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DATE

  • Tuesday, July 22, 2025, at 11 a.m. EDT

CALL PARTICIPANTS

  • Chief Executive Officer — Tim Crane
  • Chief Financial Officer — David Dykstra
  • Chief Financial Officer — Dave Starr
  • Chief Legal Officer — Kate Bogie
  • Executive Vice President, Credit — Richard Murphy

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TAKEAWAYS

  • Net Income: Record GAAP net income reached $195.5 million in Q2 2025, up from $189 million in the prior quarter.
  • Net Interest Income: Achieved a record $547 million for the quarter, increasing by $20.2 million from the prior quarter, driven by a $1.9 billion rise in average earning assets and a stable margin.
  • Loan Growth: Loans grew by $2.3 billion, or 19% annualized, with broad-based activity, including $1 billion growth in the Property and Casualty Premium Finance portfolio.
  • Deposit Growth: Deposits increased by $2.2 billion, representing a 17% annualized rise; commercial deposits were highlighted as a key source.
  • Total Assets: Assets expanded by $3.1 billion to $69 billion.
  • Net Interest Margin (NIM): Remained within target at 3.54%, with management signaling continued stability throughout 2025.
  • Noninterest Income: Totaled $124.1 million, up $7.5 million sequentially, with mortgage banking revenue increasing $2.6 million and wealth management revenue rising $2.8 million.
  • Noninterest Expense: Rose by $15.4 million to $381.5 million, driven primarily by $8 million higher salaries and benefits, and a $6.5 million increase in advertising and marketing tied to seasonal sponsorships.
  • Provision for Credit Losses: Decreased slightly versus the prior quarter due to improved macro factors, partially offset by strong loan growth.
  • Credit Quality Metrics: Charge-offs held steady at 11 basis points; nonperforming loans ratio was stable at 0.37%, within the five-quarter historical range.
  • CRE Office Exposure: Office portfolio stood at $1.6 billion, or 12.1% of CRE and 3.1% of total loans as of quarter-end; 48% medical office or owner-occupied, with five loans over $20 million, as of quarter-end.
  • Commercial Real Estate (CRE) Nonperformers: CRE nonperforming loans rose slightly from 0.20% to 0.25%; management cited the limited impact due to portfolio size.
  • Expense Outlook: Noninterest expense levels of $381.5 million are expected to be sustained, plus or minus several million, for the remainder of the year.
  • Preferred Stock Transaction: Series F was issued to redeem Series D and Series E, with Q3 2025 preferred dividends and earnings per share calculations impacted by the extended first dividend period and reclassification of issuance costs.
  • Guidance: Management signaled that mid to high single-digit loan and asset growth, along with a stable margin, are achievable for the next two quarters (Q3 and Q4 2025).

SUMMARY

Wintrust Financial (WTFC 0.09%) delivered record net income and net interest income in Q2 2025, highlighting strong deposit and loan growth across multiple franchise segments. Commercial real estate exposure and credit metrics remained stable, with specific increases in nonperforming office loans explained as isolated due to the small portfolio denominator. Management expects continued NIM stability, deposits to adequately fund loan growth, and noninterest expenses to stay anchored near current run-rates. Strategic actions included a large-scale preferred stock issuance tied to the redemption of higher-cost series, which will cause a temporary upward adjustment to preferred dividends and alter the calculation of earnings per share for Q3 2025.

  • David Dykstra said, "Deposit growth was $2.2 billion, representing a 17% increase over the prior quarter on an annualized basis." highlighting that new commercial and consumer households are fueling franchise expansion.
  • Deposit costs declined slightly while deposit growth significantly funded loan growth; Interest-bearing deposit costs excluding CDs rose six basis points sequentially.
  • Management confirmed preferred dividend costs will rise from approximately $7 million to $8.4 million per quarter over the next five years, beginning in Q4 2025, with a higher figure in Q3 2025 due to the extended dividend period and one-time accounting reclassification.
  • The hedging portfolio is expected to offer margin protection through the next year, with additional swap layers planned for later maturities, subject to market conditions.
  • Noninterest income increases were tied largely to higher wealth management asset valuations and modest improvements in mortgage banking, which remains sensitive to the rate environment.
  • Wintrust continues to maintain CET1 at or above a 10% floor, as stated by management, and anticipates gradual capital growth of approximately 10 basis points per quarter as long as mid to high single-digit loan growth persists, according to management commentary on the earnings call.

INDUSTRY GLOSSARY

  • Premium Finance: Lending to finance insurance premium payments for businesses or consumers, often repaid in installments synchronized with policy periods.
  • Maketawa Bank Acquisition: Reference to Wintrust's acquisition of Makatawa Bank, a transaction impacting loan and deposit growth and reported expenses.
  • CRE: Commercial Real Estate, including office, industrial, retail, and multi-family property lending.
  • Net Interest Margin (NIM): A measure of the difference between interest income generated and interest paid out, as a percentage of average earning assets.

Full Conference Call Transcript

Tim Crane: Good morning, everyone. Thank you for joining us for the WinTrust Financial Second Quarter Earnings Call. In addition to the introductions Latif made, I'm joined by our Chief Financial Officer, Dave Starr, and our Chief Legal Officer, Kate Bogie. I'll begin this morning with some high-level highlights. Dave Dykstra will speak to the financial results, and Rich will add some additional information on loan activity and credit performance. As always, following our remarks, we'll be happy to take your questions. Our differentiated approach focused on understanding and meeting our client needs continues to deliver consistently strong financial results. We reported record quarterly net income of $195.5 million, up from $189 million last quarter.

Net interest income, also a quarterly record, was $547 million. Driving the higher net interest income was second-quarter loan growth of $2.3 billion. The growth was broad-based and clearly reflects the seasonally strong second quarter in our attractive premium finance business. We saw good deposit growth during the quarter of over $2 billion. Assets grew to $69 billion. Going forward, our pipelines are strong, and we expect continued mid to high single-digit loan growth for the second half of the year. We also expect continued deposit growth that will fund our loan growth. What's particularly important about the deposit growth is that it represents new commercial and consumer households that allow us to continue to grow our franchise.

Given the strong growth in the quarter, it's important to highlight that we continue to be disciplined in our growth. We can and do pass on credit opportunities where we cannot get comfortable with the pricing or proposed credit structure. This approach has served us well and will not change. Net interest margin for the quarter remained comfortably within our target range at 3.54%. Dave will talk a little bit more about the margin in just a minute. Residential mortgage activity, while up somewhat this quarter, remains muted in the current rate environment.

We continue to manage expenses in that business to protect our current financial results while ensuring that we're positioned to capture business when rates go down and mortgage activity increases. We continue to believe the mortgage business is a core offering and provides a nice financial hedge against margin pressure in a lower rate environment. Credit quality remains very good. We continue to stay close to the small number of clients experiencing uncertainty in the current economic environment so that we can help get ahead of any challenges they may face. Overall, another strong quarter, consistent results in line with our expectations. Let me turn it over to Dave.

David Dykstra: Great. Thanks, Tim. As Tim said, we had strong deposit and loan growth this quarter. The deposit growth was $2.2 billion, representing a 17% increase over the prior quarter on an annualized basis. The solid deposit growth helped fund seasonally strong second-quarter loan growth of $2.3 billion or 19% on an annualized basis. For the first half of the year, loan growth was $3 billion or 12% on an annualized basis. As for other aspects of the balance sheet results, total assets grew by $3.1 billion to $69 billion, including the impact of a $425 million preferred stock offering, which I will discuss later in my comments.

Turning to the income statement results, this was a very solid operating quarter, producing a record level of quarterly net income with just a few moving pieces. I'll start off by highlighting what we consider the uncommon items for the quarter, which included $2.9 million of acquisition-related costs that were substantially concluded related to the conversion of the Macau Bank acquisition and net security gains of $650,000. Those items are discussed on the first page of the earnings release if you'd like to refer to them later. Our net interest income increased $20.2 million from the prior quarter as a result of a $1.9 billion increase in average earning assets and a relatively stable net interest margin.

This quarter represented a record high amount of quarterly net interest income. Given the current interest rate environment and even with a few rate changes in either direction, we remain confident that our net interest margin will continue to be relatively stable throughout the remainder of 2025. With that stable net interest margin outlook and the projected future growth in average earning assets, we would again expect to increase net interest income in the third quarter. I would note that period-end loans were approximately $1.5 billion higher than the average loans for the second quarter, giving us a good start on achieving the higher average earning assets for the third quarter.

The slightly lower provision for credit losses recognized in the second quarter as compared to the prior quarter is primarily attributable to a slightly better set of macroeconomic factors, somewhat offset by the aforementioned strong loan growth. Regarding other noninterest income and noninterest expense sections, total noninterest income totaled $124.1 million in the second quarter, up approximately $7.5 million when compared with the prior quarter. Although persistently high mortgage rates dampened our optimism for a stronger spring buying season, the company generated approximately $2.6 million more in mortgage banking revenue as we experienced higher production revenue due to somewhat higher origination volumes offset by a bit less portfolio.

Wealth management revenue increased by $2.8 million in the second quarter, primarily as a result of asset valuation increases during the quarter. The company recorded a variety of smaller changes to other noninterest income categories as shown in the tables in the earnings release, but the changes relative to the prior quarter were not material or unusual. As far as noninterest expense categories go, noninterest expenses totaled $381.5 million in the second quarter and were up approximately $15.4 million from the prior quarter. The primary reasons for the increase were all factors that we projected would occur on last quarter's earnings call.

Specifically, salaries and employee benefits expense increased by approximately $8 million as compared to the first quarter due primarily to higher employee benefit expense due to an increased level of health insurance claims, higher mortgage and wealth management commissions because of the corresponding higher revenues in those business lines, and the second quarter having a full effect of the annual merit increases that were effective on February 1. Advertising and marketing expenses increased by $6.5 million in the second quarter compared to the first quarter.

As we've discussed many times in the past, this category of expenses tends to be higher in the second and the third quarters of the year due to the expenditures related to various major and minor league baseball sponsorships and other summertime sponsorship events held in the communities that we serve. The remaining variances in noninterest expense, both positive and negative, were relatively normal, amounted to less than $1 million in the aggregate, and don't warrant any additional special mention on this call. We also continued to build our tangible book value per share during the first half of this year.

And as you can see on Slide 10 of the presentation deck, we have grown tangible book value per common share every year since we've been a public company, and we are on track to do so again in 2025. As I mentioned earlier, I'd like to take a moment to discuss the $25 million Series F preferred stock issuance at WinTrust, which closed on May 22. The issuance was to redeem $412.5 million of Series D and Series E preferred stock that was set to reprice on July 15, 2025, and they were set to reprice at rates higher than the existing market rates.

In fact, WinTrust did redeem all the Series D and Series E preferred stock on July 15 and now has only the Series F preferred stock outstanding. Because the redemption of the preferred stock will impact the earnings per share calculation in the third quarter, we've included an overview of such impact on Slide 24 of the presentation deck.

What you'll see is that the third quarter Series F preferred dividends, when and if declared by the board at its July meeting, will be more than the normal quarterly dividend since it includes an extended first dividend period from the closing date of May 22 to the first payment date of October 15, 2025, so more than a quarter's worth of dividends. Dividends are recorded and declared in the third quarter will be larger than the normal Series F dividend declaration, and there will be no dividends for the Series D or Series E.

In addition, accounting rules require that the prior issuance costs on the Series D and Series E issuances need to be reclassified upon redemption from capital surplus and recognized for retained earnings. It's just a reclass within the capital section, but the accounting rules require that reduction to be recorded through net income available to common shareholders, i.e., below the net income line. Importantly, these amounts will not impact third-quarter operating net income, but will impact third-quarter earnings per share calculations. Again, Slide 24 in the presentation deck summarizes this information. But the long and the short of it is, the most recent quarters, the second quarter, had roughly $7 million of preferred dividends.

So for the past few quarters and going back five years, that number has been $7 million. In the fourth quarter of this year and going forward for five years until they reprice again, that number will be $8.4 million. The third quarter, for all the reasons I just talked about, will have a slightly higher number due to the issuance cost of the Series D and E redemption and the extended quarterly dividend payment period. So with that, again, refer to Slide 24 for all the details. And if anyone has any questions, I'd be happy to take any calls and walk you through the information.

So with that, Tim, I'll conclude my comments and turn it over to Rich.

Richard Murphy: Thanks, Dave. As Tim and Dave both noted, credit performance continued to be very solid in the second quarter. As detailed in the release, our Property and Casualty Premium Finance Group in the second quarter. This past quarter was no exception as we saw just over $1 billion of growth in this portfolio in line with our forecast. While we have seen some moderation in insurance premium rate increases, the overall market remains firm. In addition, we continue to benefit from new opportunities as a result of consolidation and dislocation within the premium finance industry. We also saw good growth from a number of other segments. Commercial real estate grew by $377 million.

The mortgage warehouse team continues to build momentum and grew by $213 million as we continue to onboard new relationships, which also come with some meaningful deposit opportunities. And our leasing team, life premium finance, and residential mortgage groups also had a very solid quarter. As Tim said, we believe loan growth for 2025 will continue to be strong and within our guidance of mid to high single digits for a number of reasons. Core C&I and CRE pipelines remain very solid, and we continue to benefit from our market positioning in our core markets of Chicagoland, Wisconsin, West Michigan, and Northwest Indiana. In addition, we have very strong momentum in our niche business, including leasing and mortgage warehouse.

Last quarter, we spoke of growing uncertainty in economic conditions as a result of potential tariffs, tax law changes, and funding cuts. Reviewing our portfolio, we have a relatively small number of credits at risk of greatest impacts, and we continue to stay very close to them. Overall, we believe there is greater clarity on many of these issues driving that uncertainty, and we believe the impacts on our portfolio will be very limited given our strong underwriting standards and disciplined approach to diversification. We are cautiously optimistic about the overall business environment as we enter the second half of the year.

From a credit quality perspective, as detailed on Slide 15, we continue to see strong credit performance across the portfolio. This can be seen in a number of metrics. Nonperforming loans as a percentage of total loans were relatively stable. Charge-offs for the quarter were 11 basis points, unchanged from Q1. We continue to believe that the level of NPLs and charge-offs in the second quarter reflect a stable credit environment as evidenced by the chart of historical non-performing levels on Slide 16 and the consistent level in our special mention and substandard loans on Slide 15. Finally, we are firmly committed to identifying problems early and charging them down where appropriate.

Our goal, as always, is to stay ahead of any credit challenges. As noted in our last few earnings calls, we continue to be highly focused on our exposure to commercial real estate loans, which comprise roughly one quarter of our total portfolio. As detailed on Slide 19, we continue to see signs of stabilization during the second quarter as CRE NPLs remained at a very low level, increasing slightly from 0.20% to 0.25%. CRE charge-offs remain at historically low levels. On Slide 20, we continue to provide enhanced detail of our CRE exposure. Currently, this portfolio remains steady at $1.6 billion or 12.1% of our total CRE portfolio, only 3.1% of our total loan portfolio.

Of the $1.6 billion of office exposure, 48% is medical office or owner-occupied. The average size loan in this office portfolio is relatively small at $1.5 million, and we have five loans over $20 million, only two of which are non-medical or owner-occupied. We continue to perform portfolio reviews regularly in our CRE portfolio, and we stay very engaged with our borrowers. As mentioned on prior calls, our CRE credit team regularly updates their deep dive analysis of every non-owner-occupied loan over $2.5 million that will be maturing between now and the end of the year. This analysis, which covered 84% of all known non-owner-occupied CRE loans maturing during this period, showed very consistent results compared to prior quarters.

In summary, we continue to be encouraged by our credit performance in the second quarter, and we believe that our portfolio is well-positioned and appropriately reserved. That concludes my comments on credit, and I'll turn it back to Tim.

Tim Crane: Thanks, Rich. Just a few kind of quick final thoughts. Midway through the year, we feel very good about our business and the momentum going into the second half of the year. We continue to deliver sophisticated financial solutions across all our businesses with a differentiated client-first focus. And what's important to note is that our approach is driving consistent, meaningful financial results. Over the last year, we've produced steady quarterly increases in loans, deposits, and net income. We manage our expenses thoughtfully while continuing to invest in our business to support our future growth.

As Dave mentioned, the expenses trend higher in the second and third quarters and reflect both investments in our business and some of these seasonal fluctuations. As always, we work with our clients to help them address focused on delivering a differentiated experience, and our disciplined approach continues to drive real value for our shareholders. With that, I thank you for your time, and we'll open the line to questions, Latif.

Operator: Thank you. To ask a question, please press 11 on your telephone. To remove yourself from the queue, you may press 11 again.

Jon Arfstrom: Our first question comes from the line of Jon Arfstrom of RBC. Please go ahead, Jon. Good morning.

David Dykstra: Hey, Jon. How are you guys? Yeah. Good morning.

Jon Arfstrom: Question for you on the loan growth numbers. Obviously, very strong this quarter. You mentioned seasonality and expenses, and I guess I'm curious about third-quarter expectations. You have a higher period-end balance, but I think the growth is typically a little slower in the third quarter. Is it fair to look at maybe prior third-quarter trends from the second quarter as a benchmark for what you might expect in Q3 in terms of growth?

David Dykstra: Expense growth or loan growth, Jon? Loan growth. Sorry.

Jon Arfstrom: Sorry.

David Dykstra: Yeah. Growth, if you look at the third quarter, excluding Makatawa, and then the fourth quarter, I think they would be pretty much in line with what we would anticipate for this year. So, again, in the range, but at the higher end of the range.

Jon Arfstrom: Yeah.

David Dykstra: Yeah. I think if you we just think mid to high single digits based off of the June 30 balance going forward for the second half of the year, that's sort of our view right now.

Jon Arfstrom: Okay. Got it. And then, Tim, a question for you on deposits. You guys, where are you finding the best places to gather deposits? I mean, it looks like money markets were strong, but you mentioned commercial consumer, and warehouse. Can you just talk a little bit more about where you're finding that kind of deposit growth and can that keep pace with loan growth?

Operator: Ladies and gentlemen, please stand by. Please remain on your line. Please stand by.

David Dykstra: Latif? Yes. Please proceed.

Operator: Jon, I'm sorry. We had a little bit of a technical glitch on our end. I think your question was about deposits and where we're finding them.

David Dykstra: It's fairly broad-based. And we continue to believe that in our markets where we have kind of a sub-ten percent share in all of them, we can continue to grow. Commercial growth in deposits is particularly important because obviously we get treasury management revenues and other activities related to that. But this was a very solid deposit growth quarter for us, funding the seasonal loan growth. Continue to think we'll have opportunities, $2 billion of deposit growth should not be kind of the norm going forward.

Jon Arfstrom: Okay. And then just one small one. Anything on the wealth management outsourcing? Can you just talk about the longer-term goal there and how that's gone?

David Dykstra: Yeah. That conversion to the LP platform, which, as we've described in prior calls, was really an upgrade for the tools and technology for our financial advisors and our wealth employees, is largely behind us. And we've migrated out of conversion mode into serving our clients, and obviously, the markets have been pretty terrific for the last month or so here. We continue to look at the wealth business as an attractive opportunity for us and would look to continue to grow it.

Jon Arfstrom: Okay. Thank you very much.

Operator: Thank you. Our next question comes from the line of Chris McGratty of KBW. Your line is open, Chris.

Chris McGratty: Oh, great. Good morning.

David Dykstra: Hi, Chris. In terms of the NII growth, the 4% linked quarter, sixteen year on year great numbers. I guess the question, if we put the pieces together with earning asset growth, loan growth, margin stability, does that become a little bit more challenging given the deposit competition that's increasing? Or is this degree of NII growth, I guess, over the near term? Still reasonable? Thanks. Well, yeah. You know, as we said, we expect mid to high single-digit loan growth from here on out and a relatively stable margin, you know, the three you know, we've been roughly the three fifty two fifty three range on average over the last few quarters.

You know, if we stay in that in the mid to low three range, our three fifty range, then I think it's just what is your average asset growth? And that's what we're looking at. So if we have that mid to high single-digit average asset growth, should see the mid to high single-digit, you know, net interest income growth. It's just simple math, I think, from our perspective.

Chris McGratty: Okay. And our deposit pricing, you know, the know, if you're growing, you know, as much as we did this quarter, you know, maybe the pricing was a little high. But as Tim said, the markets are still really good, and we have great position in all those markets. So we think we can fund the growth with deposits right now. It's never easy, but we've always been able to do that. And Chris, even with this quarter's $2 billion worth of growth, our deposit costs were down slightly. And so our hope, as long as the markets remain rational, we'll continue to add clients and importantly, deposits as well.

Chris McGratty: Okay. Then Dave, you addressed the earning asset. There's not anything materially gonna churn the earning assets. You know, to fund the growth. It's just right, there's no material changes you're doing to the mix of the earning assets.

David Dykstra: No. I mean, the only odd thing is the second quarter is always really strong on commercial premium finance recall. Last couple of years, sold some in the middle of the year. And this year, we had more liquidity and more capital, and we had good deposit growth. So we kept those assets on our balance sheet and funded them internally versus the sale like we did a couple of years ago. But going forward, we're not gonna have a billion-dollar, you know, PNC premium finance growth quarter in the third quarter. The second quarter is seasonally high. But other than that, our commercial real estate pipelines are very consistently strong.

So we would expect to have sort of the normal growth absent the outsized premium finance seasonality in the second quarter.

Chris McGratty: Great. And my follow-up maybe for Tim is, you know, the deregulatory narrative. What does it mean for WinTrust? Anything you might be doing differently? Do deals become, you know, you don't need to do a deal given the growth you're putting up. Does that become more of a possibility? Anything can unpack there on deregulation? Thanks.

Tim Crane: Yes, Chris, I mean, we're obviously hopeful that there's some sort of tailoring or inflation adjustment, whatever you want to call it, to relax the rules for growth. And we continue to build the foundation for a bigger and better bank. A lot of that is acquiring good talent in the market, and we continue to do that. We'll continue to look at acquisition opportunities. It looks like that activity has picked up a little bit. We think we have a strong track record there. McIntoshua, for example, is terrific. So we'll be disciplined but opportunistic.

Chris McGratty: Great. Thank you.

Operator: Thank you. Our next question comes from the line of David Long of Raymond James.

David Long: Good morning, everyone. Thanks for taking my questions. On the core C&I side, sentiment across the industry seemed much lower when you held your call back in April. As you looked at the growth throughout the quarter, did it accelerate throughout the quarter? Or was it pretty steady throughout the quarter? And how are your core commercial clients? How's their sentiment now?

Richard Murphy: Yeah. You know, it's interesting, David. I wouldn't say there was a material difference during the quarter in terms of production, but I would say sentiment, and I touched on it in my comments, if we look back in April, there was just so much noise around all these regulatory changes, all the tariffs. You know, that we're still not out of the woods, obviously, there, but I think there's, you know, more confidence here that the economy is not the bottom side coming out. I think, you know, most customers are feeling, you know, again, in the term I use cautiously optimistic about where things are at right now.

So that coupled with, you know, the market dynamics in the Chicago market in particular, but, you know, certainly in our other core markets, you know, it feels like, you know, things are going to be in a pretty good spot. And you can see that in our pipelines.

David Long: Got it. Thanks, Rich. And then follow-up question as it relates to the CRE office portfolio on Slide 20. You guys highlighted the nonperformers within that portfolio increased a bit. Just curious if I can get a little more color on what happened there?

Richard Murphy: You know, maybe a little you know, not looking for the name of the building or anything like that, but just want to get a little more color around the nonperformers on the office side.

Richard Murphy: Yeah. You know, it's really I mean, the numbers are so small that all it takes is a couple of deals, and that's what it was here. You know, nothing neither of them particularly large, but, you know, combined when we look at it in relative to the total, kind of it causes a little bit of a blip. Nothing that we're overly concerned about. We think we're marked appropriately and yeah, we'll get through those relatively quickly. But you know, I kind of refer in that portfolio to kinda, you know, because the denominator is so small. That, you know, every new loan makes it look like a pop.

But, you know, we're just managing through the portfolio like we do every day.

David Long: Great. Rich. Appreciate it. Thank you.

Operator: Thank you. Our next question comes from the line of Nathan Race of Piper Sandler. Please go ahead, Nathan.

Nathan Race: Hey, guys. Good morning. Thanks for taking the questions.

Richard Murphy: Hey, Nate. One of your Midwest peers this morning kinda tempered loan growth expectations, citing some increased competition. So just curious, you know, what you guys are seeing from a competitive pricing perspective. Obviously, loan yields came down a little bit this quarter. So curious if that's driving some of that loan yield compression that we saw in the quarter. And if you could just comment in particular on the commercial insurance premium finance portfolio in terms of what new rates on production look like there relative to the roll-off yield?

Richard Murphy: Yes. I'll talk a little bit about the core portfolio and what we're seeing and some of the niche portfolios as well. I mean, we talked about it at the end of last year that we would anticipate that banks, as they continue to try to ramp up their loan production, would become a little more aggressive. And we have seen that. But as Tim talked on his opening remarks, you know, we have a pretty disciplined approach to where we're gonna be on pricing. But has there been margin compression in certain categories? The answer is yes. Fully funded, CRE deals of high credit quality definitely have we've seen some compression there.

But you know, our job is to manage through that. One of the things you've known our story for a long time. When you have a multi-asset approach, some things get compressed a little bit while other things give you some opportunity. You know, and that's what we're seeing now. So we think that in the, you know, core C&I space, we continue to hold our line pretty well on pricing. In leasing, same thing. You know, in the specifically to your P&C question, you know, we continue to be in pretty good shape. I mean, prices are coming in, you know, a little bit tighter on larger, you know, credit-oriented deals.

But we have a very, very granular portfolio there that we continue to be able to price pretty well.

Nathan Race: And they did you know, for the second quarter, I think a number in the mid-7s would be about the right range for the P&C loan yield.

Richard Murphy: Okay. And then that's pretty close to the roll-off yield, if I heard.

Nathan Race: Yeah. That's nice.

Richard Murphy: Yeah. Not too far off.

Nathan Race: Okay. Great. And then you've mentioned on deposit costs, you know, looks like they were kinda stable in the quarter all in. But if I strip out CDs, it looks like your interest-bearing deposit costs were up six basis points quarter over quarter. So just curious as long as the Fed remains on hold, do you think deposit costs kind of hold in there? Or do you think we see kind of a little grind higher from here?

Richard Murphy: I think pretty stable to where we were in the second quarter. I mean, again, had to raise $2 billion worth of deposits, which we were thrilled to do because it's new customers to us, I think we'll be in the same range. And if we get a cut, obviously, we feel reasonably good that we can handle that without much impact on the margin.

Nathan Race: Okay. Great. Maybe one last one for Dave on expenses. Going back a couple quarters, I think you guided to kind of a mid-single-digit increase this year off the 4Q level of last year. Just curious if you still think that holds true, which I think translates about $1 billion to $1.6 billion in expenses for this year?

David Dykstra: Yeah. I think maybe the best way to that right now is I think the level we're at in the second quarter plus or minus a couple of million dollars is probably what we think will happen in the third and the fourth quarter. So the low 380s, I think, is probably a good thought. But, you know, we had some growth here as we projected last quarter, but we also, you know, grew the balance sheet $3 billion. We have some growth from here. So I think if we can hold this relatively stable in all 380s and the last two quarters, that's probably what we're shooting for right now.

Nathan Race: Okay. Perfect. I appreciate all the color. Congrats on a great quarter, guys.

David Dykstra: Thank you. Thanks, Nate.

Operator: Thank you. Our next question comes from the line of Terry McEvoy of Stephens Inc. Please go ahead, Terry.

Terry McEvoy: Hi. Thanks. Good morning. Maybe just a question on Western Michigan. Could you just talk about banker and client retention? And is the broader product offering, is it driving some growth in that market?

Tim Crane: Yeah. Thanks, Terry. Yeah, I still feel very good about West Michigan. I actually spent a couple of days over there with clients. The conversion's behind us. We're excited to have that part of the equation done. And a number of clients are looking for us to provide more services to them and to prospecting opportunities are very good. So feel actually like we're in the right spot to begin accelerating the results in West Michigan.

Terry McEvoy: Then as a follow-up, the $456 million of commercial growth, Rich, did about half of that occur in the mortgage finance portfolio? And how much volatility would you expect? What's the size of that portfolio today, and how much kind of volatility would you expect during the year?

Richard Murphy: Yeah. Well, there is I mean, as we talk about in our own mortgage book, I mean, there is a fair amount of volatility in that book in total. But generally speaking, what we've seen is a lot of onboarding of new opportunities, which is driving the growth in a kinda muted market. So we are taking share in that portfolio. So right now, that total book sits at $1.2 billion. $1.2 billion.

Terry McEvoy: Great. Thanks for taking my questions.

Richard Murphy: Sure. You bet. Thank you.

Operator: Our next question comes from the line of Ben Gerlinger of Citi. Please go ahead, Ben.

Ben Gerlinger: Hey. Good morning, guys.

Tim Crane: Good morning.

Ben Gerlinger: I know we talked through the rate paid across the different deposit silos, and then I get that you grew like a weed this quarter, which is good. But when you think about like, if there is a cut or two in the back half of the year, the next six plus months, you think you can have the immediate impact of kind of the same deposit beta we've seen given that you just increased it? Could you kinda lower it pretty quickly thereafter? I'm just trying to think about the behavioral finance relative to what we just saw in kind of the growth aspects?

David Dykstra: Yeah. I like, Tim touched on it a little bit earlier, but I think the Fed cut 25, we would have the ability to cut 25 on our discretionary account. CDs would obviously take time to roll. But a lot of our CD offerings now are certainly less than a year, seven months and eleven-month term. So, I think that we would see a similar deposit cut as we saw in the prior cuts, that we saw a while back that we could get the full 25 on most of our discretionary accounts.

Ben Gerlinger: Gotcha. That's helpful. And then oh, you just answered the question on the expense front. So that is everything I appreciate it. Thanks.

David Dykstra: Thanks, Ben.

Operator: Thank you. Our next question comes from the line of Casey Haire of Autonomous. Please go ahead, Casey.

Casey Haire: Yeah. Thanks. Good morning, guys. Just wanted to follow-up on loan growth again. So the premium finance, it sounds like it's, you know, obviously, that great momentum is up 17% year over year. Rich, I think you said it is showing some signs of moderating. Just wondering where that is, in terms of that hard market cycle like in terms of, you know, later innings? Just some big picture thoughts on how that tailwind is going.

Richard Murphy: Yeah. It's a really good question, something we look a lot at. If you look at that portfolio over the last six years and on a month-to-month comparison, you know, it's a very consistent growth pattern. Fueled by two things. One is, the dislocation of other competitors, some, you know, changes in the dynamics of the individual agents, things like that. But there's just been a lot of opportunity for us to pick up market share. So that year over year continues to drive, you know, not only dollars but numbers of units. And the other piece to the puzzle is just a market that we saw hardening pretty consistently over the last four, five years.

So those two things have really allowed that portfolio to grow very nicely plus just great execution on the team's part and, you know, investments we've made in technology that really helped kinda drive the product offering. So that put us in good shape. But then with the hardening market, things continue to, you know, move up. That market, I'd say, still in a lot of product lines continues to be pretty hard, and we see some upward momentum. But we are starting to see, you know, some moderation there. So we use the term firm, that, the Munich the dollar amounts of units continues to stay pretty consistent.

So you know, we feel pretty good overall with where that portfolio is going and where it should be for the next year. Because a lot of those dynamics continue to be the case. So I guess the only maybe just slight, you know, thought there is maybe not as the premium rates maybe not with the same upward trajectory, but still solid to, you know, I'd say firm to slightly up.

Casey Haire: Gotcha. Thank you. And then just Tim, follow-up question. You mentioned M&A is picking up a little bit. You know? Just wondering is that I know Makatawa was great for you guys last year. But it was a little bit bigger than I think the market is used to, and it was obviously, you know, outside your core Chicago footprint. Just wondering where size and location-wise and what's driving sort of the uptick in terms of the M&A opportunity?

Tim Crane: Well, with respect to the market, I think there's a whole host of reasons. I mean, people dealing with succession issues, people feeling like the market's a little better than it had been a couple of years ago. Frankly, as we've talked about it, it gets tougher and tougher to run a small bank with the expenses attached to compliance and regulatory issues and finance and the like. So I think you're getting people.

Operator: Ladies and gentlemen, please stand by. Ladies and gentlemen, please remain on your line. Thank you for your patience.

Casey Haire: Hi, Steve. Can you hear us?

Operator: Yes, sir. Please proceed.

Tim Crane: Casey, I'm sorry. Somehow we've got a line dropping somewhere between Chicago and where all of you are.

Casey Haire: Yeah. No worries, guys. So again, I think we feel like we could execute on a wide range of opportunities if they became available to us. It just has to fit from a cultural standpoint, from a market standpoint. But again, for the reasons I mentioned earlier, I think there is some pickup in market M&A activity.

Casey Haire: Thank you.

Richard Murphy: You bet.

Operator: Thank you. Our next question comes from the line of Jeff Rulis of D.A. Davidson. Please go ahead, Jeff.

Jeff Rulis: Thanks. Good morning. Rich, I wanted to circle back and not to get too granular, but you touched on the CRE nonperformers, and we're off a low base. But maybe same question on look like a little pickup in the commercial non-performing loans. If any specifics to that, I'm guessing, a similar answer to CRE. It's pretty granular. But, by type or geography on C&I.

Richard Murphy: Know, again, very granular. You had one in particular credit that just had we'd seen performance suffer for a little while here over the last couple of quarters. And you know, finally decided that, you know, this was a credit that we probably is gonna need, you know, more meaningful remediation and just took it to non-performing. We think that we've got it marked right. But, again, you know, just kind of a one-off situation.

Jeff Rulis: And, Rich, if you were to flag sort of concern or just, is it the small ticket business arena that you'd say maybe in this environment the most pressured or anywhere in C&I that you'd highlight the most.

Richard Murphy: Yeah. You know, there's nothing that I would necessarily point to specifically. I think it's more a question of leverage in the balance sheet, liquidity on the balance sheet, just those are some of the operating things that we took kinda take a look at. So last year, about this time, we were really focused on transportation. We had, you know, pretty much across the board a number of transportation-related issues with P&C leasing, Core C&I. You know, I think we weathered our way through that. So I think we're feeling better in that space. But right now, it's really more think, event-driven than industry-driven.

Jeff Rulis: Got it. Okay. Yeah. And I And then I'd like to maybe add in Jeff. I mean, you look at the total nonperforming loan ratio, it's right in the middle of the range. I mean, we range from 35 to 39 basis points. And we're at 37, and it's an awfully low number. So just one credit here or there can move it a little bit. But again, it's low and right in the middle of our historical range over the last five quarters.

Jeff Rulis: Gotcha. Yeah. Good perspective. And then just one other one. I just continue to try to model the covered call option, sort of the outlook there, and that's, you know, on a quarterly basis, between, call it, 1 to 6 million a quarter. Anything that you could lead us to or drivers of that plus or minus as what could you know, a lower or higher quarter there.

David Dykstra: No. It sort of really depends on what happens to, you know, whether we're writing calls on government agencies like Fannie Mae's, sort of really depends on what that part of the curve does as far as if it comes down the security. So we called and we'll rewrite in then it also depends on what volatility is at the time that we buy the security. So my crystal ball is in good enough to predict what it's gonna be at the end of the third quarter. But if rates go down a little bit securities get called, then we'll generally have more, you know, more call option if rates go up. Then it's usually less.

But, you know, you're right. It's generally in the 1 to 5 million, $6 million range, and it really can fluctuate. But it's really sort of a hedge to down rates for us. It supplements revenue if rates go down. So if those rates do go down, call option will go up, which will supplement revenue and offset any pressure you could have on the margin.

Jeff Rulis: Got it. Thanks, Dave.

David Dykstra: Thank you.

Operator: Our next question comes from the line of Jared Shaw of Barclays. Please go ahead, Jared.

Jared Shaw: Hi. Good morning. Maybe just any thoughts on capital targets as we move through the rest of the year here with what you've done on the preferred and just overall in terms of maybe CET1 targets?

David Dykstra: Yeah. Well, CET1, I had such good growth this quarter. It came down, you know, 0.01%, but we would expect that probably to grow 10 basis points a quarter going forward if we have the mid to high single-digit, loss growth. And the other categories, and we put this in the earnings release, roughly 60 basis points higher at the end of June, because we had both preferred all preferred issuances outstanding. So we had, you know, 425 series F outstanding and the 412 and a half of the series D and E. So somewhat elevated at the June.

Those tier one, ratios will come, you know, come down 60 basis points, not the CET1 because for preferred is not in the common, but the total Tier 1s will come down roughly 60 basis points. But we put those numbers in the press release. From here on out, we would just expect gradually grow capital 10 basis points or so with earnings and mid to high single-digit loan growth.

Jared Shaw: I guess, what's the are you would you be comfortable bringing it back down below 10% if there was if there was a good opportunity, a good deal? Or should we think that 10% CET1 is more of a floor for the time being?

David Dykstra: I think it's more of a floor. I think staying at 10% is not a bad level to indicate a floor, but we'd like to grow that. If there was a great opportunity and it would down just I would look at 10 as a floor in our minds right now.

Jared Shaw: Great. Thank you.

Operator: Our next question comes from the line of David Chiaverini of Jefferies. Please go ahead, David.

David Chiaverini: Hi. Thanks. Follow-up on loan growth. Curious on nonpremium finance, so more on the core C&I and CRE sides. Can you talk about borrower sentiment? Are you seeing more borrowers come off the sidelines here?

Richard Murphy: You know, as I mentioned before, the sentiment, I think, is better than it was at the last earnings call. Because there was so much disruption in terms of some of the challenges coming out of Washington. So I think that there is, you know, more stability. I don't think it's, you know, there was a talk at the end of last year of animal spirits and just, you know, there's tremendous, you know, uptick in overall, business sentiment. I wouldn't say that. I would say, you know, people continue to be cautiously optimistic. I think that they see that, you know, the clouds are parting a little bit on some of these issues that may affect their business.

So, you know, I feel, you know, in talking to a lot of these customers directly, that people generally feel better than they did last quarter. But there's still, I think, a fair amount of wait and see on, you know, what the tax code changes are gonna look like, seeing what rates are gonna do. There's just there's still a fair amount of questions that are out there. But you know, we feel pretty good. The other thing we feel good about and we've talked about in prior calls is just the market positioning that we have.

You know, there's just been a huge change in terms of the competitive dynamic in Chicago that really allowed us the opportunity to get into a lot more doors. And so, you know, we think that is a huge part of the growth story for us. So generally, you know, as we talked about, pipelines look good. And that's probably a function of the market dynamics, but also just, you know, general clarity on the overall economic environment.

David Chiaverini: Very helpful. Thank you.

Operator: Thank you. Our next question comes from the line of Brendan Nosal of Hovde Group. Please go ahead, Brendan.

Brendan Nosal: Hey. Good morning, everybody. Thanks for taking the question. If I look at the ACL calculation on Slide 15, it looks like the baseline macro factors drove an increase, but the macro uncertainty drove a decline. I'm just kind of curious how that shapes up. Was that a shift from the uncertainty bucket into the baseline forecast? Or maybe just help us kind of square that circle. Thanks.

David Dykstra: Yes. I think that's right. I mean, last quarter, we had about I think, 36 we disclosed about, I think, a $36 million number for macro uncertainty, included the Baa spread factor and market volatility. The stock market volatility actually factors into some of our models. And we maintain sort of the Baa credit spread overlay, but the market volatility sort of went away this quarter. So probably an overlay in the low twenties, million-dollar range versus the mid-thirties. So that's about that $10 million difference that you're seeing in that slide in the far right. And so the macroeconomic baseline actually increased a bit and the overlay decreased a bit. And they generally offset each other.

Brendan Nosal: Okay. Fantastic. Thanks for taking the question.

David Dykstra: Yeah. Thanks, Brendan.

Operator: Thank you. Our next question comes from the line of Nick Palako of UBS. Please go ahead, Nick.

Nick Palako: Hi. Good morning. Thanks for taking my question. Just one for me on the margin. So you've had a ton of success stabilizing the margin in this 3.5% range for about a year now with the help of the hedges that you have in place and your deposit gathering efforts. And loan growth is obviously trending very strong. How do you think about your appetite or your need to grow that hedging portfolio at a faster pace alongside your loan growth to keep a similar degree of margin protection beyond this year? Thank you.

David Dykstra: Yeah. Nick, I think if you look at the disclosure that we put on Slide 25, we list up the collar in place, and we feel pretty good for the next year or so. Then some of them start to mature off. So we'll look to fill out the buckets in '27 and '28. But for the, you know, next year or so, we feel pretty good about our position. And we're just waiting for sort of, operative times in the market to add on to those swap positions. But the last few you can see we did one-year forward starts, and then we did them out four or five years.

So just trying to, opportunistically and not, you know, fill them all up at the same time, you know, from a diversification standpoint, add to those as we go along. But I think you will see us add on to those later maturities over time.

Nick Palako: Thank you.

Operator: Thank you. I would now like to turn the conference back to Tim Crane for closing remarks. Sir?

Tim Crane: Thank you very much, and guys, apologize for the technical difficulties. We certainly appreciate your time and interest in WinTrust. And as you can tell, we feel well-positioned for the second half of the year and actually enter the third quarter with a lot of momentum. As always, please don't hesitate to reach out if there's anything we can do for you or Dave said, if there's any questions on the accounting for the preferreds. But we appreciate your time this morning. Thank you very much.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.