Wintrust Financial Corp (WTFC) Q2 2025 Earnings Call Transcript

Wintrust Financial Corp (NASDAQ: WTFC) Q2 2025 Earnings Call dated Jul. 22, 2025

Corporate Participants:

Unidentified Speaker

Timothy S. Crane — President & Chief Executive Officer

Timothy S. Crane — President & Chief Executive Officer

Timothy S. Crane — President & Chief Executive Officer

Timothy S. Crane — President & Chief Executive Officer

Dave Dykstra — Senior EVP, COO & Treasurer

David A. Dykstra — Chief Operating Officer

Richard B. Murphy — Chief Lending Officer

Analysts:

Unidentified Participant

John Armstrong — Analyst

Chris McGrathy — Analyst

David Long — Analyst

Nathan Race — Analyst

Terry McAvoy — Analyst

Ben Gerlinger — Analyst

Casey Hare — Analyst

Jeff Rulis — Analyst

Jared Shaw — Analyst

David Chiaverini — Analyst

Nick Holowko — Analyst

Presentation:

operator

Welcome to Wintrust Financial Corporation’s second quarter and year to date 2025 earnings results. Will. Colby Maychef Executive Officer David Dykstra, Vice Chairman and Chief Operating Officer and Richard Murphy, Vice Chairman and Chief Lending Officer. As part of their reviews, the presenters may make reference to both the earnings press release and the earnings release presentation. Following their presentation, there will be a formal question and answer session. During the course of today’s call, WindTrust Management may make statements that constitute projections, expectations, beliefs or similar forward looking statements. Actual results could differ materially from the results anticipated or projected in any such forward looking statements. The company’s forward looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in our earnings press release and in the company’s most recent Form 10K and any subsequent filings with the SEC.

Also, our remarks may reference certain non GAAP financial measures. Our earnings press release and earnings release presentation include a reconciliation of each non GAAP financial measure to the nearest comparable GAAP financial measure. As a reminder, this conference call is being recorded. I will now turn the conference call over to Mr. Tim Crane.

Timothy S. Crane — President & Chief Executive Officer

Good morning everyone. Thank you for joining us for the Wintrust Financial second quarter earnings call. In addition to the introductions lateef made, I’m joined by our Chief Financial Officer Dave Starr and our Chief Legal Officer Kate Boggy. 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 and 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.

Dave Dykstra — Senior EVP, COO & Treasurer

Great. Thanks, Tim. As Tim said, we had a strong deposit and loan growth quarter. The deposit growth was $2.2 billion, representing a 17% increase over the prior quarter on an annualized basis. The solid loan or the solid deposit growth helped to 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 other aspects of the balance sheet results, total assets grew by $3.1 billion to $69 billion, including the impact of the $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 and with just a few moving pieces. I’ll start off by highlighting what we consider the uncommon items to be for the quarter, which included $2.9 million of acquisition related costs that were substantially concluded related to the conversion of the Macatawa 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, offset somewhat by the aforementioned strong loan growth regarding other non interest income and non interest expense sections. Total non interest income totaled $124.1 million in the second quarter, which was up approximately $7.5 million when compared with the prior quarter. Although persistently high mortgage rates dampen 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 non interest expense categories go, non interest expenses totaled $381.5 million in the 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 earning 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 1st.

Advertising and marketing expenses increased by $6.5 million in the second quarter when 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 with. The remaining variances in noninterest expense, both positive and negative, were relatively normal, amount 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 $425 million series of preferred stock issuance that Windcrest 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 deferred 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 that is 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, including the second quarter, had roughly $7 million of preferred dividends. So for the past few quarters and going back five years, that number spent $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 costs 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 so with that, Tim, I’ll conclude my comments and turn it over to Rich.

Richard B. Murphy — Chief Lending Officer

Thanks, Dave. As Tim and Dave both noted, credit performance continued to be very solid in the second quarter. As detailed in the release 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 the second half of 2025 will continue to be strong and within our guidance of mid to high single digits for a number of reasons. Core CNI 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 businesses including leasing and Mortgage warehouse. Last quarter we spoke of growing uncertainty and 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 nonperforming asset levels on slide 16 and the consistent level in our special mentioned 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 first during the second quarter as CRE MPLS 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 and office exposure. Currently, this portfolio remains steady at 1.6 billion or 12.1% of our total CRE portfolio and only 3.1% of our total loan portfolio. Of the 1.6 billion of office exposure, 48% is medical, office or owner occupation. 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 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.

Timothy S. Crane — President & Chief Executive Officer

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. Lateef.

Questions and Answers:

operator

Thank you. As a reminder to ask a question, you will need to press Star 11 on your telephone to remove yourself from the queue. You may press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of John Armstrong of rbc. Please go ahead. John.

John Armstrong

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 that growth is typically a little slower in the third quarter. Is it fair to look at maybe priority third quarter trends from second quarter as a benchmark for what you might expect in Q3 in terms of growth.

Dave Dykstra

Expense growth or loan growth? John?

John Armstrong

Loan growth. Sorry, sorry,

Dave Dykstra

loan growth. If you look at the third quarter excluding Macartawa and then fourth quarter, I think that 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.

Timothy S. Crane

Yeah, I think if we just think mid to high single digits based off of the June 30th balance going forward. For the second half of the year. That’s sort of our view right now. Yep.

John Armstrong

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. 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. Please remain in your line. Please stand by.

Timothy S. Crane

Latif.

operator

Yes. Please proceed.

Timothy S. Crane

Okay, John, 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. It’s fairly broad based and we continue to believe that in our markets where we have kind of a sub 10% share in all of them, we can continue to grow. The commercial growth in deposits is particularly helpful because obviously we get treasury management revenues and other activities related to that. But. This was a very solid deposit growth quarter for U.S. funding the seasonal loan growth. Continue to think we’ll have opportunities, but $2 billion of deposit growth should not be kind of the norm going forward.

John Armstrong

Okay, and then just one small one. Anything on the wealth management outsourcing? Can you just Talk about longer term goal there and how that’s going.

Timothy S. Crane

Yeah, that conversion to the LPL 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.

John Armstrong

Okay, thank you very much.

operator

Thank you. Our next question comes from the line of Chris McGrathy of KBW. Your line is open. Chris.

Chris McGrathy

Oh, great. Morning.

Timothy S. Crane

Hi Chris.

Chris McGrathy

How are you doing in terms of the NII growth, the 4% linked quarter 16 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.

Timothy S. Crane

Well, yeah, 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 352.53 range on average over the last few quarters.

You know, if we stay in that in the mid, the low 3 range, 350 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, we should see the mid to high single digit net interest income growth. It’s just simple math I think from our perspective.

Chris McGrathy

Okay.

Timothy S. Crane

And our deposit pricing, if you’re growing as much as we did this quarter, maybe the pricing was a little high. But as Tim said, the markets are still really good and we have great prices 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.

Dave Dykstra

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 kind of markets remain rational, we’ll continue to add clients and importantly add deposits as well.

Chris McGrathy

Okay, Dave, you addressed the earning asset. There’s not anything materially you’re going to turn 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.

Dave Dykstra

No, I mean the only odd thing is second quarter is always really strong on commercial premium finance. Recall last couple of years we 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 years ago.

But going forward, we’re not going to have a billion dollar PNC premium finance growth quarter in the third quarter. The second quarter is seasonally high. Other than that, our commercial, 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 McGrathy

Great. And my follow up, maybe for Tim is, you know, the deregulatory narrative. What does it mean for Wind Trust 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 you can unpack there on deregulation? Thanks.

Timothy S. Crane

Yeah, 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. Macatawa, for example, is terrific. So we’ll be disciplined but opportunistic.

Chris McGrathy

Great, thank you.

operator

Thank you. Our next question comes from the line of David Long of Raymond James. Please go ahead, David.

David Long

Good morning, everyone. Thanks for taking my questions. On the core CNI 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 B. Murphy

You know, it’s interesting, David, I think that I wouldn’t say there was a material difference during the quarter in terms of just production, but I would say sentiment. And I touched on 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 more confidence here that the economy is not the bottom side coming out. I think most customers are feeling, again, the term I use, cautiously optimistic about where things are at right now.

So that coupled with the market dynamics in the Chicago market in particular, but certainly in our other core markets, it feels like 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. And on slide 20, you guys highlighted the non performers within that portfolio increased a bit. Just curious if I can get a. Little more color on what happened there. And 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 non performers on the office side.

Richard B. 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. Neither of them particularly large, but you know, combined when you look at it relative to the total kind of causes a little bit of a blip. Nothing that we’re overly concerned about. We think we’re marked appropriately and we’ll get through those relatively quickly. But I kind of refer in that portfolio because the denominator is so small that every new loan makes it look like a pop. But we’re just managing through the portfolio like we do every day.

David Long

Great. Thanks, 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. Nate, one of your Midwest peers this morning kind of tempered loan growth expectations, citing some increased competition. So just curious, you know, what you guys are seeing from a competitive pricing perspective. Obviously, you know, 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 B. Murphy

Yeah, you know, 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, continue to try to ramp up their loan production would become a little more aggressive. And we have seen that. But as Tim talked about in his opening remarks, we have pretty disciplined approach to where we’re going to 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 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 pronged asset approach, some things get compressed a little bit while other things give you some opportunity. And that’s what we’re seeing now. So we think that in the core CNI space we continue to hold our line pretty well on pricing in leasing. Same thing in specifically to your PNC question. We continue to be in pretty good shape.

I mean prices are coming in a little bit tighter on larger credit oriented deals, but we have a very, very granular portfolio there that we continue to be able to price pretty well.

Timothy S. Crane

And they for the second quarter, I think a number in the mid 7s would be about the right range for the PNC loan yield.

Nathan Race

Okay. And Tim, that’s pretty close to the roll off yield if I heard.

Timothy S. Crane

Yeah, not too far off.

Nathan Race

Okay, great. And then you mentioned on deposit costs, you know, looks like they were kind of stable in the quarter all in, but if I strip out CDs, it looks like your interest bearing deposit costs are up 6 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?

Timothy S. Crane

I think pretty stable to where we were in the second quarter. I mean again, we 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, you know, 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.

You know, just curious if you still think that holds true, which you know, I think translates about a billion five to a billion six in expenses for this year.

Dave Dykstra

Yeah, you know, I think maybe the best way to answer that right now is I think, I think the level we’re at in the second quarter, plus or minus a couple 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 we had some growth here as we projected last quarter, but we also grew the balance sheet 3 billion. We have some growth from here. So I think if we can hold this relatively stable in all three 80s for the last two quarters, that’s probably what we’re shooting for.

Right now.

Nathan Race

Okay, perfect. I appreciate all the color you’re having a great quarter, guys. Thank you.

Timothy S. Crane

Thanks, Nate.

operator

Thank you. Our next question comes from the line of Terry McAvoy of Stevens Inc. Please go ahead. Terry.

Terry McAvoy

Hi. Thanks. Good morning. Maybe just a question. In 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?

Timothy S. Crane

Yeah. Thanks, Terry. Yes. 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 the prospecting opportunities are very good. So feel actually like we’re in the right spot to begin accelerating the results in West Michigan.

Terry McAvoy

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 B. 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 kind of muted market. So we are taking share in that portfolio. So right now that total book sits at 1.2 billion. 1.2 billion.

Nathan Race

Great. Thanks for taking my questions.

Timothy S. Crane

Sure, you bet.

operator

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

Ben Gerlinger

Hey, good morning, guys. I know we talked through the rate paid across the different deposit silos and. 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, do you think. You can have the immediate impact of. Kind of the same deposit beta we’ve seen? Given that you just increase it, could you kind of lower it pretty quickly thereafter? I’m just trying to think about the. The behavioral finance relative to what we. Just saw and kind of the growth aspects?

Dave Dykstra

Yeah, Tim touched on that a little bit earlier, but I think if the Fed cut 25, we would be 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, 7 months and 11 months 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 our discretionary accounts.

Ben Gerlinger

Gotcha, that’s helpful. And then you just answered the question on the expense front. So that is everything. I have appreciated. Next guys.

Timothy S. Crane

Thanks, Bob.

operator

Thank you. Our next question comes from the line of Casey Hare of autonomous. Please. Go ahead, Casey.

Casey Hare

Yeah, thanks. Good morning guys. Just wanted to follow up on loan growth again. So the premium finance, it sounds like it’s obviously great momentum, 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 in terms of later innings. Just some big picture thoughts on how that tailwind is going.

Richard B. 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, it’s a very consistent growth pattern fueled by two things. One is the dislocation of other competitors, some 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 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 or 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 some investments we’ve made in technology that really helped kind of drive the product offering. So that put us in good shape. But then with the hardening market, things continue to 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 some moderation there. So we use the term firm that the unit, the dollar amounts of units continues to stay pretty consistent.

So we feel pretty good overall with where that portion is 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 thought there is maybe not as the premium rates, maybe not with the same upward trajectory, but still solid to. I’d say firm to slightly up.

Casey Hare

Gotcha, thank you. And then just Tim, follow up question you mentioned. M and A is picking up a little bit, you know, just wondering is. That I know Macatawa was great for. You 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, you know, size and location wise and what’s driving sort of the uptick in terms of the M and A opportunity.

Timothy S. 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 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 mending your line. Thank you for your patience. Points.

Timothy S. Crane

Can you hear us?

operator

Yes, sir. Please proceed.

Timothy S. Crane

Casey, I’m sorry, Somehow we’ve got a line dropping somewhere between Chicago and where all of you are. Yeah, don’t worry 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 market standpoint. But again, for the reasons I mentioned earlier, I think there is some pickup in kind of market M and A activity.

Casey Hare

Thank you.

Timothy S. Crane

You bet.

operator

Thank you. Our next question comes from the line of Jeff Rulis of DA 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 non performers and we’re off a low base but maybe same question on look like a little pickup in the commercial non performing loans. Any specifics to that? I’m guessing a similar answer to Siri. It’s pretty granular but by type or geography on cni again, very granular. One in particular credit that just we’d seen performance suffer for a little while here over the last couple of quarters and finally decided that this was a credit that probably is going to need more meaningful remediation and just took it to nonperforming.

We think that we’ve got it marked. Right. But again just kind of a one off situation. 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 and I that you’d highlight the most. Yeah, you know, there’s nothing that I would necessarily point to specifically. I think, you know, it’s more a question of, you know, leverage in the balance sheet, liquidity on the balance sheet. You know, just, you know, those are some of the, you know, operating things that we kind of take a look at 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 pnc, Leasing, Core, cni. 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, I think event driven than industry driven.

Jeff Rulis

Got it. Okay.

Dave Dykstra

I’d like to maybe add in there, Jeff. I mean if you look at the total non performing loan ratio, it’s right in the middle of the range. I mean we’ve ranged 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 on a quarterly basis between call it one to six million a quarter. Anything that you could lead us to are drivers of that plus or minus as what could a lower or higher quarter there?

Dave Dykstra

No, it sort of really depends on what happens to. We’re writing calls on government agencies like Fannie Mae. So it sort of really depends on what that part of the curve does as far as if it comes down the security. So we called it and we’ll rewrite. And then it also depends on what volatility is at the time that we buy the securities. So my crystal ball isn’t good enough to predict what it’s going to be at the end of the third quarter. But if rates go down a little bit and securities get called, then what? 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 dollar range and it really can fluctuate, but it’s really sort of a hedged it 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.

operator

Thank you. 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.

Timothy S. Crane

Yeah, well, CET1, we had such good growth this quarter. It came down a tenth of a percent. But we would expect that probably to grow 10 basis points a quarter going forward. If we had the mid to high single digit lump 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 the 425 Series F outstanding and the 412 of the series D and E. So somewhat elevated at the end of June, Those, those tier one ratios will come, you know, come down 60 basis points, not the CET one because preferred’s not in the common, but the total tier ones will come down roughly 60 basis points.

But we put those numbers in the press release. From here on out, we would just expect to gradually grow capital, you know, 10 basis points or so with earnings and mid to high single digit loan growth.

Jared Shaw

I guess what’s the. Would you be comfortable bringing it back down below 10% 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?

Timothy S. Crane

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. Opportunity and it was down just I would look at 10 as a floor in our minds right now.

Jared Shaw

Great. Thank you.

operator

Thank you. 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 non premium finance. So more on the core CNI and CRE sides. Can you talk about borrower sentiment? Are you seeing more borrowers come off the sidelines here?

Dave Dykstra

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 more stability. I don’t think it’s, you know, there was talk at the end of last year of Animal Spirits and just, you know, there’s a tremendous 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 the clouds are parting a little bit on some of these issues that may affect their business.

So I feel 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, wait and see on what these, the tax code changes are going to look, look like, seeing what rates are going to do. There’s just, there’s still a fair amount of questions that are out there, but we feel pretty good. The other thing we feel good about, we’ve talked about in prior calls is just the market positioning that we have. There’s just been a huge change in terms of the competitive dynamic in Chicago that’s really allowed us the opportunity to get into a lot more doors.

And so, so we think that that is a huge part of the growth story for us. So generally, as we talked about, pipelines look good and that’s probably a function of the market dynamics, but also just 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 Noso of Hobdigroup. Please go ahead, Brendan.

Unidentified Participant

Good morning, everybody. Thanks for taking the question. If I look at the ACL calculation on Slide 15, you know, 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. 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.

Timothy S. Crane

Yeah, I think that’s right. I mean, last quarter we had about, I think a 36. We disclosed about, I think, a $36 million number for macro uncertainty, which included the B double A 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 20s million dollar range versus the mid 30s.

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.

Unidentified Participant

Okay, fantastic. Thanks for taking the question.

Timothy S. Crane

Thanks, Brennan.

operator

Thank you. Our next question comes from the line of Nick Haloco of ubs. Please go ahead. Nick.

Nick Holowko

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. So 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,

Richard B. Murphy

Nick. I think if you look at the disclosure that we put on slide 25, we list out 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 opportunity 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 diverse, you know, diversification standpoint, add to those as we go along, but I think you will see us add onto those later maturities over time.

Nick Holowko

Thank you.

operator

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

Timothy S. Crane

Sir Latif, 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 as 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 dismiss Connect.