Wintrust Financial Corp

operating costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. Many of our competitors, because of their larger size and available capital, have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry, including the emerging use of artificial intelligence and machine learning, could cause a loss of customers and have a material adverse effect on our business.

Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates, terrorist organizations, hostile foreign governments, nation states, nation state-supported actors, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage, and any of the foregoing may see their efforts enhanced by the use of artificial intelligence and machine learning. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and "spear phishing" attacks are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, customers or other users of our systems and networks to disclose sensitive information (including confidential, personal, proprietary and other information) in order to gain access to its data or that of its clients. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber criminals change frequently and may not be recognized until launched or until well after a breach has occurred. The risk of a security breach caused by a cyber-attack, information security breach or other similar incident at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of cyber-attacks, information security breaches or other similar incidents at third-party vendors and service providers with access to our data may not be disclosed to us in a timely manner. While we generally perform cybersecurity diligence on our key vendors and service providers, because we do not control our vendors and service providers and our ability to monitor their cybersecurity is limited, we cannot ensure the cybersecurity measures they take will be sufficient to protect any information we share them. Due to applicable laws, regulations, rules, standards or contractual obligations, we may be held responsible for cyber-attacks, information security breaches or other similar incidents attributed to our vendors and service providers as they relate to the information we share with them.

The development and use of artificial intelligence by us or others, or our inability to effectively and timely implement its use, may adversely affect the Company.

The use of artificial intelligence (“AI”) in the banking industry is increasing. Our future success will depend, in part, upon our ability to invest in and use appropriate technology, which may include AI. We may selectively incorporate AI technology in certain business processes, fraud detection, services or products, including technologies that process sensitive financial and/or personal data. Additionally, our third-party vendors, clients or counterparties may develop or incorporate AI technology in their business processes, services or products. As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and therefore could adversely affect our business. We may not be able to implement the use of AI in an effective or timely way, thus adversely impacting our operations and our ability to compete with financial institutions which successfully and timely implement AI. The use of AI, particularly generative AI, may produce output or take action that is incorrect, that results in the release of private, confidential or proprietary information, that reflects biases or perceived biases included in the data on which AI models are trained, that produces output that is, or is perceived to be, discriminatory or unfair, that infringes on the intellectual property rights of others, or that is otherwise harmful. The legal and regulatory environment relating to these emerging technologies is uncertain and rapidly evolving and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of these technologies. These evolving laws and regulations could require changes in our implementation of these emerging technologies and increase our compliance costs and the risk of non-compliance. While we have policies governing the use of AI applications or websites on the Company’s network, there can be no assurances that such policies will be effective in mitigating the risks associated with using AI technology. Furthermore, employees may intentionally or inadvertently violate our policies by using personally identifiable or nonpublic information, including sensitive client information, with AI technologies. Any of these risks relating to our use of AI, or its use by third parties with which we do business, could expose us to liability or adverse legal or regulatory consequences, competitive harm and brand or reputational harm, which could have an adverse effect on our business, financial condition or results of operations.

operating costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. Many of our competitors, because of their larger size and available capital, have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry, including the emerging use of artificial intelligence and machine learning, could cause a loss of customers and have a material adverse effect on our business.