0 million, respectively.

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

(5)Loans, net of unearned income, include nonaccrual loans.

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

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

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

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

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


	Average Balance for six months ended,		Interest for six months ended,				Yield/Rate for six months ended,
(Dollars in thousands)	June 30, 2023		June 30, 2022		June 30, 2023			June 30, 2022		June 30, 2023		June 30, 2022
Interest-bearing deposits with banks, securities purchased under resale agreements and cash equivalents(1)	$	1,345,506	$	3,911,080	$	30,421		$	9,272	4.56	%	0.48	%
Investment securities (2)	7,602,707		6,484,570		112,288			69,876		2.98		2.17
FHLB and FRB stock	228,687		136,424		7,224			3,595		6.37		5.31
Liquidity management assets (3)(8)	$	9,176,900	$	10,532,074	$	149,933		$	82,743	3.29	%	1.58	%
Other earning assets (3)(4)(8)	17,920		24,622		585			391		6.58		3.20
Mortgage loans held-for-sale	289,426		612,078		7,706			11,827		5.37		3.90
Loans, net of unearned income (3)(5)(8)	39,602,672		35,348,269		1,183,503			607,194		6.03		3.46

Total earning assets (8)	$	49,086,918	$	46,517,043	$	1,341,727		$	702,155	5.51	%	3.04	%
Allowance for loan and investment security losses	(292,721)		(256,834)
Cash and due from banks	484,964		479,174
Other assets	3,060,929		2,687,842
Total assets	$	52,340,090	$	49,427,225

NOW and interest-bearing demand deposits	$	5,406,911	$	5,010,709	$	47,949		$	4,543	1.79	%	0.18	%
Wealth management deposits	1,854,637		2,671,444		21,355			4,603		2.32		0.35
Money market accounts	13,138,018		12,330,943		174,907			16,207		2.68		0.27
Savings accounts	5,019,505		3,893,519		41,419			683		1.66		0.04
Time deposits	5,323,882		3,774,095		72,667			7,803		2.75		0.42
Interest-bearing deposits	$	30,742,953	$	27,680,710	$	358,297		$	33,839	2.35	%	0.25	%
Federal Home Loan Bank advances	2,350,309		1,219,110		36,534			9,694		3.13		1.60
Other borrowings	614,410		492,011		16,338			4,973		5.36		2.04
Subordinated notes	437,484		437,025		11,011			10,999		5.08		5.03
Junior subordinated debentures	253,566		253,566		9,154			3,617		7.28		2.84
Total interest-bearing liabilities	$	34,398,722	$	30,082,422	$	431,334		$	63,122	2.53	%	0.42	%
Non-interest-bearing deposits	11,536,336		13,769,792
Other liabilities	1,434,625		1,061,655
Equity	4,970,407		4,513,356
Total liabilities and shareholders’ equity	$	52,340,090	$	49,427,225
Interest rate spread (6)(8)										2.98	%	2.62	%
Less: Fully taxable-equivalent adjustment					(4,861)			(1,935)		(0.02)		(0.01)
Net free funds/contribution (7)	$	14,688,196	$	16,434,621						0.76		0.15
Net interest income/margin (GAAP) (8)					$	905,532		$	637,098	3.72	%	2.76	%
Fully taxable-equivalent adjustment					4,861			1,935		0.02		0.01
Net interest income/margin, fully taxable-equivalent (non-GAAP) (8)					$	910,393		$	639,033	3.74	%	2.77	%

(3)Interest income on tax-advantaged loans, trading securities and investment securities reflects a taxable-equivalent adjustment based on a marginal federal corporate tax rate in effect as of the applicable period. The total adjustments for the six months ended June 30, 2023 and June 30, 2022 were $4.9 million and $1.9 million, respectively.

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

(5)Loans, net of unearned income, include nonaccrual loans.

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

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

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

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


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

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

Non-interest Income

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


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

(1)Wealth management revenue is comprised of the trust and asset management revenue of the CTC and Great Lakes Advisors, the brokerage commissions, managed money fees and insurance product commissions at Wintrust Investments and fees from tax-deferred like-kind exchange services provided by CDEC.

NM—Not Meaningful.

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

NM—Not Meaningful.

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

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

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

The Company has typically written call options with terms of less than three months against certain U.S. Treasury and agency securities held in its portfolio for liquidity and other purposes. Management has effectively entered into these transactions with the goal of economically hedging security positions and enhancing its overall return on its investment portfolio. These option transactions are designed to increase the total return associated with holding certain investment securities and do not qualify as hedges pursuant to accounting guidance. There were no outstanding call option contracts at June 30, 2023 and 2022.

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

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

Non-interest Expense

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


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

NM - Not meaningful.

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

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

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

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

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

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

Income Taxes

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

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

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million in the first six months of 2022 related to share-based compensation, most of which was recorded in the first quarter of each year.

Operating Segment Results

The Company’s operations consist of three primary segments: community banking, specialty finance and wealth management. Refer to Note (13) “Segment Information” to the Consolidated Financial Statements in Item 1 of this report for further information on the Company’s primary segments. The Company’s profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its community banking segment.

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

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

The wealth management segment reported net interest income of $7.4 million for the second quarter of 2023 compared to $9.5 million in the same quarter of 2022, an decrease of $2.1 million, or 22%. On a year-to-date basis, net interest income totaled $16.4 million for the first six months of 2023, as compared to $17.9 million for the first six months of 2022. Net interest income for this segment is primarily comprised of an allocation of the net interest income earned by the community banking segment on non-interest-bearing and interest-bearing wealth management customer account balances on deposit at the banks. Wealth management customer account balances on deposit at the banks averaged $1.9 billion and $2.7 billion in the first six months of 2023 and 2022, respectively. This segment recorded non-interest income of $33.4 million for the second quarter of 2023 compared to $30.2 million for the second quarter of 2022. On a year-to-date basis, this segment recorded non-interest income of $63.7 million for the first six months of 2023 as compared to $60.8 million for the first six months of 2022. Distribution of wealth management services through each bank continues to be a focus of the Company. The Company is committed to growing the wealth management segment in order to better service its customers and create a more diversified revenue stream. The wealth management segment’s net income totaled $5.8 million for the second quarter of 2023 compared to $9.3 million for the second quarter of 2022. On a year-to-date basis, the wealth management segment’s net income totaled $15.1 million and $17.0 million for the six month period ended June 30, 2023 and 2022, respectively.

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Financial Condition

Total assets were $54.3 billion at June 30, 2023, representing an increase of $3.3 billion, or 7%, when compared to June 30, 2022 and an increase of approximately $1.4 billion, or 11% on an annualized basis, when compared to March 31, 2023. Total funding, which includes deposits, all notes and advances, including secured borrowings and the junior subordinated debentures, was $47.4 billion at June 30, 2023, $46.3 billion at March 31, 2023, and $44.9 billion at June 30, 2022. See Notes (5), (6), (10), (11) and (12) of the Consolidated Financial Statements presented under Item 1 of this report for additional period-end detail on the Company’s interest-earning assets and funding liabilities.

Interest-Earning Assets

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


	Three Months Ended
	June 30, 2023				March 31, 2023				June 30, 2022
(Dollars in thousands)	Balance		Percent		Balance		Percent		Balance		Percent
Mortgage loans held-for-sale	$	307,683	1	%	$	270,966	1	%	$	560,707	1	%
Loans, net of unearned income
Commercial	$	12,616,682	26	%	$	12,401,473	25	%	$	11,703,274	25	%

Commercial real estate	10,438,593		21		10,144,301		21		9,298,567		20
Home equity	338,388		1		333,195		1		323,687		1
Residential real estate	2,453,384		5		2,336,190		5		1,876,166		4
Premium finance receivables	14,181,414		29		13,811,566		28		12,588,284		27
Other loans	77,932		0		66,643		0		70,351		0
Total average loans (1)	$	40,106,393	82	%	$	39,093,368	80	%	$	35,860,329	77	%
Liquidity management assets (2)	8,930,452		17		9,426,085		19		9,992,484		22
Other earning assets (3)	17,401		0		18,445		0		24,059		0
Total average earning assets	$	49,361,929	100	%	$	48,808,864	100	%	$	46,437,579	100	%
Total average assets	$	52,601,953			$	52,075,318			$	49,353,426
Total average earning assets to total average assets			94	%			94	%			94	%

(1)Includes nonaccrual loans.

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

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

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

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

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

The increase in the residential real estate average balance compared to both periods was partially due to the Company deciding to allocate more balances from its mortgage production for investment instead of for subsequent sale and servicing in the secondary market. The residential real estate loan portfolio includes certain loans guaranteed by U.S. government agencies

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under the Government National Mortgage Association (“GNMA”) optional repurchase programs. Such programs allow financial institutions acting as servicers to buyout individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution was the original transferor of such loans. At the option of the servicer and without prior authorization from GNMA, the servicer may repurchase such delinquent loans for an amount equal to the remaining principal balance of the loan. Under FASB ASC Topic 860, “Transfers and Servicing,” this early buyout option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When the Company is deemed to have regained effective control over these loans under the unconditional repurchase option and the expected benefit of the potential repurchase is more than trivial, the loans can no longer be reported as sold and must be brought back onto the balance sheet as loans at fair value, regardless of whether the Company intends to exercise the early buyout option. These rebooked loans are reported as loans held-for-investment, part of the residential real estate portfolio, with the offsetting liability being reported in accrued interest payable and other liabilities. When the early buyout option on these rebooked GNMA loans is exercised, the repurchased loans continue to be carried at fair value. Additionally, such loans typically transfer to mortgage loans held-for-sale at the time of early buyout as the Company’s intent is to cure and resell such loans subsequent to repurchase from GNMA. If such intent to cure and resell changes subsequent to early buyout, the Company reclassifies such loans as held-for-investment. Early buyout loans classified as held-for-investment totaled $187.8 million at June 30, 2023 compared to $113.9 million at June 30, 2022. Such loans consist of both the rebooked GNMA loans and the early buyout exercised loans classified as held-for-investment discussed above. Rebooked GNMA loans held-for-investment amounted to $117.0 million at June 30, 2023, compared to $34.8 million at June 30, 2022. The increase in balance from June 30, 2022 to June 30, 2023 was the result of higher delinquencies between periods and less frequent exercising of the early buyout option by the Company. As of June 30, 2023, early buyout exercised loans held-for-investment totaled $70.8 million compared to $79.1 million as of June 30, 2022. As of June 30, 2023, early buyout exercised mortgage loans held-for-sale totaled $103.2 million compared to $218.5 million as of June 30, 2022. The decline in early buyout exercised mortgage loans held-for-sale relative to the prior year is primarily due to the resale of mortgage loans to GNMA as well as the reclassification of certain loans to held-for-investment classification due to an inability to resell due to continued delinquency.

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

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

Liquidity management assets. Funds that are not utilized for loan originations are used to purchase investment securities and short term money market investments, to sell as federal funds and to maintain in interest bearing deposits with banks. The balances of these assets can fluctuate based on management’s ongoing effort to manage liquidity and for asset liability management purposes. The Company will continue to prudently evaluate and utilize liquidity sources as needed, including the management of availability with the FHLB and FRB and utilization of the revolving credit facility with unaffiliated banks.

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


	Six Months Ended
	June 30, 2023				June 30, 2022
(Dollars in thousands)	Balance		Percent		Balance		Percent
Mortgage loans held-for-sale	$	289,426	1	%	$	612,078	1	%
Loans:
Commercial	$	12,509,664	25	%	$	11,653,901	25	%

Commercial real estate	10,292,260		21		9,216,533		20
Home equity	335,806		1		326,238		1
Residential real estate	2,395,111		5		1,768,125		4
Premium finance receivables	13,997,512		29		12,323,809		26
Other loans	72,319		0		59,663		0
Total average loans(1)	$	39,602,672	81	%	$	35,348,269	76	%
Liquidity management assets (2)	9,176,900		18		10,532,074		23
Other earning assets (3)	17,920		0		24,622		0
Total average earning assets	$	49,086,918	100	%	$	46,517,043	100	%
Total average assets	$	52,340,090			$	49,427,225
Total average earning assets to total average assets			94	%			94	%

(1)Includes nonaccrual loans.

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

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

Maturities and Sensitivities of Loans to Changes in Interest Rates

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


As of June 30, 2023	One year or less		From one to five years		From five to fifteen years		After fifteen years
(In thousands)									Total
Commercial
Fixed rate	$	491,950	$	2,588,577	$	1,707,423	$	11,360	$	4,799,310

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

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Consumer and other
Fixed rate	4,420		3,912		60		301		8,693
Variable rate	23,248		—		—		—		23,248
Total consumer and other	$	27,668	$	3,912	$	60	$	301	$	31,941
Total per category
Fixed rate	7,883,298		6,136,371		2,333,815		1,136,065		17,489,549

Variable rate	22,077,865		274,024		1,181,970		—		23,533,859
Total loans, net of unearned income	$	29,961,163	$	6,410,395	$	3,515,785	$	1,136,065	$	41,023,408
Variable Rate Loan Pricing by Index:
SOFR tenors									$	10,407,621
One- year CMT									5,819,451
One- month LIBOR									1,707,349
Three- month LIBOR									10,276
Twelve- month LIBOR									1,028,904
Prime									3,932,654
Ameribor tenors									356,300
Other U.S. Treasury tenors									46,387
BSBY tenors									49,436
Other									175,481
Total variable rate									$	23,533,859

SOFR - Secured Overnight Financing Rate.

CMT - Constant Maturity Treasury Rate.

LIBOR - London Interbank Offered Rate.

Ameribor - American Interbank Offered Rate.

BSBY - Bloomberg Short Term Bank Yield Index.

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

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CREDIT QUALITY

Commercial and Commercial Real Estate Loan Portfolios

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


	As of June 30, 2023				As of June 30, 2022
						Allowance						Allowance
			% of			For Credit				% of		For Credit
			Total			Losses				Total		Losses
(Dollars in thousands)	Balance		Balance			Allocation		Balance		Balance		Allocation
Commercial:
Commercial, industrial, and other	$	12,600,471	54.3	%		$	143,142	$	12,047,105	56.2	%	$	142,919


Commercial Real Estate:
Construction and development	$	1,760,436	7.6	%		$	86,725	$	1,506,318	7.0	%	$	45,522


Non-construction	8,848,375		38.1			128,971		7,900,887		36.8		98,210






Total commercial real estate	$	10,608,811	45.7	%		$	215,696	$	9,407,205	43.8	%	$	143,732
Total commercial and commercial real estate	$	23,209,282	100.0	%		$	358,838	$	21,454,310	100.0	%	$	286,651

Commercial real estate - collateral location by state:
Illinois	$	6,751,865	63.6	%				$	6,525,160	69.4	%
Wisconsin	861,564		8.1					789,738		8.4
Total primary markets	$	7,613,429	71.7	%				$	7,314,898	77.8	%
Indiana	348,239		3.3					320,495		3.4
Florida	270,412		2.5					221,174		2.4
Colorado	258,092		2.4					106,281		1.1
California	213,140		2.0					156,077		1.7
Texas	199,896		1.9					153,535		1.6
Ohio	172,277		1.6					129,602		1.4
Other	1,533,326		14.6					1,005,143		10.6
Total commercial real estate	$	10,608,811	100.0	%				$	9,407,205	100.0	%

We make commercial loans for many purposes, including working capital lines, which are generally renewable annually and supported by business assets, personal guarantees and additional collateral. Such loans may vary in size based on customer need. Primarily as a result of growth in the Company’s commercial loan portfolio our allowance for credit losses in our commercial loan portfolio increased to $143.1 million as of June 30, 2023 compared to $142.9 million as of June 30, 2022.

Our commercial real estate loans are generally secured by a first mortgage lien and assignment of rents on the property. Since most of our bank branches are located in the Chicago metropolitan area and southern Wisconsin, 71.7% of our commercial real estate loan portfolio is located in this region as of June 30, 2023. We have been able to effectively manage our total non-performing commercial real estate loans, aided by our credit management process. As of June 30, 2023, our allowance for credit losses related to this portfolio was $215.7 million compared to $143.7 million as of June 30, 2022. The increase in the allowance for credit losses is primarily a result of growth in our commercial real estate portfolio as well as a deteriorated forecast in the CREPI macroeconomic variable.

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

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Past Due Loans and Non-Performing Assets

Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, the Company operates a credit risk rating system under which our credit management personnel assigns a credit risk rating to each loan at the time of origination and review loans on a regular basis to determine each loan’s credit risk rating on a scale of 1 through 10 with higher scores indicating higher risk. Description of the Company’s credit risk rating structure used is included in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2022 Form 10-K.

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

Loan Portfolio Aging

As of June 30, 2023, excluding early buy-out loans guaranteed by U.S. government agencies, $57.9 million, or 0.1% of all loans, were 60 to 89 days (or two payments) past due and $187.7 million, or 0.5% of all loans, were 30 to 59 days (or one payment) past due. As of March 31, 2023, excluding early buy-out loans guaranteed by U.S. government agencies, $67.3 million, or 0.2% of all loans, were 60 to 89 days (or two payments) past due and $274.5 million, or 0.7% of all loans, were 30 to 59 days (or one payment) past due. Many of the commercial and commercial real estate loans shown as 60 to 89 days and 30 to 59 days past due are included on the Company’s internal problem loan reporting system. Loans on this system are closely monitored by management on a monthly basis. The Company's home equity and residential loan portfolios continue to exhibit low delinquency ratios. Home equity loans at June 30, 2023 that were current with regard to the contractual terms of the loan agreement represent 99.3% of the total home equity portfolio. Residential real estate loans, excluding early buy-out loans guaranteed by U.S. government agencies, at June 30, 2023 that were current with regards to the contractual terms of the loan agreements comprise 99.1% of total residential real estate loans outstanding. For more information regarding delinquent loans as of June 30, 2023, see Note (7) “Allowance for Credit Losses” in Item 1.

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Non-performing Assets (1)

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


(Dollars in thousands)	June 30, 2023			March 31, 2023			June 30, 2022
Loans past due greater than 90 days and still accruing (2):
Commercial	$	573		$	—		$	—
Commercial real estate	—			—			—
Home equity	110			—			—
Residential real estate	—			104			—
Premium finance receivables—property and casualty	12,785			9,215			6,447
Premium finance receivables—life insurance	1,667			1,066			—
Consumer and other	28			87			25
Total loans past due greater than 90 days and still accruing	15,163			10,472			6,472
Nonaccrual loans:
Commercial	40,460			47,950			32,436
Commercial real estate	18,483			11,196			10,718
Home equity	1,361			1,190			1,084
Residential real estate	13,652			11,333			8,330
Premium finance receivables—property and casualty	19,583			18,543			13,303
Premium finance receivables—life insurance	6			—			—
Consumer and other	4			6			8
Total nonaccrual loans	93,549			90,218			65,879
Total non-performing loans:
Commercial	41,033			47,950			32,436
Commercial real estate	18,483			11,196			10,718
Home equity	1,471			1,190			1,084
Residential real estate	13,652			11,437			8,330
Premium finance receivables—property and casualty	32,368			27,758			19,750
Premium finance receivables—life insurance	1,673			1,066			—
Consumer and other	32			93			33
Total non-performing loans	$	108,712		$	100,690		$	72,351
Other real estate owned	10,275			8,050			5,574
Other real estate owned—from acquisitions	1,311			1,311			1,265
Other repossessed assets	—			—			—
Total non-performing assets	120,298			$	110,051		$	79,190

Total non-performing loans by category as a percent of its own respective category’s period-end balance:
Commercial	0.33		%	0.38		%	0.27		%
Commercial real estate	0.17			0.11			0.11
Home equity	0.44			0.35			0.33
Residential real estate	0.52			0.46			0.40
Premium finance receivables—property and casualty	0.48			0.48			0.36
Premium finance receivables—life insurance	0.02			0.01			—
Consumer and other	0.10			0.22			0.07
Total non-performing loans	0.26		%	0.25		%	0.20		%
Total non-performing assets, as a percentage of total assets	0.22		%	0.21		%	0.16		%
Total nonaccrual loans as a percentage of total loans	0.23		%	0.23		%	0.18		%
Allowance for credit losses as a percentage of nonaccrual loans	414.09		%	416.54		%	473.76		%

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

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

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

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


	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
(In thousands)	2023		2022		2023		2022
Balance at beginning of period	$	100,690	$	57,305	$	100,697	$	74,438
Additions from becoming non-performing in the respective period	21,246		22,841		45,701		26,982

Return to performing status	(360)		(1,000)		(840)		(1,729)
Payments received	(12,314)		(4,029)		(17,575)		(24,168)
Transfer to OREO and other repossessed assets	(2,958)		(1,611)		(2,958)		(5,988)
Charge-offs	(2,696)		(1,969)		(3,855)		(4,323)
Net change for niche loans (1)	5,104		814		(12,458)		7,139
Balance at end of period	$	108,712	$	72,351	$	108,712	$	72,351

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

Allowance for Credit Losses

The allowance for credit losses, specifically the allowance for loans losses and the allowance for unfunded commitment losses, represents management’s estimate of lifetime expected credit losses in the loan portfolio. The allowance for credit losses is determined quarterly using a methodology that incorporates important risk characteristics of each loan. A description of how the Company determines the allowance for credit losses is included in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2022 Form 10-K.

Management determined that the allowance for credit losses was appropriate at June 30, 2023, and that the loan portfolio is well diversified and well secured, without undue concentration in any specific risk area. While this process involves a high degree of management judgment, the allowance for credit losses is based on a comprehensive, well documented, and consistently applied analysis of the Company’s loan portfolio. This analysis takes into consideration all available information existing as of the financial statement date, including environmental factors such as economic, industry, geographical and political factors, when considered applicable. The relative level of allowance for credit losses is reviewed and compared to industry peers. This review encompasses levels of total non-performing loans, portfolio mix, portfolio concentrations and overall levels of net charge-off. Historical trending of both the Company’s results and the industry peers is also reviewed to analyze comparative significance.

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Allowance for Credit Losses

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


	Three Months Ended						Six Months Ended
(Dollars in thousands)	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Allowance for credit losses at beginning of period	$	375,798		$	301,168		$	357,448		$	299,653
Cumulative effect adjustment from the adoption of ASU 2022-02	—			—			741			—
Provision for credit losses	28,571			20,493			51,641			24,518
Other adjustments	41			(56)			45			(34)

Charge-offs:
Commercial	5,629			8,928			8,172			10,342
Commercial real estate	8,124			40			8,129			817
Home equity	—			192			—			389
Residential real estate	—			—			—			466
Premium finance receivables - property & casualty	4,519			2,903			9,148			4,574
Premium finance receivables - life insurance	134			—			155			7
Consumer and other	110			253			263			446

Total charge-offs	18,516			12,316			25,867			17,041
Recoveries:
Commercial	505			996			897			1,534
Commercial real estate	25			553			125			585
Home equity	37			123			72			216
Residential real estate	6			6			10			11
Premium finance receivables - property & casualty	890			1,119			2,204			2,595
Premium finance receivables - life insurance	—			—			9			—
Consumer and other	23			23			55			72

Total recoveries	1,486			2,820			3,372			5,013
Net charge-offs	(17,030)			(9,496)			(22,495)			(12,028)
Allowance for credit losses at period end	$	387,380		$	312,109		$	387,380		$	312,109


Annualized net charge-offs by category as a percentage of its own respective category’s average:
Commercial	0.16		%	0.27		%	0.12		%	0.15		%
Commercial real estate	0.31			(0.02)			0.16			0.01
Home equity	(0.04)			0.09			(0.04)			0.11
Residential real estate	0.00			0.00			0.00			0.05
Premium finance receivables - property & casualty	0.24			0.14			0.24			0.02
Premium finance receivables - life insurance	0.01			0.00			0.00			0.00
Consumer and other	0.45			1.31			0.58			1.26

Total loans, net of unearned income	0.17		%	0.11		%	0.11		%	0.07		%

Loans at period-end	$	41,023,408		$	37,053,103
Allowance for loan losses as a percentage of loans at period end	0.74		%	0.68		%
Allowance for loan and unfunded loan-related commitment losses as a percentage of loans at period end	0.94			0.84

See Note (7) “Allowance for Credit Losses” of the Consolidated Financial Statements presented under Item 1 of this report for further discussion of activity within the allowance for credit losses during the period and the relationship with respective loan balances for each loan category and the total loan portfolio.

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Other Real Estate Owned

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


	Three Months Ended		Six Months Ended
(In thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Balance at beginning of period	$	9,361	$	6,203	$	9,900	$	4,271
Disposal/resolved	(733)		(1,172)		(1,168)		(3,669)
Transfers in at fair value, less costs to sell	2,958		2,090		2,958		6,519


Fair value adjustments	—		(282)		(104)		(282)
Balance at end of period	$	11,586	$	6,839	$	11,586	$	6,839


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

Deposits

Total deposits at June 30, 2023 were $44.0 billion, an increase of $1.4 billion, or 3%, compared to total deposits at June 30, 2022. See Note (10) “Deposits” to the Consolidated Financial Statements in Item 1 of this report for a summary of period end deposit balances.

The following table sets forth, by category, the maturity of time certificates of deposit as of June 30, 2023:


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

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

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


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

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

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

Brokered Deposits

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


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

Brokered deposits include certificates of deposit obtained through deposit brokers, deposits received through the Certificate of Deposit Account Registry Program, and certain deposits of brokerage customers from unaffiliated companies which have been placed into deposit accounts of the banks.

Other Funding Sources

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

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

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sources, including cash and collateralized funding sources of $14.4 billion or approximately 123% of uninsured and uncollateralized deposits as of June 30, 2023.

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

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


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

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

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

See Note (11) “FHLB Advances, Other Borrowings and Subordinated Notes” and Note (12) “Junior Subordinated Debentures” of the Consolidated Financial Statements presented under Item 1 of this report for details of period end balances and other information for these various funding sources. The Company hereby incorporates by reference Note (11) and Note (12) of the Consolidated Financial Statements presented under Item 1 of this report in its entirety.

Shareholders’ Equity

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


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

(1)Based on quarterly average balances.

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

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

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

The Company’s principal sources of funds at the holding company level are dividends from its subsidiaries, borrowings under its loan agreement with unaffiliated banks and proceeds from the issuances of subordinated debt and additional equity. Refer to Notes (11) and (12) of the Consolidated Financial Statements in Item 1 for further information on these various funding sources. See Note (23) “Shareholders’ Equity” of the Consolidated Financial Statements presented under Item 7 of the 2022 Form 10-K for details on the Company’s issuance of Series D Preferred Stock in June 2015, Series E Preferred Stock and associated Depositary Shares in May 2020 and additional common stock offering in June 2022.

The Board of Directors approves dividends from time to time, however, the ability to declare a dividend is limited by the Company’s financial condition, the terms of the Company’s Series D and Series E Preferred Stock, the terms of the Company’s Trust Preferred Securities offerings and under certain financial covenants in the Company’s revolving and term facilities. In January and April of 2023, the Company declared a quarterly cash dividend of $0.40 per common share. In January, April, July and October of 2022, the Company declared a quarterly cash dividend of $0.34 per common share.

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

LIQUIDITY

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

In addition to the liquidity management noted above, in 2022, the Company sold a total of 3,450,000 shares of its common stock through a public offering. Net proceeds to the Company totaled approximately $285.7 million, net of estimated issuance costs. In the second quarter of 2023, we maintained our liquid assets to ensure that we would have the balance sheet strength to serve our clients. As a result, the Company believes that it has sufficient funds and access to funds to effectively meet its working capital and other needs. The Company will continue to prudently evaluate liquidity sources, including the management of availability with the FHLB and FRB and utilization of the revolving credit facility with unaffiliated banks. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operation -Interest-Earning Assets, -Deposits, -Other Funding Sources and -Shareholders’ Equity sections of this report for additional information regarding the Company’s liquidity position.

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INFLATION

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

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of federal securities laws. Forward-looking information can be identified through the use of words such as “intend,” “plan,” “project,” “expect,” “anticipate,” “believe,” “estimate,” “contemplate,” “possible,” “will,” “may,” “should,” “would” and “could.” Forward-looking statements and information are not historical facts, are premised on many factors and assumptions, and represent only management’s expectations, estimates and projections regarding future events. Similarly, these statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict, and which may include, but are not limited to, those listed below and the Risk Factors discussed under Item 1A of the Company’s 2022 Annual Report on Form 10-K and in any of the Company’s subsequent SEC filings. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, the performance of its loan portfolio, the expected amount of future credit reserves and charge-offs, delinquency trends, growth plans, regulatory developments, securities that the Company may offer from time to time, and plans to form additional de novo banks or branch offices, and management’s long-term performance goals, as well as statements relating to the anticipated effects on the Company’s financial condition and results of operations from expected developments or events, the Company’s business and growth strategies, including future acquisitions of banks, specialty finance or wealth management businesses, internal growth and plans to form additional de novo banks or branch offices. Actual results could differ materially from those addressed in the forward-looking statements as a result of numerous factors, including the following:

•economic conditions and events that affect the economy, housing prices, the job market and other factors that may adversely affect the Company’s liquidity and the performance of its loan portfolios, including an actual or threatened U.S. government debt default or rating downgrade, particularly in the markets in which it operates;

•negative effects suffered by us or our customers resulting from changes in U.S. trade policies;

•the extent of defaults and losses on the Company’s loan portfolio, which may require further increases in its allowance for credit losses;

•estimates of fair value of certain of the Company’s assets and liabilities, which could change in value significantly from period to period;

•the financial success and economic viability of the borrowers of our commercial loans;

•commercial real estate market conditions in the Chicago metropolitan area and southern Wisconsin;

•the extent of commercial and consumer delinquencies and declines in real estate values, which may require further increases in the Company’s allowance for credit losses;

•inaccurate assumptions in our analytical and forecasting models used to manage our loan portfolio;

•changes in the level and volatility of interest rates, the capital markets and other market indices that may affect, among other things, the Company’s liquidity and the value of its assets and liabilities;

•the interest rate environment, including a prolonged period of low interest rates or rising interest rates, either broadly or for some types of instruments, which may affect the Company’s net interest income and net interest margin, and which could materially adversely affect the Company’s profitability;

•competitive pressures in the financial services business which may affect the pricing of the Company’s loan and deposit products as well as its services (including wealth management services), which may result in loss of market share and reduced income from deposits, loans, advisory fees and income from other products;

•failure to identify and complete favorable acquisitions in the future or unexpected difficulties or developments related to the integration of the Company’s recent or future acquisitions;

•unexpected difficulties and losses related to FDIC-assisted acquisitions;

•harm to the Company’s reputation;

•any negative perception of the Company’s financial strength;

•ability of the Company to raise additional capital on acceptable terms when needed;

•disruption in capital markets, which may lower fair values for the Company’s investment portfolio;

•ability of the Company to use technology to provide products and services that will satisfy customer demands and create

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efficiencies in operations and to manage risks associated therewith;

•failure or breaches of our security systems or infrastructure, or those of third parties;

•security breaches, including denial of service attacks, hacking, social engineering attacks, malware intrusion and similar events or data corruption attempts and identity theft;

•adverse effects on our information technology systems resulting from failures, human error or cyberattacks (including ransomware);

•adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed, particularly our information technology vendors;

•increased costs as a result of protecting our customers from the impact of stolen debit card information;

•accuracy and completeness of information the Company receives about customers and counterparties to make credit decisions;

•ability of the Company to attract and retain senior management experienced in the banking and financial services industries, and ability of the Company to effectively manage the planned transition of the chief executive officer role;

•environmental liability risk associated with lending activities;

•the impact of any claims or legal actions to which the Company is subject, including any effect on our reputation;

•losses incurred in connection with repurchases and indemnification payments related to mortgages and increases in reserves associated therewith;

•the loss of customers as a result of technological changes allowing consumers to complete their financial transactions without the use of a bank;

•the soundness of other financial institutions and the impact of recent failures of financial institutions, including broader financial institution liquidity risk and concerns;

•the expenses and delayed returns inherent in opening new branches and de novo banks;

•liabilities, potential customer loss or reputational harm related to closings of existing branches;

•examinations and challenges by tax authorities, and any unanticipated impact of the Tax Act;

•changes in accounting standards, rules and interpretations, and the impact on the Company’s financial statements;

•the ability of the Company to receive dividends from its subsidiaries;

•the ability of the Company to successfully discontinue use of LIBOR and transition to an alternative benchmark rate for current and future transactions;

•a decrease in the Company’s capital ratios, including as a result of declines in the value of its loan portfolios, or otherwise;

•legislative or regulatory changes, particularly changes in regulation of financial services companies and/or the products and services offered by financial services companies;

•changes in laws, regulations, rules, standards and contractual obligations regarding data privacy and cybersecurity;

•a lowering of our credit rating;

•changes in U.S. monetary policy and changes to the Federal Reserve’s balance sheet, including changes in response to persistent inflation or otherwise;

•regulatory restrictions upon our ability to market our products to consumers and limitations on our ability to profitably operate our mortgage business;

•increased costs of compliance, heightened regulatory capital requirements and other risks associated with changes in regulation and the regulatory environment;

•the impact of heightened capital requirements;

•increases in the Company’s FDIC insurance premiums, or the collection of special assessments by the FDIC;

•delinquencies or fraud with respect to the Company’s premium finance business;

•credit downgrades among commercial and life insurance providers that could negatively affect the value of collateral securing the Company’s premium finance loans;

•the Company’s ability to comply with covenants under its credit facility;

•fluctuations in the stock market, which may have an adverse impact on the Company’s wealth management business and brokerage operation;

•widespread outages of operational, communication, or other systems, whether internal or provided by third parties, natural or other disasters (including acts of terrorism, armed hostilities and pandemics), and the effects of climate change; and

•the severity, magnitude and duration of the COVID-19 pandemic, including the continued emergence of variant strains, and the direct and indirect impact of such pandemic, as well as responses to the pandemic by the government, businesses and consumers, on the economy, our financial results, operations and personnel, commercial activity and demand across our business and our customers’ businesses.

Therefore, there can be no assurances that future actual results will correspond to these forward-looking statements. The reader is cautioned not to place undue reliance on any forward-looking statement made by the Company. Any such statement speaks only as of the date the statement was made or as of such date that may be referenced within the statement. The Company undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events after the date

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of this report. Persons are advised, however, to consult further disclosures management makes on related subjects in its reports filed with the Securities and Exchange Commission and in its press releases.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

The following interest rate scenarios display the percentage change in net interest income over a one-year time horizon assuming increases and decreases of 100 and 200 basis points. The Static Shock Scenario results incorporate actual cash flows and repricing characteristics for balance sheet instruments following an instantaneous, parallel change in market rates based upon a static (i.e. no growth or constant) balance sheet. Conversely, the Ramp Scenario results incorporate management’s projections of future volume and pricing of each of the product lines following a gradual, parallel change in market rates over twelve months. Actual results may differ from these simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies. The interest rate sensitivity for both the Static Shock and Ramp Scenarios at June 30, 2023, March 31, 2023 and June 30, 2022 is as follows:


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


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

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One method utilized by financial institutions, including the Company, to manage interest rate risk is to enter into derivative financial instruments. Derivative financial instruments include interest rate swaps, interest rate caps, floors and collars, futures, forwards, option contracts and other financial instruments with similar characteristics. Additionally, the Company enters into commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors. See Note (14) “Derivative Financial Instruments” of the Consolidated Financial Statements in Item 1 of this report for further information on the Company’s derivative financial instruments.

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

Periodically, the Company enters into certain covered call option transactions related to certain securities held by the Company. The Company uses these option transactions (rather than entering into other derivative interest rate contracts, such as interest rate floors) to economically hedge positions and compensate for net interest margin compression by increasing the total return associated with the related securities through fees generated from these options. Although the revenue received from these options is recorded as non-interest income rather than interest income, the increased return attributable to the related securities from these options contributes to the Company’s overall profitability. The Company’s exposure to interest rate risk may be impacted by these transactions. To further mitigate this risk, the Company may acquire fixed rate term debt or use financial derivative instruments. There were no covered call options outstanding as of June 30, 2023 and June 30, 2022. See Note (14) “Derivative Financial Instruments” of the Consolidated Financial Statements in Item 1 of this report for further information on the Company’s fees from covered call options for the six months ended June 30, 2023 and June 30, 2022.

ITEM 4

CONTROLS AND PROCEDURES

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

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

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PART II —

Item 1: Legal Proceedings

In accordance with applicable accounting principles, the Company establishes an accrued liability for litigation and threatened litigation actions and proceedings when those actions present loss contingencies, which are both probable and estimable. In actions for which a loss is reasonably possible in future periods, the Company determines whether it can estimate a loss or range of possible loss. To determine whether a possible loss is estimable, the Company reviews and evaluates its material litigation on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant factual and legal developments. This review may include information learned through the discovery process, rulings on substantive or dispositive motions, and settlement discussions.

Wintrust Financial ERISA Matter

On July 29, 2022, former Wintrust employee filed a class action in the District Court for the Northern District of Illinois asserting claims under the federal Employee Retirement Income Security Act (“ERISA”) against Wintrust Financial Corporation. Plaintiff alleges Wintrust breached its fiduciary duty in the selection of BlackRock Target Date funds for inclusion in its 401(k) plan, that Wintrust failed to monitor the performance of those funds, and in the alternative, Wintrust should be liable for breach of trust. Plaintiff’s sole basis for the allegations is that BlackRock Target Date funds allegedly performed more poorly than two comparable funds over a three-year period. Wintrust is one of several public companies that were sued on identical grounds within the same week by the same plaintiff’s law firm. On November 8, 2022, Wintrust filed a motion to dismiss the entire complaint. On July 14, 2023, the District Court granted Wintrust’s motion to dismiss and gave Plaintiff until August 2, 2023 to file an amended complaint. On August 2, 2023, the Plaintiff filed an amended complaint. We believe plaintiff’s allegations to be legally and factually meritless and otherwise lack sufficient information to estimate the amount of any potential liability.

Wintrust Mortgage California PAGA Matter

On May 24, 2022, a former Wintrust Mortgage employee filed a California Private Attorney General Act (“PAGA”) suit, not individually, but as representative of all Wintrust Mortgage’s California hourly employees, against Wintrust Mortgage in the Superior Court of San Diego County, California. Plaintiff alleges Wintrust Mortgage failed to provide: (i) accurate sick leave accrual and pay; (ii) overtime wages; (iii) accurately itemized wage statements; (iv) meal breaks and meal premiums; (v) timely payment of earned wages; (vi) payment of all earned wages; and (vii) payment of all vested vacation hours. Wintrust Mortgage disputes the validity of Plaintiff’s claims and believes, to the extent there were defects in complying with California law governing the payment of compensation to Plaintiff, such errors would have been de minimis. Plaintiff also has an arbitration agreement with a collective and class action waiver and on January 19, 2023, Wintrust Mortgage moved to compel arbitration. The court entered and continued the motion until September 8, 2023. We believe plaintiff’s allegations to be legally and factually meritless and otherwise lack sufficient information to estimate the amount of any potential liability.

Wintrust Mortgage Fair Lending Matter

On May 25, 2022, a Wintrust Mortgage customer filed a putative class action and asserted individual claims against Wintrust Mortgage and Wintrust Financial Corporation in the District Court for the Northern District of Illinois. Plaintiff alleges that Wintrust Mortgage discriminated against black/African American borrowers and brings class claims under the Equal Credit Opportunity Act, Sections 1981 and 1982 under Chapter 42 of the United States Code; and the Fair Housing Act of 1968. Plaintiff also asserts individual claims under theories of promissory estoppel, fraudulent inducement, and breach of contract. On September 23, 2022, Wintrust filed a motion to dismiss the entire suit. The motion has been fully briefed and the matter is awaiting a decision by the court. We vigorously dispute these allegations, believe them to be legally and factually meritless, and otherwise lack sufficient information to estimate the amount of any potential liability.

Other Matters

In addition, the Company and its subsidiaries, from time to time, are subject to pending and threatened legal action and proceedings arising in the ordinary course of business.

Based on information currently available and upon consultation with counsel, management believes that the eventual outcome of any pending or threatened legal actions and proceedings described above, including our ordinary course litigation, will not have a material adverse effect on the operations or financial condition of the Company. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the results of operations or financial condition for a particular period.

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Item 1A: Risk Factors

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

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

No purchases of the Company’s common shares were made by or on behalf of the Company or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during the six months ended June 30, 2023.

Item 5: Other Information

Securities Trading Plans of Directors and Officers

During the three months ended June 30, 2023, none of our directors or officers adopted or terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408(a) of Regulation S-K).

Item 6: Exhibits:

(a)Exhibits

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3.1						Amended and Restated By-laws of the Company, as amended (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 1, 2023).

10.1						Eleventh Amending Agreement, dated as of May 31, 2023, by and between First Insurance Funding of Canada Inc. and CIBC Mellon Trust Company in its capacity as trustee of Plaza Trust, by its Financial Service Agent, Royal Bank of Canada (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K Filed with the Securities and Exchange Commission on June 6, 2023).

10.2						Performance Guarantee Confirmation , dated as of May 31, 2023 , confi rm ing the Performance Guarantee dates as of December 16, 2014, by and between the Com pany and Plaza T rust (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K Filed with the Securities and Exchange Commission on June 6, 2023).

10.3						Fee Letter dated as of May 31, 2023 by CIBC Mellon Trust Company, in its capacity as trustee of Plaza Trust, by its Financial Service Agent, Royal Bank of Canada and acknowledged by First Insurance Funding of Canada Inc. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K Filed with the Securities and Exchange Commission on June 6, 2022).

10.4						First Amendment, dated as of July 17, 2023, to the Credit Agreement dated December 12, 2022, as amended and restated, among t he Co mpany , the lenders named therein, and Wells Fargo Bank, National Association, as administrative agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K Filed with the Securities and Exchange Commission on Ju ly 20 , 2022).

31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						The XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (1)

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1)Includes the following financial information included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WINTRUST FINANCIAL CORPORATION

(Registrant)

Date:

August 8, 2023

/s/ DAVID L. STOEHR

David L. Stoehr

Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and duly authorized officer)

Date:

August 8, 2023

/s/ JEFFREY D. HAHNFELD

Jeffrey D. Hahnfeld

Executive Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer and duly authorized officer)