Wintrust Financial Corp

NASDAQ:WTFC

Good morning, everybody, and welcome to Wintrust's Second Quarter 2026 Earnings Call. In addition to those that Latif introduced, I'm joined by our Chief Financial Officer, Dave Stoehr; and Chief Legal Officer, Kate Boege. As we do every quarter, I'll provide a brief overview of the quarter. Dave Dykstra will discuss key financial results. Rich will review loan activity and credit quality, and I'll be back to share some final thoughts before we open up to your questions. As a reminder, we're focused on 3 key strategic priorities to drive financial results and build shareholder value, delivering an exceptional and differentiated customer experience, generating strategic and disciplined growth and continuing to build on our foundation by investing for the future. Delivering on these priorities, we reported very strong loan and deposit growth, a net interest margin in line with expectations, well-managed expenses and stable credit quality. All of this produced our sixth consecutive record quarter of net income.

Second quarter net income was $233.7 million, up from just over $227 million in the first quarter. Year-to-date net income was $461 million, up 20% from the same period last year. Net interest income, the biggest driver of our revenue growth was up 13% quarter-over-quarter on an annualized basis. Our growth this quarter was all organic, one client, one relationship at a time. We continue to deliver our differentiated value proposition to gain market share by adding new households and deepening relationships with existing clients. I'm particularly pleased with the strong operating leverage we delivered in the first 2 quarters of the year. Not only are we growing revenue nicely, we are also managing expenses to ensure we can continue to invest in the tools, capabilities and the people that lead to stronger client relationships.

On our last call, we shared plans to open branches between now and the end of the year. Our newest location, Chicago's Lakeview neighborhood and in the Illinois towns of Montgomery and Elk Grove Village will open in the coming weeks with several others to follow later in the quarter, including 3 in Northwest Indiana. In all cases, we look to open branches either as fill-ins within an existing footprint or in new communities that are a strategic fit for our community banking model.

Additionally, on July 6, we announced an important investment in our wealth management business with the intent to purchase the guardianship services business from Northern Trust. This is a good bolt-on acquisition to a business we know well and will cement our position as a leading provider of guardianship services in the Chicago area. We expect that transaction will close later this year. Finally, we continue to make enhancements to our digital banking experience with new features and functionality coming in the third quarter that will make it easier for consumers and businesses alike to manage their relationship online. These investments are part of our effort to build for our future so that we can continue to deliver the exceptional experience our customers and the market expect from us. All in all, a very strong straightforward quarter with the consistent performance you have seen from us for many quarters.

Now let me return things over to Dave to give a little bit more detail on the results.

Great. Thanks, Tim. Let me start with the balance sheet. Specifically, deposit growth was approximately $2.2 billion of growth during the quarter, representing a 15% increase over the prior quarter on an annualized basis. This strong deposit growth funded continued solid second quarter loan growth of approximately $1.6 billion, representing 12% growth on an annualized basis. Yields and rates in major balance sheet categories were slightly lower with loan yields moving down 7 basis points from the prior quarter to 6.07%. This was primarily due to back book repricing of the commercial insurance premium finance portfolio and slight spread compression due to competitive market pressures.

Interest-bearing deposits, which were up substantially, were flat to the prior quarter at 2.74%. I would note that the period-end loans were approximately $1.2 billion higher than the average loans for the second quarter, giving us a great start to achieving higher level of average earning assets in the third quarter of 2026.

Turning to the income statement results. This was again a very solid operating quarter, producing another record level of quarterly net income. Net interest income improved to $18.3 million compared to the first quarter of 2026. The benefit to net interest income from an increase of $2.1 billion in average earning assets was offset by a 4 basis point decline in the net interest margin. The net interest margin was negatively impacted by 1 basis point due to 1 additional day in the quarter, 2 basis points related to the back book reprice of the premium finance portfolio and 1 basis point related to other items, including mix and the spread compression that I discussed.

The result was a margin of 3.52% for the second quarter of 2026 and has ranged from 3.50% to 3.59% during the last 10 quarters, showing the sustained stability of this metric. The provision for credit losses continued to remain consistent with prior quarters, staying in the $20 million to $30 million range for the sixth consecutive quarter as the overall credit environment on our asset quality has remained stable. Regarding the noninterest income and noninterest expense sections. Noninterest income totaled $141.3 million in the second quarter, which was an increase from the $134.1 million recorded in the prior quarter. The roughly $7 million increase was primarily the result of a $4 million improvement in mortgage banking revenue as the spring buying season provided a modest amount of increased purchase volume and related revenues.

Another contributing factor to the increase in this category is that the company recorded approximately $2 million of higher BOLI income, which was primarily related to higher earnings on BOLI investments that support certain deferred compensation plan benefits. And I'll note that this $2 million increase in BOLI income had a similar offsetting increase in compensation expense during the quarter. So as a result, noninterest income and noninterest expense were both equally elevated for the quarter by almost $2 million. The company also recorded approximately $1.8 million more security gains in the second quarter compared to the first quarter. The impact of the increases just noted, mortgage banking, BOLI and security gain revenue was about $8 million. These items tend to have some volatility related to market conditions and may or may not occur in the third quarter. In fact, we currently expect mortgage revenues to fall back into the low $20 million range as the home buying seasonality subsides.

Noninterest expenses totaled $397.5 million in the second quarter, up from the $382.6 million recorded in the prior quarter. The primary reasons for the increase other than to support the exceptional growth were salary and employee benefits expense increased by approximately $5.6 million as compared to the first quarter due primarily to the second quarter having a full effect of annual merit increases that were effective February 1, increased commissions to support the higher mortgage production and $2 million impact from the BOLI-related deferred comp expense I just discussed.

Advertising and marketing expenses increased by $7.2 million in the second quarter when compared to the prior quarter. As we 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 expenditures related to various sports sponsorships and other summertime sponsorship events held in the communities that we serve. Offsetting the aforementioned increases was a reversal of accrued FDIC assessment expense of $5.2 million related to the final true-up of the special assessment previously imposed by the FDIC to pay for the 2 bank failures that occurred in 2023.

The quarterly net overhead ratio improved slightly over the prior quarter, helping the company produce solid operating leverage during the second quarter and for the first half of 2026. In summary, I'll reiterate that this was a very solid quarter and first half of the year. The company accomplished exceptional loan and deposit growth, a relatively stable net interest margin, another record level of net income, sustained growth in tangible book value per share and a continued low level of nonperforming assets. So with that, I'll conclude my comments and turn it over to Rich to discuss credit.

Thanks, Dave. As detailed on Slide 7 of the investor presentation, the loan growth during the second quarter was strong and broad-based with total portfolio growth of $1.6 billion or 12% annualized. Every lending segment saw positive growth during the second quarter and year-over-year loan growth was $4.6 billion or 9%. Of note, the first insurance funding portfolio grew $722 million. As mentioned during prior calls, the second quarter is typically our largest funding quarter for this business. In addition, commercial loans grew by $518 million, fueled by solid production in our asset-based and leasing groups. Commercial real estate loans grew by $108 million, and the Wintrust Life Finance team continued to build their portfolio by $116 million. From a credit quality perspective, as detailed on Slide 15, we continue to see strong credit performance across the portfolio.

Nonperforming loans decreased from $182.7 million or 0.34% to $179.3 million or 0.32% and remained at a very manageable level. Charge-offs for the quarter were 10 basis points, down from 14 basis points in the quarter -- in the prior quarter. The level of NPLs and charge-offs in the second quarter reflect a stable credit environment as evidenced by the chart of historical nonperforming asset levels on Slide 16 and the consistent level of our special mention and substandard loans on Slide 15. This quarter is another example of our commitment to identify problems early and charging them down where appropriate. Our goal, as always, is to stay ahead of any credit challenges. Also, 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 1/4 of our total loan portfolio.

As detailed on Slide 19, we continue to deliver solid performance in this portfolio during the second quarter as CRE NPLs remained at a very low level, remaining unchanged from the first quarter at 0.12% and CRE charge-offs continue to remain at historically low levels.

On Slide 25, we continue to provide enhanced detail on our CRE office exposure. Currently, this portfolio remains steady at $1.6 billion or 11.3% of our total CRE portfolio and only 2.9% of our total loan portfolio. We monitor this portfolio very closely and we continue to perform deep dive analysis on a quarterly basis. The most recent deep dive analysis showed very consistent results when compared to prior quarters. Finally, as we have discussed on previous calls, our teams stay in very close contact with our customers, and these conversations continue to reflect a measured optimism around the business climate. That concludes my comments on lending and credit, and I'll turn it back over to Tim.

Okay. Thank you, Rich. Just some final thoughts. With respect to the third quarter and the remainder of the year, our targets remain unchanged. We're working toward loan growth in the mid- to high single digits and deposit growth to largely fund that loan growth. The fact this quarter that we generated over $2 billion in core deposits without increasing deposit costs is evidence of our strength in the market and our ability to consistently build long-term franchise value. As Rich mentioned, our clients continue to be cautiously optimistic. They're managing the impact of the war in the Middle East and persistent inflation relatively well. As such, our pipelines are solid across all of our loan categories.

We continue to expect our net interest margin to be a few basis points either side of 350. We're very neutral in terms of rates up or down in the market. So where we land will depend on whether the competitive pricing pressures that Dave mentioned continue and to what degree. Independent of the actual margin, we expect solid net interest income growth and good operating leverage. Finally, we expect expenses to remain well managed, solid credit performance and an increase in CET1 and our other capital ratios in the coming quarters. To sum up, we continue to feel good about our position in the market and our ability to deliver our differentiated customer experience to grow our business. We believe with the continued focus of our dedicated team, along with the sophisticated financial solutions we offer, we are well positioned to continue to deliver strong results for our shareholders for the remainder of 2026. Latif, with that, we'll open this up to questions, please.

Yes. You bet, John. Yes, we were obviously very pleased with the deposit growth in the quarter. We do get a little bit of municipal seasonality that, in some ways, matches the seasonality of our loan growth business in the second quarter. But very good commercial growth, which will lead to increases over time in our treasury management fees and that activity and frankly, good retail growth as well. And that's in advance of opening a number of branches in the second half of the year here that will continue to help with the deposit growth. I believe on the last call, we said that both the loan yields and the deposit costs were going to be relatively stable. We were very pleased that even with that growth, the deposit cost was flat.

So all in all, a very strong deposit growth quarter. And I think we would look to not quite the same number, but strong deposit growth in the second half of the year. Pricing remains relatively rational in the market. And if anything, our position continues to improve from a competitive standpoint.

John, this is Dave. I would say, as I said, if you broke the margin down, maybe a basis point relates to sort of mix and competitive pressure. So it's not dramatic. We're seeing a little bit on the commercial and the commercial real estate side. And -- but it's -- it's not widespread. It's a little episodic. So there are deals that we are turning down for pricing, and we're doing the same thing on the premium finance side. We had really good growth there, $722 million of growth in the quarter, probably could have had a little bit more, but some of the larger deals on the premium finance side were just being priced awfully, awfully thin, and we just took passes on them.

So we're going to stay disciplined on doing loans at reasonable prices and getting paid for the risk. And even with that, 12% loan growth for the quarter on an annualized basis and strong pipelines are good. So just a little bit of pressure there, but not dramatic. Again, as I said, if you broke the margin down, 2 basis points was the back book repricing of premium finance, which those aren't tied to, but correlate closely to prime. And the last prime change we had was in December of last year. So it takes a full 9 months for those to reprice through. So probably a basis point or 2 next quarter on that. But other than that, it would just be the competitive pressures that we see that we either move the margin up or down from there. But nothing dramatic, just a slight bit.

Yes. Well, if you adjust for the FDIC credit that we took for the assessment true-up, our expenses for the quarter would probably have been about $403 million roughly. If you factor in the good growth that we had in the second quarter and a substantial growth and then, again, expecting to grow nicely in the third quarter, including the branch -- some of the branches Tim talked about, you probably expect that number to go from $403 million up just a little bit. So say, $405 million plus or minus, is probably a good range. Again, you can't always predict what's going to happen with some of the market things with BOLI. So that would just sort of assume that BOLI was flat. But -- so I think if you look at that and then project that out, we're still on track to be mid-single-digit expense growth, '26 over '25. And so I think that, that target is still right on what we expected to happen.

Yes. Well, I said overarching, I would say we probably still expect 1 or 2 basis point impact to the margin from the premium finance back book in the third quarter, and then we're done with that. We're through with the back book reprice. So if you take that into account, and there's 1 day impact that we had this quarter, which is a basis point, we'll have that again next quarter. So if you take that and put everything else aside, you're probably right at a 3.50% margin roughly. And then it will just depend on competitive pricing up or down. But we still think the incremental difference between what the incremental deposit pricing and loan pricing is in total is roughly a 3.50% margin. So we think we can hold that with incremental pricing on both the loan side and maintain a margin that is plus or minus a few basis points. And really, that will depend on mix and competitive pressures. But right now, we would think we can still hold that like we've been talking about.

Yes, Nate, I think your summary was sort of right. I mean the deals that we've seen so far have been sort of smaller, including in our market. We continue to stay in touch with people, as you would expect. And again, in addition to the wealth-related deal we did this quarter, we would look for opportunities, but we would continue to be very disciplined. And as you know, good strategic fit, good cultural fit. And I would still characterize the M&A conversations as exploratory at this point.

Well, I think we've been pretty consistent recently and probably over the last few years, say, mid- to high single digits is generally what we've been producing given the diversified nature of the portfolio, excluding the second quarter where it is outsized a little bit for premium finance. So we still feel comfortable with the pipelines where they're at. And it really -- it will just sort of depend on customer preferences. You could potentially see if the mortgage market got better, the mortgage warehouse could go up. You could have less paydowns on CRE portfolios. Those fluctuate a couple of hundred million either direction per quarter, just very nuanced changes. But yes, I would say this was a broad-based -- as Rich said, this was a broad-based growth quarter. Every major category was up a little bit. And the customers are feeling pretty good.

So we still think that mid- to high single digits is a really good target. And we'll see how it flows from just customer timing as far as closing on these deals. But we expect both the third and the fourth quarters to be in that range right now. And I can't tell you anything specific that would change it other than if the mortgage market heated up, we'd probably get a little bit more on mortgage warehouse. But the rest of them is just blocking and tackling and taking advantage of our market position in Chicago and West Michigan and Southeast Wisconsin, which is fantastic, and we'll just keep doing what we're doing.

Well, usually, the second and third quarters, as we said, are elevated due to the sports sponsorships with some of the major league teams. So unless they all go to the World Series this year, and it leaks into the fourth quarter, we would expect that to trend down a little bit in the fourth quarter. And you can look at 2025 and probably get the sort of the magnitude of the changes from quarter-to-quarter in the marketing line. But that seasonality has been that way for a number of years.

Yes. This is Tim, sorry. Probably, but we do have a number of new branch openings. And we've been very successful in growing the new branches. And so we'll support with marketing dollars, the entry into those markets. But the overall expense guidelines that Dave gave include those branch expenses. So we're having a lot of success in the market right now, and we're going to press that advantage. And if we need to spend marketing dollars to do that, we will. But we're adding clients right now. We're winning business. We believe we're adding share. And so there's no reason not to continue to be aggressive on that front.

Yes. The cost of deposits was flat, as we said, with the first quarter and end of period was roughly flat, too. So we're steady as she goes. Even with that 15% growth during the quarter, we held them fairly steady. So end of period was basically where the average was for the period.

No, I don't think too much related to the municipal deposits. As you suggested, I think looking at the averages makes sense. I think on an average basis, we were up $300 million in DDA deposits for the quarter. And if you look at the past year, the mix has stayed kind of 19.3%, 19.4%, 19.5%. In terms of percentage of total deposits as we've grown total deposits pretty significantly. So we're pretty happy with that, and it's just kind of steady growth as we move forward. And obviously, we're trying to win checking accounts and households every day. So the average is the right way to look at it.

Yes, Jared, I mean, we're -- you can appreciate, we're between announcement and closing here. And so there really isn't much more we can say other than what was in the press release. So I would sort of aim you back there. It's a modest size, nice bolt-on for us.

Yes, Chris, I mean, I think it may. Just to give everybody background, the CET1 was 10.4% this quarter, and that's flat given obviously the very substantial growth in the balance sheet. We feel very comfortable with that capital level given our risk profile. And as I suggested, we think that ratio will go up in the third and fourth quarters, and then we'll see what happens with respect to any rule changes. But I think we're closer to the point where we'll be discussing what we do with excess capital. And maybe just to head off the kind of part B of that question, our preference would be to continue to use that capital to invest in our business and grow loans. We certainly would look at appropriate acquisitions if they were a good fit. And further down the chain, you get buybacks and/or kind of repayment of some debt and followed by dividends. So the good news is I think we're going to have some flexibility on that front going forward.

Yes. Well, the tax rate, first quarter is usually a little bit lower. Second quarter was more normal. So the second quarter tax rate, 26.5% is a pretty good estimate for that. And I'd expect earning assets to grow similar to loan growth. We usually try to match deposit growth to loan growth. And so I would think your earning asset growth would follow suit there. This quarter, we outperformed a little bit on the deposit growth over loan growth. But as Tim said, we're really happy to grow the franchise and bring in those new clients. So that's a good thing. But I would expect loans, deposits, earning assets all to be very similar growth rates.

Yes. Well, again, we expect loan and deposit rates to be relatively flat other than a basis point or 2 of compression from the premium finance commercial back book repricing. And then it will just depend, as we said, on the competitive pressure. So spot rates on everything are pretty close to where we're at on this. And mix could change, obviously, depending on which asset class comes in. But again, we're very neutral, we think, on the margin and plus or minus a few basis points from 350. And if you have mid- to high single-digit loan and deposit growth, we think we grow NII mid- to high single digits. So we think that's a really good story, a very consistent story, and we think we can perform to that.

We don't have that much runoff. We do a lot of Ginnie Mae, Fannie Mae sort of mortgage-backed products. So a few hundred million of cash flow off of that, a quarter plus anything that maybe we invest from the growth, but those are around 5%-ish.

Yes. I mean, as you all know, we're third in share in the Chicago market and over the last couple of years have continued to grow that nicely. I think we expect that to continue and the cash sorting, AI, new product introductions are something we deal with every day. And the impact so far has been modest. We're certainly watching those types of developments, and we'll react accordingly, but nothing significant yet.

This is Rich Murphy. I don't know how you would rate it on the intensity scale. I think we've always been in a pretty competitive market as it relates to good quality assets. So I don't think things are all that different. But there is definitely -- I would point to, you noted it CRE, fully funded CRE deals of good quality. There is definitely a lot of competition out there. Obviously, in the C&I space, those deals that come with a lot of deposits are very, very competitive. We feel though that we're going to be aggressive because we want to win market share. But I think we also have historically shown a lot of discipline to get things priced right. We think we offer a good value proposition and we are going to compete hard. But when things get a little too aggressive, whether that's on your scale of 8 or 9 or 10, we will step away.

But as of this point, we still see a lot of deals. Our pipelines are full. It is different from a year ago. There's no doubt about that. But it's still -- I think we compete very effectively in the space we're in right now. So sharp elbow, sure, but we're winning more than we're losing.

Sure, at least to a degree, we don't kind of forecast out several years on the branch activity. But obviously, the 3 that I mentioned in my comments plus several more this year, including the 3 in Northwest Indiana. And I would tell you, frankly, we're pretty good at this. We recently purchased a branch in a community that we weren't in from an organization elected to close it. And in just a little bit over 90 days, we've got $70 million in deposits. And the communities that we're going into are largely attractive communities to us. And so I feel very comfortable we're going to be growing nicely in terms of those new branches. But we haven't done really other than Macatawa now 2 years ago, any acquisitions. So this organic growth opportunity is what the market has given us right now.

Well, as Dave said, we expect to continue to grow deposits. And with respect to mix, the challenge for us is we tend to outperform the market in terms of our deposit growth. And so if that happens, we'd like to keep DDA at 19% to 20% in terms of the mix. Just hard to say how much we're going to have to grow. But we like growing deposits. We like adding clients. We think that grows the value of the franchise. And so we're happy to take that deposit growth. And we'll see what the market gives us. But again, $2 billion plus worth of deposit growth with no change in deposit cost in our minds was very good performance in the quarter.

Yes, plus or minus a couple of basis points, but yes.

Well, the last part of the -- this is Dave. The last part of the question, it's a 1 basis point positive impact to us for this quarter. So fairly neutral. We did add some swaps during the quarter. As we said before, we're trying to add on to the swap position to cover those that are going to mature off. But if you notice those swaps during the quarter, the strike rates were actually higher than what the 1-month SOFR rate was. So for example, one of them had a strike rate of 4%. So that was in the money. We typically did a 1-year forward start and then went 4 or 5 years. But since these were in the money, we decided to put them as an immediate start and just get a slight benefit from it for the first year. But we're just really -- we're not trying to add to the swap portfolio in total generally. We're just trying to fill out with the later years as some of these mature off and probably keep around a $6 billion plus or minus notional value in that portfolio.

Yes. Well, this is Dave. There are pressures on the property side. That's the softest part of the market, and we are seeing those rates down and particularly condo rates in Florida. There's a lot of softening there. So those ran up really high, and now they've sort of come back down. But you're also seeing other professional coverages besides property that are up a little bit. So we sort of think of the aggregate of the portfolio of loans, if you put in the property coverage, the casualty and the liability coverages to be roughly flat to maybe up just very low single-digit basis points or single percentage increases.

So -- we also then are growing units that we believe we're growing units year-over-year. So we would expect premium finance year-over-year, taking the seasonality out of the equation, first quarter, second quarter sort of seasonality to grow low single digits right now. So we still like the business that's still out there. We're still competitive. It's just there's a few of the competitors that will chase the larger deals out there and price them way down, and we're just not going to chase what we consider to be irrational pricing there. But that's not the majority of the book. It's just a little bit of the book that we walk away from. So we would still expect growth there to be in the low single digits year-over-year.

Yes. I mean it's a good question, Benjamin. And I guess what I would point to is if you look at the loan growth, particularly C&I loan growth and some of the other verticals, when we win business in those categories, we expect those customers to bring us deposits. And so as you see commercial loan growth and you see loan growth in some of our niches like the ESOP business and our construction business, we're winning treasury management service fee income. We're asking for deposits. And so as you say, we're bigger. And so to show good deposit growth, as we have done regularly, we need deposit growth across the board, including the commercial sectors. And so that's built in the branches, as you say, will be more retail and small business, but they do increase our presence in Northwest Indiana, and that makes a difference with some of the commercial entities as well.

Well, we do have a small number of people in other markets that is sort of our way to start to penetrate those markets. And West Michigan was an example. We had a lot of business in West Michigan before we made the Macatawa purchase. And I think we're competitive in some of the other Midwestern cities where we don't yet have a footprint. And we'll continue to do that. And when it makes sense, we'll add physical footprint, which kind of is the next leg of the stool. So we've done that in Rockford. We did that in West Michigan. There are other markets we can do that in coming up.

Yes. We're investing in technology as all institutions are. And so whether it's cybersecurity or whether it's customer feature functionality, that's a line where you're likely to see more growth than others. And so I think you should expect some upward trajectory in that expense. But it's really across the board, better data management, the early phases of AI, the customer feature functionality we're delivering cyber. So it's sort of all sorts of stuff in that bucket.

No, it'd be the more macro assumptions. There's nothing specific out there that's driving any change in those factors.

Yes. I mean we're targeting continued operating leverage. And as we start to work on 2027, that will be part of our target as well. And so we hope there are scale benefits with some of the investments that we're making. And so kind of built into the expectations for our teams. We're going to add clients, and we're going to continue to win business in kind of a well-positioned market. And so that would be our expectation.

Well, I can't speak to any specific conversations. But in some way, I think it's helped. People are always cautious about exploring alternatives when their stock price is perceived to be low. And so as long as our performance and our securities move up relative to others, it's -- there's not a huge change. It's just that somebody feels like they're getting a better price. So the math is the math. And I know there are a lot of social and emotional factors that go into any transaction. But I think in general, it's probably a little helpful.

Yes. Thanks, Latif. And for everybody, good questions. We certainly understand why you ask what you do, and we appreciate your interest. I would leave you with this. This was a really strong quarter, once again creating value for our shareholders. We continue to deliver on our 3 priorities, which keeps our team focused on delivering strong results. And over the last several quarters, we've consistently outperformed peers without compromising our credit standards or our commitment to clients and our communities. We believe we're well positioned for the second half of the year and quite frankly, well positioned for time periods beyond that. So I hope everybody is enjoying the summer, and thank you for joining us and for your interest today. Have a great day.