e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number 0-21923
WINTRUST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
     
Illinois   36-3873352
     
(State of incorporation or organization)   (I.R.S. Employer Identification No.)
727 North Bank Lane
Lake Forest, Illinois 60045
(Address of principal executive offices)
(847) 615-4096
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes      þ No      o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes     o No     o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ  Non-accelerated filer o  Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes      o No      þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock — no par value, 31,114,781 shares, as of August 3, 2010
 
 

 


 

TABLE OF CONTENTS
         
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PART I. — FINANCIAL INFORMATION
 
       
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PART II. — OTHER INFORMATION
 
       
  NA  
 
       
ITEM 1A. Risk Factors.
    83  
 
       
    83  
 
       
ITEM 3. Defaults Upon Senior Securities.
  NA  
 
       
ITEM 4. Removed and Reserved.
  NA  
 
       
ITEM 5. Other Information.
  NA  
 
       
    84  
 
       
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 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 


Table of Contents

PART I
ITEM 1. FINANCIAL STATEMENTS
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
                         
    (Unaudited)           (Unaudited)
    June 30,   December 31,   June 30,
(In thousands, except share data)   2010   2009   2009
 
Assets
                       
Cash and due from banks
  $ 123,712     $ 135,133     $ 122,382  
Federal funds sold and securities purchased under resale agreements
    28,664       23,483       41,450  
Interest bearing deposits with other banks ($83,501 restricted for securitization investors at June 30, 2010)
    1,110,123       1,025,663       655,759  
Available-for-sale securities, at fair value
    1,418,035       1,255,066       1,195,695  
Trading account securities
    38,261       33,774       22,973  
Brokerage customer receivables
    24,291       20,871       17,701  
Federal Home Loan Bank and Federal Reserve Bank stock
    79,300       73,749       71,715  
Loans held-for-sale, at fair value
    222,703       265,786       291,275  
Loans held-for-sale, at lower of cost or market
    15,278       9,929       529,825  
Loans, net of unearned income, excluding covered loans
    9,324,163       8,411,771       7,595,476  
Covered loans
    275,563              
 
Total loans
    9,599,726       8,411,771       7,595,476  
Less: Allowance for loan losses
    106,547       98,277       85,113  
 
Net loans ($598,857 restricted for securitization investors at June 30, 2010)
    9,493,179       8,313,494       7,510,363  
Premises and equipment, net
    346,806       350,345       350,447  
FDIC indemnification asset
    114,102              
Accrued interest receivable and other assets
    374,172       416,678       260,182  
Trade date securities receivable
    28,634              
Goodwill
    278,025       278,025       276,525  
Other intangible assets
    13,275       13,624       13,244  
 
Total assets
  $ 13,708,560     $ 12,215,620     $ 11,359,536  
 
 
                       
Liabilities and Shareholders’ Equity
                       
Deposits:
                       
Non-interest bearing
  $ 953,814     $ 864,306     $ 793,173  
Interest bearing
    9,670,928       9,052,768       8,398,159  
 
Total deposits
    10,624,742       9,917,074       9,191,332  
Notes payable
    1,000       1,000       1,000  
Federal Home Loan Bank advances
    415,571       430,987       435,980  
Other borrowings
    218,424       247,437       244,286  
Secured borrowings — owed to securitization investors
    600,000              
Subordinated notes
    55,000       60,000       65,000  
Junior subordinated debentures
    249,493       249,493       249,493  
Trade date securities payable
    200              
Accrued interest payable and other liabilities
    159,394       170,990       107,369  
 
Total liabilities
    12,323,824       11,076,981       10,294,460  
 
Shareholders’ equity:
                       
Preferred stock, no par value; 20,000,000 shares authorized:
                       
Series A — $1,000 liquidation value; 50,000 shares issued and outstanding at June 30, 2010, December 31, 2009 and June 30, 2009
    49,379       49,379       49,379  
Series B — $1,000 liquidation value; 250,000 shares issued and outstanding at June 30, 2010 and December 31, 2009 and June 30, 2009
    237,081       235,445       234,139  
Common stock, no par value; $1.00 stated value; 60,000,000 shares authorized; 31,084,417, 27,079,308 and 26,834,784 shares issued at June 30, 2010, December 31, 2009 and June 30, 2009, respectively
    31,084       27,079       26,835  
Surplus
    680,261       589,939       577,473  
Treasury stock, at cost, 119 shares at June 30, 2010, 2,872,489 shares at December 31, 2009 and 2,854,980 shares at June 30, 2009
    (4 )     (122,733 )     (122,302 )
Retained earnings
    381,969       366,152       317,713  
Accumulated other comprehensive income (loss)
    4,966       (6,622 )     (18,161 )
 
Total shareholders’ equity
    1,384,736       1,138,639       1,065,076  
 
Total liabilities and shareholders’ equity
  $ 13,708,560     $ 12,215,620     $ 11,359,536  
 
See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
(In thousands, except per share data)   2010   2009   2010   2009
 
Interest income
                               
Interest and fees on loans
  $ 135,800     $ 110,302     $ 265,342     $ 217,189  
Interest bearing deposits with banks
    1,215       767       2,489       1,427  
Federal funds sold and securities purchased under resale agreements
    34       66       83       127  
Securities
    11,218       15,394       22,230       29,300  
Trading account securities
    343       55       364       79  
Brokerage customer receivables
    166       120       304       240  
Federal Home Loan Bank and Federal Reserve Bank stock
    472       425       931       846  
 
Total interest income
    149,248       127,129       291,743       249,208  
 
Interest expense
                               
Interest on deposits
    31,626       43,502       64,838       89,455  
Interest on Federal Home Loan Bank advances
    4,094       4,503       8,440       8,956  
Interest on notes payable and other borrowings
    1,439       1,752       2,901       3,622  
Interest on secured borrowings — owed to securitization investors
    3,115             6,109        
Interest on subordinated notes
    256       428       497       1,008  
Interest on junior subordinated debentures
    4,404       4,447       8,779       8,888  
 
Total interest expense
    44,934       54,632       91,564       111,929  
 
Net interest income
    104,314       72,497       200,179       137,279  
Provision for credit losses
    41,297       23,663       70,342       38,136  
 
Net interest income after provision for credit losses
    63,017       48,834       129,837       99,143  
 
Non-interest income
                               
Wealth management
    9,193       6,883       17,860       12,809  
Mortgage banking
    7,985       22,596       17,713       38,828  
Service charges on deposit accounts
    3,371       3,183       6,703       6,153  
Gain on sales of premium finance receivables
          196             518  
Gains (losses) on available-for-sale securities, net
    46       1,540       438       (498 )
Gain on bargain purchases
    26,494             37,388        
Trading gains (losses)
    (1,538 )     8,274       4,435       17,018  
Other
    4,885       2,780       8,507       7,051  
 
Total non-interest income
    50,436       45,452       93,044       81,879  
 
Non-interest expense
                               
Salaries and employee benefits
    50,649       46,015       99,721       90,835  
Equipment
    4,046       4,015       7,941       7,953  
Occupancy, net
    6,033       5,608       12,263       11,798  
Data processing
    3,669       3,216       7,076       6,352  
Advertising and marketing
    1,470       1,420       2,784       2,515  
Professional fees
    3,957       2,871       7,064       5,754  
Amortization of other intangible assets
    674       676       1,319       1,363  
FDIC insurance
    5,005       9,121       8,814       12,134  
OREO expense, net
    5,843       1,072       7,181       3,428  
Other
    11,317       10,231       22,438       19,075  
 
Total non-interest expense
    92,663       84,245       176,601       161,207  
 
Income before taxes
    20,790       10,041       46,280       19,815  
Income tax expense
    7,781       3,492       17,253       6,908  
 
Net income
  $ 13,009     $ 6,549     $ 29,027     $ 12,907  
 
Preferred stock dividends and discount accretion
    4,943       5,000       9,887       10,000  
 
Net income applicable to common shares
  $ 8,066     $ 1,549     $ 19,140     $ 2,907  
 
Net income per common share — Basic
  $ 0.26     $ 0.06     $ 0.67     $ 0.12  
 
Net income per common share — Diluted
  $ 0.25     $ 0.06     $ 0.64     $ 0.12  
 
Cash dividends declared per common share
  $     $     $ 0.09     $ 0.18  
 
Weighted average common shares outstanding
    31,074       23,964       28,522       23,910  
Dilutive potential common shares
    1,267       300       1,203       269  
 
Average common shares and dilutive common shares
    32,341       24,264       29,725       24,179  
 
See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
                                                         
                                            Accumulated        
                                            other     Total  
    Preferred     Common             Treasury     Retained     comprehensive     shareholders’  
(In thousands)   stock     stock     Surplus     stock     earnings     income (loss)     equity  
 
Balance at December 31, 2008
  $ 281,873     $ 26,611     $ 571,887     $ (122,290 )   $ 318,793     $ (10,302 )   $ 1,066,572  
Comprehensive income:
                                                       
Net income
                            12,907             12,907  
Other comprehensive income, net of tax:
                                                       
Unrealized losses on securities, net of reclassification adjustment
                                  (10,666 )     (10,666 )
Unrealized gains on derivative instruments
                                  2,807       2,807  
 
                                                     
Comprehensive income
                                                    5,048  
Cash dividends declared on common stock
                            (4,296 )           (4,296 )
Dividends on preferred stock
                            (8,355 )           (8,355 )
Accretion on preferred stock
    1,645                         (1,645 )            
Common stock repurchases
                      (12 )                 (12 )
Stock-based compensation
                3,431                         3,431  
Cumulative effect of change in accounting for other-than-temporary impairment
                            309             309  
Common stock issued for:
                                                       
Exercise of stock options and warrants
          52       612                         664  
Restricted stock awards
          66       (764 )                       (698 )
Employee stock purchase plan
          56       635                         691  
Director compensation plan
          50       1,672                         1,722  
 
Balance at June 30, 2009
  $ 283,518     $ 26,835     $ 577,473     $ (122,302 )   $ 317,713     $ (18,161 )   $ 1,065,076  
 
 
                                                       
Balance at December 31, 2009
  $ 284,824     $ 27,079     $ 589,939     $ (122,733 )   $ 366,152     $ (6,622 )   $ 1,138,639  
 
                                                       
Comprehensive income:
                                                       
Net income
                            29,027             29,027  
Other comprehensive income, net of tax:
                                                       
Unrealized gains on securities, net of reclassification adjustment
                                  12,040       12,040  
Unrealized losses on derivative instruments
                                  (296 )     (296 )
 
                                                     
Comprehensive income
                                                    40,771  
Cash dividends declared on common stock
                            (2,191 )           (2,191 )
Dividends on preferred stock
                            (8,251 )           (8,251 )
Accretion on preferred stock
    1,636                         (1,636 )            
Common stock repurchases
                      (102 )                 (102 )
Stock-based compensation
                2,505                         2,505  
Cumulative effect of change in accounting for loan securitizations
                            (1,132 )     (156 )     (1,288 )
Common stock issued for:
                                                       
New issuance, net of costs
          3,795       83,791       122,831                   210,417  
Exercise of stock options and warrants
          108       2,198                         2,306  
Restricted stock awards
          41       (91 )                       (50 )
Employee stock purchase plan
          13       482                         495  
Director compensation plan
          48       1,437                         1,485  
 
Balance at June 30, 2010
  $ 286,460     $ 31,084     $ 680,261     $ (4 )   $ 381,969     $ 4,966     $ 1,384,736  
 
                 
    Six Months Ended June 30,
    2010   2009
     
Other Comprehensive Income (Loss):
               
Unrealized gains (losses) on available-for-sale securities arising during the period, net
  $ 20,023     $ (17,861 )
Unrealized (losses) gains on derivative instruments arising during the period, net
    (482 )     4,567  
Less: Reclassification adjustment for gains (losses) included in net income, net
    438       (498 )
Less: Income tax expense (benefit)
    7,359       (4,937 )
     
Other Comprehensive Income (Loss)
  $ 11,744     $ (7,859 )
     
See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    Six Months Ended
    June 30,
(In thousands)   2010   2009
 
Operating Activities:
               
Net income
  $ 29,027     $ 12,907  
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
               
Provision for credit losses
    70,342       38,136  
Depreciation and amortization
    9,060       10,125  
Stock-based compensation expense
    2,505       3,431  
Tax benefit (expense) from stock-based compensation arrangements
    562       (650 )
Excess tax benefits from stock-based compensation arrangements
    (760 )     (84 )
Net amortization of premium on securities
    1,159       4  
Mortgage servicing rights fair value change and amortization, net
    2,242       1,218  
Originations and purchases of loans held-for-sale
    (1,419,144 )     (2,753,665 )
Originations of premium finance receivables held-for-sale
          (520,000 )
Proceeds from sales of mortgage loans held-for-sale
    1,480,862       2,542,202  
Bank owned life insurance income, net of claims
    (1,042 )     (851 )
Gain on sales of premium finance receivables
          (518 )
Increase in trading securities, net
    (4,487 )     (18,574 )
Net (increase) decrease in brokerage customer receivables
    (3,420 )     200  
Gain on mortgage loans sold
    (23,984 )     (28,521 )
(Gain) loss on available-for-sale securities, net
    (438 )     498  
Gain on bargain purchases
    (37,388 )      
Loss on sales of premises and equipment, net
    8       27  
Decrease in accrued interest receivable and other assets, net
    97,626       6,372  
Decrease in accrued interest payable and other liabilities, net
    (14,350 )     (7,597 )
 
Net Cash Provided by (Used for) Operating Activities
    188,380       (715,340 )
 
 
               
Investing Activities:
               
Proceeds from maturities of available-for-sale securities
    675,419       975,126  
Proceeds from sales of available-for-sale securities
    270,654       1,071,192  
Purchases of available-for-sale securities
    (1,148,417 )     (1,760,047 )
Net cash received for FDIC-assisted acquisitions
    133,952        
Net decrease (increase) in interest-bearing deposits with banks
    36,909       (532,750 )
Net increase in loans
    (421,140 )     (18,092 )
Purchases of premises and equipment, net
    (5,067 )     (9,272 )
 
Net Cash Used for Investing Activities
    (457,690 )     (273,843 )
 
 
               
Financing Activities:
               
Increase in deposit accounts
    137,276       814,576  
Decrease in other borrowings, net
    (29,013 )     (92,478 )
Decrease in Federal Home Loan Bank advances, net
    (43,069 )      
Issuance of common stock, net of issuance costs
    210,417        
Repayment of subordinated note
    (5,000 )     (5,000 )
Excess tax benefits from stock-based compensation arrangements
    760       84  
Issuance of common shares resulting from exercise of stock options, employee stock purchase plan and conversion of common stock warrants
    2,242       1,307  
Common stock repurchases
    (102 )     (12 )
Dividends paid
    (10,441 )     (11,366 )
 
Net Cash Provided by Financing Activities
    263,070       707,111  
 
Net Decrease in Cash and Cash Equivalents
    (6,240 )     (282,072 )
Cash and Cash Equivalents at Beginning of Period
    158,616       445,904  
 
Cash and Cash Equivalents at End of Period
  $ 152,376     $ 163,832  
 
See accompanying notes to unaudited consolidated financial statements.

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WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The consolidated financial statements of Wintrust Financial Corporation and Subsidiaries (“Wintrust” or “the Company”) presented herein are unaudited, but in the opinion of management reflect all necessary adjustments of a normal or recurring nature for a fair presentation of results as of the dates and for the periods covered by the consolidated financial statements.
The accompanying consolidated financial statements are unaudited and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations or cash flows in accordance with U.S. generally accepted accounting principles. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report and Form 10-K for the year ended December 31, 2009 (“2009 Form 10-K”). Operating results reported for the three-month and year-to-date periods are not necessarily indicative of the results which may be expected for the entire year. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.
The preparation of the financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities. Management believes that the estimates made are reasonable, however, changes in estimates may be required if economic or other conditions develop differently from management’s expectations. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses and the allowance for losses on lending-related commitments, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Descriptions of our significant accounting policies are included in Note 1 (Summary of Significant Accounting Policies) of the Company’s 2009 Form 10-K.
(2) Recent Accounting Developments
Accounting for Transfers of Financial Assets and Variable Interest Entities
In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-16, “Transfers and Servicing (Topic 860) — Accounting for Transfers of Financial Assets,” amending ASU No. 2009-01 (formerly FASB No. 168) “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“The Codification”) for the issuance of FASB No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140” and ASU No. 2009-17, “Consolidation (Topic 810) — Improvements to Financial Reporting for Enterprises Involved with Variable Interest Entities,” amending the Codification to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This guidance became effective for the Company on January 1, 2010.
ASU No. 2009-16 removed the concept of a qualifying special-purpose entity, changed the requirements for derecognizing financial assets and requires additional disclosures about a transferor’s continuing involvement in transferred financial assets. As a result of this amendment, the Company’s securitization transaction is accounted for as a secured borrowing rather than a sale and the Company’s securitization entity (FIFC Premium Funding, LLC) is no longer exempt from consolidation.
ASU No. 2009-17 requires an ongoing assessment of the Company’s involvement in the activities of Variable Interest Entities (“VIE’s”) and the Company’s rights or obligations to receive benefits or absorb losses that could be potentially significant in order to determine whether those VIE’s will be required to be consolidated in the Company’s financial statements. In accordance with this amendment, the Company concluded that it is the primary beneficiary of the Company’s securitization entity and began consolidating this entity on January 1, 2010. The impact of consolidating the Company’s securitization entity on January 1, 2010 resulted in a $587.1 million net increase in total assets, a $588.4 million net increase in total liabilities and a $1.3 million net decrease in stockholder’s equity (comprised of a $1.1 million decrease in retained earnings and a $200,000 decrease in accumulated other comprehensive income).
The assets of the consolidated securitization entity includes interest bearing deposits and premium finance receivables-commercial, which are restricted to settle the obligations of the securitization entity. Liabilities of the securitization entity include secured borrowings for which creditors or beneficial interest holders do not have recourse to the general credit of the Company.

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The Company’s statement of income beginning with the three months ended March 31, 2010 no longer reflects securitization income, but instead reports interest income, net charge-offs and certain other income associated with the securitized loan receivables in the same line items in the Company’s statement of income as non-securitized premium finance receivables-commercial. Additionally, the Company no longer records initial gains on new securitization activity since the transferred loans no longer receive sale accounting treatment. Also, there are no gains or losses recorded on the revaluation of the interest-only strip receivable as that asset is not recognizable in a transaction accounted for as a secured borrowing.
The Company’s financial statements have not been retrospectively adjusted to reflect the adjustments to Accounting Standards Codification (“ASC”) 860. Therefore, current period results and balances may not be comparable to prior period amounts.
Subsequent Events
In February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” which amends certain provisions of the current guidance, including the elimination of the requirement for disclosure of the date through which an evaluation of subsequent events was performed in issued and revised financial statements. This guidance was effective for interim and annual financial periods ending after February 24, 2010, and has been applied with no material impact on the Company’s financial statements.
Disclosures about Fair Value of Financial Instruments
In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which amends the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons for and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance became effective for the Company with the reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for the Company with the reporting period beginning January 1, 2011. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on our consolidated financial statements. See Note 15 — Fair Value of Assets and Liabilities.
Credit Quality Disclosures of Financing Receivables and Allowance for Credit Losses
In July 2010, the FASB issued ASU No. 2010-20, “Fair Value Measurements and Disclosures (Topic 820): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which requires more information in disclosures related to the credit quality of their financing receivables and the credit reserves held against them. The new guidance requires the Company to provide a greater level of disaggregated information about the credit quality of the Company’s loans and the allowance for loan losses as well as to disclose additional information related to credit quality indicators, past due information, and information related to loans modified in a troubled debt restructuring. The provisions of this ASU are effective for the Company’s reporting period ending on or after December 15, 2010. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.
(3) Business Combinations
On April 23, 2010, the Company acquired the banking operations of two entities in FDIC assisted transactions. Northbrook Bank & Trust Company (“Northbrook”) acquired assets with a fair value of approximately $157 million and assumed liabilities with a fair value of approximately $192 million of Lincoln Park Savings Bank (“Lincoln Park”). Wheaton Bank & Trust Company acquired assets with a fair value of approximately $344 million and assumed liabilities with a fair value of approximately $416 million of Wheatland Bank (“Wheatland”). Loans comprise the majority of the assets acquired in these transactions and are subject to loss sharing agreements with the FDIC whereby the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, other real estate owned (“OREO”), and certain other assets. The Company refers to the loans subject to these loss-sharing agreements as “covered loans.” Covered assets include covered loans, covered OREO and certain other covered assets. At the acquisition date, the Company estimated the fair value of the reimbursable losses to be approximately $113.8 million. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses. The loans covered by the loss sharing agreements are classified and presented as covered loans and the estimated reimbursable losses are recorded as FDIC indemnification asset, both in the Consolidated Statements of Condition. The Company recorded the acquired assets and liabilities at their estimated fair values at the acquisition date. The fair value for loans reflected expected credit losses at the acquisition date, therefore the Company will only recognize a provision for credit losses and charge-offs on the acquired loans for any further credit deterioration. These transactions resulted in a bargain purchase gain of $26.5 million, $22.3 million for Wheatland and $4.2 million for Lincoln Park, and are shown as a component of non-interest income on the Company’s Consolidated Statement of Income.

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On July 28, 2009, FIFC, a wholly-owned subsidiary of the Company, purchased the majority of the U.S. life insurance premium finance assets of A.I. Credit Corp. and A.I. Credit Consumer Discount Company (“the sellers”), subsidiaries of American International Group, Inc. After giving effect to post-closing adjustments, an aggregate unpaid loan balance of $949.3 million was purchased for $685.3 million in cash. At closing, a portion of the portfolio, with an aggregate unpaid loan balance of $321.1 million, and a corresponding portion of the purchase price of $232.8 million were placed in escrow, pending the receipt of required third party consents. During the first quarter of 2010, based upon receipt of consents, the escrow was terminated and remaining funds released to the sellers and FIFC.
Also, as a part of the purchase, $84.4 million of additional life insurance premium finance assets were available for future purchase by FIFC subject to the satisfaction of certain conditions. On October 2, 2009, the conditions were satisfied in relation to the majority of the additional life insurance premium finance assets and FIFC purchased $83.4 million of the $84.4 million of life insurance premium finance assets available for an aggregate purchase price of $60.5 million in cash.
Both life insurance premium finance asset purchases were accounted for as a single business combination under the acquisition method of accounting as required by applicable accounting guidance. Accordingly, the impact related to this transaction is included in the Company’s financial statements only since the effective date of acquisition. The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. Under ASC 805, “Business Combinations” (ASC 805), a gain is recorded equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities assumed and consideration paid. As such, the Company recognized a $10.9 million bargain purchase gain in the first quarter of 2010, a $43.0 million bargain purchase gain in the fourth quarter of 2009 and a $113.1 million bargain purchase gain in the third quarter of 2009, relating to the loans acquired for which all contingencies were removed. As of March 31, 2010, the full amount of the bargain purchase gain had been recognized into income. This gain is shown as a component of non-interest income on the Company’s Consolidated Statement of Income.
The following table summarizes the fair value of assets acquired and the resulting bargain purchase gain at the date of acquisition:
         
(Dollars in thousands)        
 
Assets:
       
Loans
  $ 910,873  
Customer list intangible
    1,800  
Other assets
    150  
 
     
Total assets
    912,823  
 
     
 
       
Cash Paid
    745,916  
 
     
 
       
Total bargain purchase gain recognized
  $ 166,907  
 
     
Calculation of the Fair Value of Loans Acquired — Life Insurance Premium Finance Assets
The Company determined the fair value of the loans acquired with the assistance of an independent third party valuation firm which utilized a discounted cash flow analysis to estimate the fair value of the loan portfolio. Primary factors impacting the estimated cash flows in the valuation model were certain income and expense items and changes in the estimated future balances of loans. The significant assumptions used in calculating the fair value of the loans acquired included estimating interest income, loan losses, servicing costs, costs of funding, and life of the loans.
Interest income on variable rate loans within the loan portfolio was determined based on the weighted average interest rate spread plus the contractual Libor rate. Interest income on fixed rate loans was based on the actual weighted average interest rate of the fixed rate loan portfolio.
Loan losses were estimated by first estimating the loan losses which would result from default by either the insurance carrier or the insured and, second, estimating the probability of default for both the insurance carrier and the insured.
Estimated losses upon default by the insurance carrier were estimated by assigning realization rates to each type of collateral underlying the loan portfolio. Realization rates on collateral after default by the insurance carrier were estimated for each type of collateral. Unsecured portions of the collateral were also assigned a loss rate.
Estimated losses upon default by the insured were similar to the estimated loss rates calculated upon default by the insurance carrier.

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The probability of default of the insurance carrier was determined by assigning each insurance carrier holding collateral underlying the portfolio a default rate from a national rating agency and a study of historical cumulative default rates prepared by such agency.
The probability of default by individuals was estimated based upon consideration of the financial and demographic characteristics of the insured and the economic uncertainty present at the valuation date.
The estimated life of the loans was based on expected required fundings of life insurance premiums and the expected life of the insured based on the age of the insured and survival curves.
Loans with evidence of credit quality deterioration since origination
For the Lincoln Park, Wheatland and life insurance premium finance receivable acquisitions, the difference between the fair value of the loans acquired and the outstanding principal balance of these loans at the date of purchase is comprised of two components, an accretable component and a non-accretable component. The accretable component is being recognized into interest income using the effective yield method over the estimated remaining life of the loans. The non-accretable portion will be evaluated each quarter and if the loans’ credit related conditions improve, a portion will be transferred to the accretable component and accreted over future periods. In the event a specific loan prepays in whole, any remaining accretable and non-accretable discount is recognized in income immediately. If credit related conditions deteriorate, an allowance related to these loans will be established as part of the provision for credit losses. See Note 6 — Loans, for more information on loans acquired with evidence of credit quality deterioration since origination.
(4) Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company considers cash and cash equivalents to include cash on hand, cash items in the process of collection, non-interest bearing amounts due from correspondent banks, federal funds sold and securities purchased under resale agreements with original maturities of three months or less.

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(5) Available-for-sale Securities
The following tables are a summary of the available-for-sale securities portfolio as of the dates shown:
                                 
    June 30, 2010  
            Gross     Gross        
    Amortized     unrealized     unrealized     Fair  
(Dollars in thousands)   cost     gains     losses     value  
U.S. Treasury
  $ 120,738     $     $ (3,725 )   $ 117,013  
U.S. Government agencies
    793,610       3,434       (107 )     796,937  
Municipal
    50,289       1,656       (53 )     51,892  
Corporate notes and other:
                               
Financial issuers (1)
    49,291       2,356       (1,522 )     50,125  
Other
    24,727       162       (19 )     24,870  
Mortgage-backed: (2)
                               
Agency
    180,554       14,152             194,706  
Non-agency CMOs
    92,722       5,915             98,637  
Non-agency CMOs — Alt A
    46,265       1,942             48,207  
Other equity securities
    35,612       36             35,648  
 
                       
Total available-for-sale securities
  $ 1,393,808     $ 29,653     $ (5,426 )   $ 1,418,035  
 
                       
                                 
    December 31, 2009  
            Gross     Gross        
    Amortized     unrealized     unrealized     Fair  
(Dollars in thousands)   cost     gains     losses     value  
U.S. Treasury
  $ 121,310     $     $ (10,494 )   $ 110,816  
U.S. Government agencies
    579,249       550       (3,623 )     576,176  
Municipal
    63,344       2,195       (203 )     65,336  
Corporate notes and other debt
                               
Financial issuers (1)
    42,241       1,518       (2,013 )     41,746  
Retained subordinated securities
    47,448       254             47,702  
Other
                       
Mortgage-backed (2)
                               
Agency
    205,257       11,287             216,544  
Non-agency CMOs
    102,045       6,133       (194 )     107,984  
Non-agency CMOs — Alt A
    51,306       1,025       (1,553 )     50,778  
Other equity securities
    37,969       15             37,984  
 
                       
Total available-for-sale securities
  $ 1,250,169     $ 22,977     $ (18,080 )   $ 1,255,066  
 
                       
 
(1)   To the extent investments in trust-preferred securities are included, they are direct issues and do not include pooled trust-preferred securities.
 
(2)   Consisting entirely of residential mortgage-backed securities, none of which are subprime.

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The following tables present the portion of the Company’s available-for-sale securities portfolio which has gross unrealized losses, reflecting the length of time that individual securities have been in a continuous unrealized loss position at June 30, 2010:
                                                 
    Continuous unrealized   Continuous unrealized    
    losses existing for   losses existing for    
    less than 12 months   greater than 12 months   Total
    Fair   Unrealized   Fair   Unrealized   Fair   Unrealized
(Dollars in thousands)   value   losses   value   losses   value   losses
             
U.S. Treasury
  $             117,013       (3,725 )     117,013       (3,725 )
U.S. Government agencies
    94,844       (107 )                 94,844       (107 )
Municipal
    1,068       (4 )     2,030       (49 )     3,098       (53 )
Corporate notes and other:
                                               
Financial issuers
    9,001       (110 )     4,528       (1,412 )     13,529       (1,522 )
Other
    10,673       (19 )                 10,673       (19 )
             
Total
  $ 115,586       (240 )     123,571       (5,186 )     239,157       (5,426 )
             
The Company conducts a regular assessment of its investment securities to determine whether securities are other-than-temporarily impaired considering, among other factors, the nature of the securities, credit ratings or financial condition of the issuer, the extent and duration of the unrealized loss, expected cash flows, market conditions and the Company’s ability to hold the securities through the anticipated recovery period.
The Company does not consider securities with unrealized losses at June 30, 2010 to be other-than-temporarily impaired. The Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost bases, which may be the maturity dates of the securities. The unrealized losses within each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. Securities with continuous unrealized losses existing for more than twelve months were primarily U.S. Treasury securities and corporate securities of financial issuers. The corporate securities of financial issuers in this category were comprised of three trust-preferred securities with high investment grades. These obligations have interest rates significantly below the rates at which these types of obligations are currently issued, and have maturity dates in 2027. Although they are currently callable by the issuers, it is unlikely that they will be called in the near future as the interest rates are very attractive to the issuers. A review of the issuers indicated that they have recently raised equity capital and/or have strong capital ratios. The Company does not own any pooled trust-preferred securities.
Effective April 1, 2009, the Company adopted new guidance for the measurement and recognition of other than temporary impairment for debt securities, which is now part of ASC 320 “Investments — Debt and Equity Securities” (“ASC 320”). The new guidance provides that if an entity does not intend to sell, and it is more likely than not that the entity will not be required to sell a debt security before recovery of its cost basis, impairment should be separated into (a) the amount representing credit loss and (b) the amount related to all other factors. The amount of impairment related to credit loss is recognized in earnings and the impairment related to other factors is recognized in other comprehensive income (loss). To determine the amount related to credit loss, the Company applies a method similar to that described by ASC 310, using a single best estimate of expected cash flows. The Company’s adoption of this guidance for the measurement and changes in the amount of credit losses recognized in net income on these corporate debt securities are summarized as follows (in thousands):
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2010     2009     2010     2009  
Balance at beginning of period (1)
  $ (472 )   $ (6,181 )   $ (472 )   $ (6,181 )
Credit losses recognized
                       
Reductions for securities sold during the period
          1,986             1,986  
 
                       
Balance at end of period
  $ (472 )   $ (4,195 )   $ (472 )   $ (4,195 )
 
                       
 
(1)   For the six months ended June 30, 2009, the balance at beginning of period is as of April 1, 2009.

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The following table provides information as to the amount of gross gains and gross losses realized and proceeds received through the sales of available-for-sale investment securities (in thousands):
                                 
    Three Months Ended June 30   Six Months Ended June 30
    2010   2009   2010   2009
         
Realized gains
  $ 46       1,703     $ 549       1,815  
Realized losses
          (163 )     (111 )     (178 )
         
Net realized gains
  $ 46       1,540     $ 438       1,637  
Other than temporary impairment charges
                      2,135  
         
Gains (losses) on available-for-sale securities, net
  $ 46       1,540     $ 438       (498 )
         
Proceeds from sales of available-for-sale securities
  $ 86,139       78,794     $ 270,654       1,071,192  
         
The amortized cost and fair value of securities as of June 30, 2010 and December 31, 2009, by contractual maturity, are shown in the following table. Contractual maturities may differ from actual maturities as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. Mortgage-backed securities are not included in the maturity categories in the following maturity summary as actual maturities may differ from contractual maturities because the underlying mortgages may be called or prepaid without penalties (in thousands):
                                 
    June 30, 2010   December 31, 2009
    Amortized   Fair   Amortized   Fair
    cost   value   cost   value
     
Due in one year or less
  $ 326,413       326,588       111,380       111,860  
Due in one to five years
    349,038       350,208       221,294       222,152  
Due in five to ten years
    181,941       179,412       328,914       318,796  
Due after ten years
    181,263       184,629       192,004       188,968  
Mortgage-backed
    319,541       341,550       358,608       375,306  
Other equity
    35,612       35,648       37,969       37,984  
     
Total available-for-sale securities
  $ 1,393,808       1,418,035       1,250,169       1,255,066  
     
At June 30, 2010 and December 31, 2009, securities having a carrying value of $890 million and $865 million, respectively, which include securities traded but not yet settled, were pledged as collateral for public deposits, trust deposits, FHLB advances, securities sold under repurchase agreements and derivatives. At June 30, 2010, there were no securities of a single issuer, other than U.S. Government-sponsored agency securities, which exceeded 10% of shareholders’ equity.

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(6) Loans
The following table shows the Company’s loan portfolio by category as of June 30, 2010, December 31, 2009 and June 30, 2009:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2010     2009     2009  
Balance:
                       
Commercial
  $ 1,827,618     $ 1,743,208     $ 1,680,993  
Commercial real estate
    3,347,823       3,296,698       3,402,924  
Home equity
    922,305       930,482       912,399  
Residential real estate
    332,673       306,296       279,345  
Premium finance receivables — commercial
    1,346,985       730,144       888,115  
Premium finance receivables — life insurance
    1,378,657       1,197,893       182,399  
Indirect consumer loans
    69,011       98,134       133,808  
Other loans
    99,091       108,916       115,493  
 
                 
Total loans, net of unearned income, excluding covered loans
  $ 9,324,163     $ 8,411,771     $ 7,595,476  
 
                 
Covered loans
    275,563              
 
                 
 
                       
Total loans
  $ 9,599,726     $ 8,411,771     $ 7,595,476  
 
                 
 
                       
Mix:
                       
Commercial
    19 %     21 %     22 %
Commercial real estate
    35       39       45  
Home equity
    10       11       12  
Residential real estate
    3       4       3  
Premium finance receivables — commercial
    14       9       12  
Premium finance receivables — life insurance
    14       14       2  
Indirect consumer loans
    1       1       2  
Other loans
    1       1       2  
 
                 
Total loans, net of unearned income, excluding covered loans
    97 %     100 %     100 %
Covered loans
    3              
 
                 
Total loans
    100 %     100 %     100 %
 
                 
Certain premium finance receivables are recorded net of unearned income. The unearned income portions of such premium finance receivables were $36.9 million at June 30, 2010, $31.8 million at December 31, 2009 and $30.7 million at June 30, 2009. Certain life insurance premium finance receivables attributable to the life insurance premium finance loan acquisition in the third and fourth quarters of 2009 as well as the covered loans acquired in the Lincoln Park and Wheatland FDIC-assisted acquisitions in the second quarter of 2010 are recorded net of credit discounts. See “Acquired Loan Information at Acquisition”, below. The $616.8 million increase in commercial premium finance receivables at June 30, 2010 compared to December 31, 2009 is primarily due to the third quarter 2009 securitization transaction that is now accounted for as a secured borrowing.
Indirect consumer loans include auto, boat and other indirect consumer loans. Total loans, excluding loans acquired with evidence of credit quality deterioration since origination, include net deferred loan fees and costs and fair value purchase accounting adjustments totaling $11.7 million at June 30, 2010, $10.7 million at December 31, 2009 and $10.5 million at June 30, 2009.
The Company’s loan portfolio is generally comprised of loans to consumers and small to medium-sized businesses located within the geographic market areas that the Banks serve. The premium finance receivables portfolios are made to customers on a national basis and the majority of the indirect consumer loans were generated through a network of local automobile dealers. As a result, the Company strives to maintain a loan portfolio that is diverse in terms of loan type, industry, borrower and geographic concentrations. Such diversification reduces the exposure to economic downturns that may occur in different segments of the economy or in different industries.
It is the policy of the Company to review each prospective credit in order to determine the appropriateness and, when required, the adequacy of security or collateral necessary to obtain when making a loan. The type of collateral, when required, will vary from liquid assets to real estate. The Company seeks to ensure access to collateral, in the event of default, through adherence to state lending laws and the Company’s credit monitoring procedures.

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Acquired Loan Information at Acquisition — Loans with evidence of credit quality deterioration since origination
As part of our acquisition of a portfolio of life insurance premium finance loans in 2009 as well as the Lincoln Park and Wheatland bank acquisitions, we acquired loans for which there was evidence of credit quality deterioration since origination and we determined that it was probable that the Company would be unable to collect all contractually required principal and interest payments. The portfolio of life insurance premium finance loans had an unpaid principal balance of $1.0 billion and a carrying value of $896.3 million at acquisition. At June 30, 2010, the unpaid principal balance and carrying value of these loans were $930.9 million and $850.9 million, respectively. The portfolio of loans acquired from the Lincoln Park acquisition had an unpaid principal balance of $138.7 million and a carrying value of $105.1 million at acquisition. At June 30, 2010, the unpaid principal balance and carrying value of these loans totaled $135.5 million and $102.1 million, respectively. The portfolio of loans acquired from the Wheatland acquisition had an unpaid principal balance of $284.2 million and a carrying value of $175.1 million at acquisition. At June 30, 2010, the unpaid principal balance and carrying value of these loans totaled $282.4 million and $173.4 million, respectively.
The following table provides details on these loans at each acquisition:
                         
                    Life Insurance  
                    Premium  
(Dollars in thousands)   Wheatland     Lincoln Park     Finance Loans  
 
Contractually required payments including interest
  $ 307,103     $ 165,284     $ 1,032,714  
Less: Nonaccretable difference
    118,660       36,304       41,281  
 
                 
Cash flows expected to be collected (1)
    188,443       128,980       991,433  
Less: Accretable yield
    13,296       23,980       80,560  
 
                 
Fair value of loans acquired with evidence of credit quality deterioration since origination
  $ 175,147     $ 105,000     $ 910,873  
 
                 
 
(1)   Represents undiscounted expected principal and interest cash flows at acquisition.
There was no allowance for loan losses associated with this portfolio of loans at June 30, 2010 compared to an allowance of $615,000 at December 31, 2009. The allowance in prior periods represented deterioration to the portfolio subsequent to acquisition.
Accretable Yield Activity
The following table provides activity for the accretable yield of these loans:
                                                 
    Three Months Ended     Six Months Ended  
    June 30, 2010     June 30, 2010  
                    Life Insurance                     Life Insurance  
                    Premium                     Premium  
(Dollars in thousands)   Wheatland     Lincoln Park     Finance Loans     Wheatland     Lincoln Park     Finance Loans  
     
Accretable yield, beginning balance
  $     $     $ 58,037     $     $     $ 65,026  
Acquisitions
    13,296       23,980             13,296       23,980        
Accretable yield amortized to interest income
    (1,469 )     (1,213 )     (11,661 )     (1,469 )     (1,213 )     (20,795 )
Reclassification from the non-accretable difference (1)
                5,403                   7,692  
Reclassification to the non-accretable difference (2)
                                  (144 )
 
                                   
Accretable yield, ending balance
  $ 11,827     $ 22,767     $ 51,779     $ 11,827     $ 22,767     $ 51,779  
 
                                   
 
(1)   Reclassification from non-accretable difference represents an increase to the estimated cash flows to be collected on the underlying portfolio.
 
(2)   Reclassification to the non-accretable difference represents a decrease to the estimated cash flows to be collected on the underlying portfolio.

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(7) Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans
The following table presents a summary of the activity in the allowance for credit losses for the periods presented:
                                 
    Three Months Ended     Six Months Ended
    June 30,     June 30,
(Dollars in thousands)   2010     2009     2010     2009  
 
Allowance for loan losses at beginning of period
  $ 102,397     $ 74,248     $ 98,277     $ 69,767  
Provision for credit losses
    41,297       23,663       70,342       38,136  
Other adjustments — allowance for loan losses related to consolidation of securitization entity
                1,943        
Reclassification to allowance for losses on lending-related commitments
    785             684        
Charge-offs
    (38,603 )     (13,144 )     (66,594 )     (23,530 )
Recoveries
    671       346       1,895       740  
 
                       
Net charge-offs, excluding covered loans
  $ (37,932 )   $ (12,798 )   $ (64,699 )   $ (22,790 )
Covered loans
                       
 
                       
Total net charge-offs
    (37,932 )     (12,798 )     (64,699 )     (22,790 )
 
                       
Allowance for loan losses at period end
  $ 106,547     $ 85,113     $ 106,547     $ 85,113  
Allowance for losses on lending-related commitments at period end
    2,169       1,586       2,169       1,586  
 
                       
Allowance for credit losses at period end
  $ 108,716     $ 86,699     $ 108,716     $ 86,699  
 
                       
A summary of non-accrual, impaired loans and loans past due greater than 90 days and still accruing interest are as follows:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2010     2009     2009  
Non-performing loans:
                       
Loans past due greater than 90 days and still accruing interest
  $ 11,202     $ 7,800     $ 24,303  
Non-accrual loans
    124,199       124,004       213,916  
 
                 
Total non-performing loans, excluding covered loans
  $ 135,401     $ 131,804     $ 238,219  
Covered loans
    104,608              
 
                 
Total non-performing loans
  $ 240,009     $ 131,804     $ 238,219  
 
                 
 
                       
Impaired loans (included in Non-performing and restructured loans):
                       
Impaired loans with an allowance for loan loss required (1)
  $ 85,074     $ 58,222     $ 131,208  
Impaired loans with no allowance for loan loss required
    88,723       82,250       64,677  
 
                 
Total impaired loans (included in Non-performing and restructured loans)
  $ 173,797     $ 140,472     $ 195,885  
 
                 
 
                       
Allowance for loan losses related to impaired loans
  $ 21,819     $ 17,567     $ 33,741  
 
                 
Restructured loans
  $ 64,683     $ 32,432     $  
 
                 
 
(1)   These impaired loans require an allowance for loan losses because the estimated fair value of the loans or related collateral is less than the recorded investment in the loans.
The average recorded investment in impaired loans was $78.4 million and $132.8 million for the six months ended June 30, 2010 and 2009, respectively.

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(8) Loan Securitization
During the third quarter of 2009, the Company entered into an off-balance sheet revolving period securitization transaction sponsored by FIFC. In connection with the securitization, premium finance receivables — commercial were transferred to FIFC Premium Funding, LLC (the “securitization entity”). Provided that certain coverage test criteria continue to be met, principal collections on loans in the securitization entity are used to subsequently acquire and transfer additional loans into the securitization entity during the stated revolving period. Additionally, upon the occurrence of certain events established in the representations and warranties, FIFC may be required to repurchase ineligible loans that were transferred to the entity. The Company’s primary continuing involvement includes servicing the loans, retaining an undivided interest (the “seller’s interest”) in the loans, and holding certain retained interests.
Instruments issued by the securitization entity included $600 million Class A notes that bear an annual interest rate of one-month LIBOR plus 1.45% (the “Notes”) and have an expected average term of 2.93 years with any unpaid balance due and payable in full on February 17, 2014. At the time of issuance, the Notes were eligible collateral under the Federal Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility (“TALF”). Class B and Class C notes (“Subordinated securities”), which are recorded in the form of zero coupon bonds, were also issued and were retained by the Company.
Subsequent to December 31, 2009, this securitization transaction is accounted for as a secured borrowing and the securitization entity is treated as a consolidated subsidiary of the Company under ASC 810 and ASC 860. See Note 2 to the Consolidated Financial Statements for a discussion of changes to the accounting for transfers and servicing of financial assets and consolidation of variable interest entities, including the elimination of qualifying SPEs. Accordingly, beginning on January 1, 2010, all of the assets and liabilities of the securitization entity are included directly on the Company’s Consolidated Statement of Condition. The securitization entity’s receivables underlying third-party investors’ interests are recorded in loans, net of unearned income, excluding covered loans, an allowance for loan losses was established and the related debt issued is reported in secured borrowings—owed to securitization investors. Additionally, beginning on January 1, 2010, certain other of the Company’s retained interests in the transaction, principally consisting of subordinated securities, cash collateral, and overcollateralization of loans, now constitute intercompany positions, which are eliminated in the preparation of the Company’s Consolidated Statement of Condition.
Upon transfer of premium finance receivables — commercial to the securitization entity, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the securitization entity’s creditors. The securitization entity has ownership of interest-bearing deposit balances that also have restrictions, the amounts of which are reported in interest-bearing deposits with other banks. Investment of the interest-bearing deposit balances is limited to investments that are permitted under the governing documents of the transaction. With the exception of the seller’s interest in the transferred receivables, the Company’s interests in the securitization entity’s assets are generally subordinate to the interests of third-party investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the securitization entity’s debt.
The carrying values and classification of the restricted assets and liabilities relating to the securitization activities are shown in the table below.
         
    June 30,  
(Dollars in thousands)   2010  
Cash collateral accounts
  $ 1,759  
Collections and interest funding accounts
    81,742  
 
     
Interest-bearing deposits with banks — restricted for securitization investors
    83,501  
Loans, net of unearned income — restricted for securitization investors
    600,834  
Allowance for loan losses
    (1,977 )
 
     
Net loans — restricted for securitization investors
    598,857  
Other assets
    1,949  
 
     
Total assets
  $ 684,307  
 
     
 
       
Secured borrowings — owed to securitization investors
  $ 600,000  
Other liabilities
    3,914  
 
     
Total liabilities
  $ 603,914  
 
     
The assets of the consolidated securitization entity are subject to credit, payment and interest rate risks on the transferred premium finance receivables — commercial. To protect investors, the securitization structure includes certain features that could result in earlier-than-expected repayment of the securities. Investors are allocated cash flows derived from activities related to the accounts comprising the securitized pool of receivables, the amounts of which reflect finance charges collected net of agent fees, certain fee assessments, and recoveries on charged-off accounts. From these cash flows, investors are reimbursed for charge-offs occurring within the

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securitized pool of receivables and receive the contractual rate of return and FIFC is paid a servicing fee as servicer. Any cash flows remaining in excess of these requirements are reported to investors as net yield and remitted to the Company. A net yield rate of less than 0% for a three month period would trigger an economic early amortization event. In addition to this performance measurement associated with the transferred loans, there are additional performance measurements and other events or conditions which could trigger an early amortization event. As of June 30, 2010, no economic or other early amortization events have occurred. Apart from the restricted assets related to securitization activities, the investors and the securitization entity have no recourse to the Company’s other assets or credit for a shortage in cash flows.
The Company continues to service the loan receivables held by the securitization entity. FIFC receives a monthly servicing fee from the securitization entity based on a percentage of the monthly investor principal balance outstanding. Although the fee income to FIFC offsets the fee expense to the securitization entity and thus is eliminated in consolidation, failure to service the transferred loan receivables in accordance with contractual requirements could lead to a termination of the servicing rights and the loss of future servicing income.
(9) Goodwill and Other Intangible Assets
A summary of the Company’s goodwill assets by business segment is presented in the following table:
                                 
    January 1,     Goodwill     Impairment     June 30,  
(Dollars in thousands)   2010     Acquired     Losses     2010  
Community banking
  $ 247,601     $     $     $ 247,601  
Specialty finance
    16,095                   16,095  
Wealth management
    14,329                   14,329  
 
                       
Total
  $ 278,025     $     $     $ 278,025  
 
                       
No adjustments were made to goodwill in the first six months of 2010. Pursuant to the acquisition of Professional Mortgage Partners (“PMP”) in December 2008, Wintrust may be required to pay contingent consideration to the former owner of PMP as a result of attaining certain performance measures through December 2011. Any contingent payments made pursuant to this transaction would be reflected as increases in the Community banking segment’s goodwill.
A summary of finite-lived intangible assets as of June 30, 2010, December 31, 2009 and June 30, 2009 and the expected amortization as of June 30, 2010 is as follows:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2010     2009     2009  
Customer list intangibles:
                       
Gross carrying amount
  $ 5,052     $ 5,052     $ 3,252  
Accumulated amortization
    (3,401 )     (3,307 )     (3,165 )
 
                 
Net carrying amount
    1,651       1,745       87  
 
                 
 
                       
Core deposit intangibles:
                       
Core deposit intangibles
                       
Gross carrying amount
    28,888       27,918       27,918  
Accumulated amortization
    (17,264 )     (16,039 )     (14,761 )
 
                 
Net carrying amount
    11,624       11,879       13,157  
 
                 
 
                       
Total other intangible assets, net
  $ 13,275     $ 13,624     $ 13,244  
 
                 
         
Estimated amortization        
 
Actual in six months ended June 30, 2010
  $ 1,319  
Estimated remaining in 2010
    1,369  
Estimated — 2011
    2,600  
Estimated — 2012
    2,552  
Estimated — 2013
    2,484  
Estimated — 2014
    2,158  

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The customer list intangibles recognized in connection with the purchase of U.S. life insurance premium finance assets in 2009 are being amortized over an 18-year period on an accelerated basis. The customer list intangibles recognized in connection with the acquisitions of Lake Forest Capital Management in 2003 and Wayne Hummer Asset Management Company in 2002, were being amortized over seven-year periods on an accelerated basis and were fully amortized in the first quarter of 2010 and first quarter of 2009, respectively.
The increase in core deposit intangibles from 2009 was related to the FDIC-assisted acquisitions of Lincoln Park and Wheatland during the second quarter of 2010. Core deposit intangibles recognized in connection with the Company’s bank acquisitions are being amortized over ten-year periods on an accelerated basis.
Total amortization expense associated with finite-lived intangibles totaled approximately $1.3 million and $1.4 million for the six months ended June 30, 2010 and 2009, respectively.
(10) Deposits
The following table is a summary of deposits as of the dates shown:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2010     2009     2009  
Balance:
                       
Non-interest bearing deposits
  $ 953,814     $ 864,306     $ 793,173  
NOW accounts
    1,560,733       1,415,856       1,072,255  
Wealth management deposits
    694,830       971,113       919,968  
Money market accounts
    1,722,729       1,534,632       1,379,164  
Savings accounts
    594,753       561,916       461,377  
Time certificates of deposit
    5,097,883       4,569,251       4,565,395  
 
                 
Total deposits
  $ 10,624,742     $ 9,917,074     $ 9,191,332  
 
                 
 
                       
Mix:
                       
Non-interest bearing deposits
    9 %     9 %     9 %
NOW accounts
    15       14       11  
Wealth management deposits
    6       10       10  
Money market accounts
    16       15       15  
Savings accounts
    6       6       5  
Time certificates of deposit
    48       46       50  
 
                 
Total deposits
    100 %     100 %     100 %
 
                 
Wealth management deposits represent deposit balances (primarily money market accounts) at the Company’s subsidiary banks from brokerage customers of Wayne Hummer Investments, trust and asset management customers of Wayne Hummer Trust Company and brokerage customers from unaffiliated companies.

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(11) Notes Payable, Federal Home Loan Bank Advances, Other Borrowings, Secured Borrowings and Subordinated Notes
The following table is a summary of notes payable, Federal Home Loan Bank advances, other borrowings, secured borrowings and subordinated notes as of the dates shown:
                         
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2010     2009     2009  
Notes payable
  $ 1,000     $ 1,000     $ 1,000  
Federal Home Loan Bank advances
    415,571       430,987       435,980  
 
                       
Other borrowings:
                       
Securities sold under repurchase agreements
    218,424       245,640       242,478  
Other
          1,797       1,808  
 
                 
Total other borrowings
    218,424       247,437       244,286  
 
                 
 
                       
Secured borrowings — owed to securitization investors
    600,000              
 
                       
Subordinated notes
    55,000       60,000       65,000  
 
                 
 
                       
Total notes payable, Federal Home Loan Bank advances, other borrowings, secured borrowings and subordinated notes
  $ 1,289,995     $ 739,424     $ 746,266  
 
                 
At June 30, 2010, the Company had notes payable with a $1.0 million outstanding balance, with an interest rate of 4.50%, under a $51.0 million loan agreement (“Agreement”) with unaffiliated banks. The Agreement consists of a $50.0 million revolving note, maturing on October 30, 2010, and a $1.0 million note maturing on June 1, 2015. At June 30, 2010, there was no outstanding balance on the $50.0 million revolving note. Borrowings under the Agreement that are considered “Base Rate Loans” will bear interest at a rate equal to the higher of (1) 450 basis points and (2) for the applicable period, the highest of (a) the federal funds rate plus 100 basis points, (b) the lender’s prime rate plus 50 basis points, and (c) the Eurodollar Rate (as defined below) that would be applicable for an interest period of one month plus 150 basis points. Borrowings under the Agreement that are considered “Eurodollar Rate Loans” will bear interest at a rate equal to the higher of (1) the British Bankers Association’s LIBOR rate for the applicable period plus 350 basis points (the “Eurodollar Rate”) and (2) 450 basis points.
Commencing August 2009, a commitment fee is payable quarterly equal to 0.50% of the actual daily amount by which the lenders’ commitment under the revolving note exceeds the amount outstanding under such facility.
The Agreement is secured by the stock of some of the banks and contains several restrictive covenants, including the maintenance of various capital adequacy levels, asset quality and profitability ratios, and certain restrictions on dividends and other indebtedness. At June 30, 2010, the Company was in compliance with all debt covenants. The Agreement is available to be utilized, as needed, to provide capital to fund continued growth at the Company’s banks and to serve as an interim source of funds for acquisitions, common stock repurchases or other general corporate purposes.
Federal Home Loan Bank advances consist of fixed rate obligations of the banks and are collateralized by qualifying residential real estate and home equity loans and certain securities. FHLB advances are stated at par value of the debt adjusted for unamortized fair value adjustments recorded in connection with advances acquired through acquisitions as well as unamortized prepayment fees recorded in connection with debt restructurings. In the second quarter of 2010, the Company restructured $146 million of FHLB advances, paying $6.8 million in prepayment fees, in order to achieve lower advance interest rates. In the first quarter of 2010, the Company restructured $38 million of FHLB advances, paying $1.8 million in prepayment fees. These prepayment fees are being amortized as an adjustment to interest expense using the effective interest method.
At June 30, 2010 securities sold under repurchase agreements represent $71.9 million of customer balances in sweep accounts in connection with master repurchase agreements at the banks and $146.6 million of short-term borrowings from brokers.
During the third quarter of 2009, the Company entered into an off-balance sheet securitization transaction sponsored by FIFC. In connection with the securitization, premium finance receivables - commercial were transferred to FIFC Premium Funding, LLC, a qualifying special purpose entity (the “QSPE”). The QSPE issued $600 million Class A notes that bear an annual interest rate of one-month LIBOR plus 1.45% (the “Notes”) and have an expected average term of 2.93 years with any unpaid balance due and payable in full on February 17, 2014. At the time of issuance, the Notes were eligible collateral under TALF. The disclosures contained in this paragraph supersede and replace the disclosures contained in (i) the second paragraph of Note 6, (“Loan Securitization—Servicing Portfolio”), in Item 8, Financial Statements, in the Company's Annual Report on Form 10-K for the year ended December 31, 2009 and (ii) the second to last paragraph of Note 11 (“Notes Payable, Federal Home Loan Bank Advances, Other Borrowings, Secured Borrowings and Subordinated Notes”), contained in Item 1, Financial Statements, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. The Company’s adoption of new accounting standards on January 1, 2010 resulted in the consolidation of the QSPE that was not previously recorded on the Company’s Consolidated Statement of Condition. See Note 2 — Recent Accounting Developments and Note 8 — Loan Securitization, for more information on the QSPE.

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The subordinated notes represent three notes, issued in October 2002, April 2003 and October 2005 (funded in May 2006). The balances of the notes as of June 30, 2010 were $15.0 million, $15.0 million and $25.0 million, respectively. Each subordinated note requires annual principal payments of $5.0 million beginning in the sixth year, with final maturities in the tenth year. The Company may redeem the subordinated notes at any time prior to maturity. Interest on each note is calculated at a rate equal to three-month LIBOR plus 130 basis points.
(12) Junior Subordinated Debentures
As of June 30, 2010, the Company owned 100% of the common securities of nine trusts, Wintrust Capital Trust III, Wintrust Statutory Trust IV, Wintrust Statutory Trust V, Wintrust Capital Trust VII, Wintrust Capital Trust VIII, Wintrust Capital Trust IX, Northview Capital Trust I, Town Bankshares Capital Trust I, and First Northwest Capital Trust I (the “Trusts”) set up to provide long-term financing. The Northview, Town and First Northwest capital trusts were acquired as part of the acquisitions of Northview Financial Corporation, Town Bankshares, Ltd., and First Northwest Bancorp, Inc., respectively. The Trusts were formed for purposes of issuing trust preferred securities to third-party investors and investing the proceeds from the issuance of the trust preferred securities and common securities solely in junior subordinated debentures issued by the Company (or assumed by the Company in connection with an acquisition), with the same maturities and interest rates as the trust preferred securities. The junior subordinated debentures are the sole assets of the Trusts. In each Trust, the common securities represent approximately 3% of the junior subordinated debentures and the trust preferred securities represent approximately 97% of the junior subordinated debentures.
The Trusts are reported in the Company’s consolidated financial statements as unconsolidated subsidiaries. Accordingly, in the Consolidated Statements of Condition, the junior subordinated debentures issued by the Company to the Trusts are reported as liabilities and the common securities of the Trusts, all of which are owned by the Company, are included in available-for-sale securities.
The following table provides a summary of the Company’s junior subordinated debentures as of June 30, 2010. The junior subordinated debentures represent the par value of the obligations owed to the Trusts.
                                                         
            Junior                                     Earliest  
    Trust Preferred     Subordinated     Rate     Rate at     Issue     Maturity     Redemption  
(Dollars in thousands)   Securities     Debentures     Structure     6/30/10     Date     Date     Date  
Wintrust Capital Trust III
  $ 25,000     $ 25,774       L+3.25       3.55 %     04/2003       04/2033       04/2008  
Wintrust Statutory Trust IV
    20,000       20,619       L+2.80       3.33 %     12/2003       12/2033       12/2008  
Wintrust Statutory Trust V
    40,000       41,238       L+2.60       3.13 %     05/2004       05/2034       06/2009  
Wintrust Capital Trust VII
    50,000       51,550       L+1.95       2.49 %     12/2004       03/2035       03/2010  
Wintrust Capital Trust VIII
    40,000       41,238       L+1.45       1.98 %     08/2005       09/2035       09/2010  
Wintrust Capital Trust IX
    50,000       51,547     Fixed     6.84 %     09/2006       09/2036       09/2011  
Northview Capital Trust I
    6,000       6,186       L+3.00       3.34 %     08/2003       11/2033       08/2008  
Town Bankshares Capital Trust I
    6,000       6,186       L+3.00       3.34 %     08/2003       11/2033       08/2008  
First Northwest Capital Trust I
    5,000       5,155       L+3.00       3.53 %     05/2004       05/2034       05/2009  
 
                                                   
Total
          $ 249,493               3.65 %                        
 
                                                   
The junior subordinated debentures totaled $249.5 million at June 30, 2010, December 31, 2009 and June 30, 2009.
The interest rates on the variable rate junior subordinated debentures are based on the three-month LIBOR rate and reset on a quarterly basis. The interest rate on the Wintrust Capital Trust IX junior subordinated debentures, currently fixed at 6.84%, changes to a variable rate equal to three-month LIBOR plus 1.63% effective September 15, 2011. At June 30, 2010, the weighted average contractual interest rate on the junior subordinated debentures was 3.65%. The Company entered into $175 million of interest rate swaps to hedge the variable cash flows on certain junior subordinated debentures. The hedge-adjusted rate on the junior subordinated debentures on June 30, 2010, was 7.00%. Distributions on the common and preferred securities issued by the Trusts are payable quarterly at a rate per annum equal to the interest rates being earned by the Trusts on the junior subordinated debentures. Interest expense on the junior subordinated debentures is deductible for income tax purposes.
The Company has guaranteed the payment of distributions and payments upon liquidation or redemption of the trust preferred securities, in each case to the extent of funds held by the Trusts. The Company and the Trusts believe that, taken together, the obligations of the Company under the guarantees, the junior subordinated debentures, and other related agreements provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a subordinated basis, of all of the obligations of the Trusts under the trust preferred securities. Subject to certain limitations, the Company has the right to defer the payment of interest on the junior subordinated debentures at any time, or from time to time, for a period not to exceed 20 consecutive quarters. The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at maturity or their earlier redemption. The junior subordinated debentures are redeemable in whole or in part prior to maturity at any time after the earliest redemption dates shown in the table, and earlier at the discretion of the Company if certain conditions are met, and, in any event, only after the Company has obtained Federal Reserve approval, if then required under applicable guidelines or regulations.

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The junior subordinated debentures, subject to certain limitations, qualify as Tier 1 capital of the Company for regulatory purposes. The amount of junior subordinated debentures and certain other capital elements in excess of those certain limitations could be included in Tier 2 capital, subject to restrictions. At June 30, 2010, all of the junior subordinated debentures, net of the Common Securities, were included in the Company’s Tier 1 regulatory capital.
(13) Segment Information
The Company’s operations consist of three primary segments: community banking, specialty finance and wealth management.
The three reportable segments are strategic business units that are separately managed as they offer different products and services and have different marketing strategies. In addition, each segment’s customer base has varying characteristics. The community banking segment has a different regulatory environment than the specialty finance and wealth management segments. While the Company’s management monitors each of the fifteen bank subsidiaries’ operations and profitability separately, as well as that of its mortgage company, these subsidiaries have been aggregated into one reportable operating segment due to the similarities in products and services, customer base, operations, profitability measures, and economic characteristics.
The net interest income, net revenue and segment profit of the community banking segment includes income and related interest costs from portfolio loans that were purchased from the specialty finance segment. For purposes of internal segment profitability analysis, management reviews the results of its specialty finance segment as if all loans originated and sold to the community banking segment were retained within that segment’s operations, thereby causing inter-segment eliminations. See Note 3 — Business Combinations, for more information on the life insurance premium finance loan acquisition in the third and fourth quarters of 2009. Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates a portion of the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. See Note 10 — Deposits, for more information on these deposits.
The segment financial information provided in the following tables has been derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. The accounting policies of the segments are generally the same as those described in the Summary of Significant Accounting Policies in Note 1. The Company evaluates segment performance based on after-tax profit or loss and other appropriate profitability measures common to each segment. Certain indirect expenses have been allocated based on actual volume measurements and other criteria, as appropriate. Intersegment revenue and transfers are generally accounted for at current market prices. The parent and intersegment eliminations reflect parent company information and intersegment eliminations. In the fourth quarter of 2009, the contribution attributable to the wealth management deposits was redefined to measure the value as an alternative source of funding for each bank. In previous periods, the contribution from these deposits was measured as the full net interest income contribution. The redefined measure better reflects the value of these deposits to the Company. Prior period information has been restated to reflect these changes.

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The following is a summary of certain operating information for reportable segments (in thousands):
                                 
    Three Months Ended              
    June 30,     $ Change in     % Change in  
(Dollars in thousands)   2010     2009     Contribution     Contribution  
Net interest income:
                               
Community banking
  $ 97,437     $ 69,653     $ 27,784       40 %
Specialty finance
    15,331       19,204       (3,873 )     (20 )
Wealth management
    2,437       4,530       (2,093 )     (46 )
Parent and inter-segment eliminations
    (10,891 )     (20,890 )     9,999       48  
 
                       
Total net interest income
  $ 104,314     $ 72,497     $ 31,817       44 %
 
                       
 
                               
Non-interest income:
                               
Community banking
  $ 41,618     $ 28,207     $ 13,411       48 %
Specialty finance
    707       650       57       9  
Wealth management
    11,069       9,553       1,516       16  
Parent and inter-segment eliminations
    (2,958 )     7,042       (10,000 )     (142 )
 
                       
Total non-interest income
  $ 50,436     $ 45,452     $ 4,984       11 %
 
                       
 
                               
Net Revenue (loss):
                               
Community banking
  $ 139,055     $ 97,860     $ 41,195       42 %
Specialty finance
    16,038       19,854       (3,816 )     (19 )
Wealth management
    13,506       14,083       (577 )     (4 )
Parent and inter-segment eliminations
    (13,849 )     (13,848 )     (1 )     0  
 
                       
Total net revenue
  $ 154,750     $ 117,949     $ 36,801       31 %
 
                       
 
                               
Segment profit (loss):
                               
Community banking
  $ 24,604     $ 4,696     $ 19,908       424 %
Specialty finance
    (143 )     8,080       (8,223 )     (102 )
Wealth management
    1,316       2,171       (855 )     (39 )
Parent and inter-segment eliminations
    (12,768 )     (8,398 )     (4,370 )     (52 )
 
                       
Total segment profit (loss)
  $ 13,009     $ 6,549     $ 6,460       99 %
 
                       
 
                               
Segment assets:
                               
Community banking
  $ 12,875,801     $ 11,214,377     $ 1,661,424       15 %
Specialty finance
    2,886,020       1,146,971       1,739,049       152  
Wealth management
    66,123       58,068       8,055       14  
Parent and inter-segment eliminations
    (2,119,384 )     (1,059,880 )     (1,059,504 )     (100 )
 
                       
Total segment assets
  $ 13,708,560     $ 11,359,536     $ 2,349,024       21 %
 
                       

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    Six Months Ended              
    June 30,     $ Change in     % Change in  
(Dollars in thousands)   2010     2009     Contribution     Contribution  
Net interest income:
                               
Community banking
  $ 185,461     $ 131,523     $ 53,938       41 %
Specialty finance
    29,663       38,219       (8,556 )     (22 )
Wealth management
    4,979       7,739       (2,760 )     (36 )
Parent and inter-segment eliminations
    (19,924 )     (40,202 )     20,278       50  
 
                       
Total net interest income
  $ 200,179     $ 137,279     $ 62,900       46 %
 
                       
 
                               
Non-interest income:
                               
Community banking
  $ 56,814     $ 51,683     $ 5,131       10 %
Specialty finance
    12,183       1,454       10,729       738  
Wealth management
    21,757       17,557       4,200       24  
Parent and inter-segment eliminations
    2,290       11,185       (8,895 )     (80 )
 
                       
Total non-interest income
  $ 93,044     $ 81,879     $ 11,165       14 %
 
                       
 
                               
Net Revenue (loss):
                               
Community banking
  $ 242,275     $ 183,206     $ 59,069       32 %
Specialty finance
    41,846       39,673       2,173       5  
Wealth management
    26,736       25,296       1,440       6  
Parent and inter-segment eliminations
    (17,634 )     (29,017 )     11,383       39  
 
                       
Total net revenue
  $ 293,223     $ 219,158     $ 74,065       34 %
 
                       
 
                               
Segment profit (loss):
                               
Community banking
  $ 30,627     $ 10,574     $ 20,053       190 %
Specialty finance
    8,897       16,285       (7,388 )     (45 )
Wealth management
    2,373       3,290       (917 )     (28 )
Parent and inter-segment eliminations
    (12,870 )     (17,242 )     4,372       25  
 
                       
Total segment profit (loss)
  $ 29,027     $ 12,907     $ 16,120       125 %
 
                       
(14) Derivative Financial Instruments
The Company enters into derivative financial instruments as part of its strategy to manage its exposure to changes in interest rates. Derivative instruments represent contracts between parties that result in one party delivering cash to the other party based on a notional amount and an underlying (such as a rate, security price or price index) as specified in the contract. The amount of cash delivered from one party to the other is determined based on the interaction of the notional amount of the contract with the underlying. Derivatives are also implicit in certain contracts and commitments.
The derivative financial instruments currently used by the Company to manage its exposure to interest rate risk include: (1) interest rate swaps to manage the interest rate risk of certain variable rate liabilities; (2) interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market; (3) forward commitments for the future delivery of such mortgage loans to protect the Company from adverse changes in interest rates and corresponding changes in the value of mortgage loans available-for-sale; and (4) covered call options related to specific investment securities to enhance the overall yield on such securities. The Company also enters into derivatives (typically interest rate swaps) with certain qualified borrowers to facilitate the borrowers’ risk management strategies and concurrently enters into mirror-image derivatives with a third party counterparty, effectively making a market in the derivatives for such borrowers.
As required by ASC 815, the Company recognizes derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Derivative financial instruments are included in other assets or other liabilities, as appropriate, on the Consolidated Statements of Condition. Changes in the fair value of derivative financial instruments are either recognized in income or in shareholders’ equity as a component of other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting and, if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally, changes in fair values of derivatives accounted for as fair value hedges are recorded in income in the same period and in the same income statement line as changes in the fair values of the hedged items that relate to the hedged risk(s). Changes in fair values of derivative financial instruments accounted for as cash flow hedges, to the extent they are effective hedges, are recorded as a component of other comprehensive income, net of deferred taxes, and reclassified to earnings when the hedged

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transaction affects earnings. Changes in fair values of derivative financial instruments not designated in a hedging relationship pursuant to ASC 815, including changes in fair value related to the ineffective portion of cash flow hedges, are reported in non-interest income during the period of the change. Derivative financial instruments are valued by a third party and are periodically validated by comparison with valuations provided by the respective counterparties. Fair values of certain mortgage banking derivatives (interest rate lock commitments and forward commitments to sell mortgage loans on a best efforts basis) are estimated based on changes in mortgage interest rates from the date of the loan commitment.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Condition as of June 30, 2010 and December 31, 2009 (dollars in thousands):
                                                 
    Derivative Assets   Derivative Liabilities
            Fair Value           Fair Value
    Balance                   Balance        
    Sheet   June 30,   December 31,   Sheet   June 30,   December 31,
    Location   2010   2009   Location   2010   2009
Derivatives designated as hedging instruments under ASC 815:
                                               
 
                                               
Interest rate swaps designated as Cash Flow Hedges
  Other assets               Other liabilities   $ 15,408     $ 14,701  
                         
 
                                               
Derivatives not designated as hedging instruments under ASC 815:
                                               
 
                                               
Interest rate derivatives
  Other assets   $ 11,677     $ 7,759     Other liabilities   $ 12,297     $ 8,076  
Interest rate lock commitments
  Other assets   $ 4,651     $ 32     Other liabilities   $ 166     $ 3,002  
Forward commitments to sell mortgage loans
  Other assets   $ 122     $ 4,860     Other liabilities   $ 7,785     $ 37  
                         
 
                                               
Total derivatives not designated as hedging instruments under ASC 815
          $ 16,450     $ 12,651             $ 20,248     $ 11,115  
                         
 
                                               
Total derivatives
          $ 16,450     $ 12,651             $ 35,656     $ 25,816  
                         
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. As of June 30, 2010, the Company had five interest rate swaps with an aggregate notional amount of $175.0 million that were designated as cash flow hedges of interest rate risk.

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The table below provides details on each of these five interest rate swaps as of June 30, 2010 (dollars in thousands):
                                         
    June 30, 2010                          
    Notional     Fair Value     Receive Rate     Pay Rate     Type of Hedging  
Maturity Date   Amount     Gain (Loss)     (LIBOR)     (Fixed)     Relationship  
 
Pay Fixed, Receive Variable:
                                       
September 2011
  $ 20,000     $ (1,129 )     0.53%       5.25%     Cash Flow
September 2011
    40,000       (2,259 )     0.53%       5.25%     Cash Flow
October 2011
    25,000       (853 )     0.30%       3.39%     Cash Flow
September 2013
    50,000       (6,181 )     0.54%       5.30%     Cash Flow
September 2013
    40,000       (4,986 )     0.53%       5.30%     Cash Flow
 
                                   
Total
  $ 175,000     $ (15,408 )                        
 
                                   
Since entering into these interest rate swaps, they have been used to hedge the variable cash outflows associated with interest expense on the Company’s junior subordinated debentures. The effective portion of changes in the fair value of these cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified to interest expense as interest payments are made on the Company’s variable rate junior subordinated debentures. The changes in fair value (net of tax) are separately disclosed in the statement of changes in shareholders’ equity as a component of comprehensive income. The ineffective portion of the change in fair value of these derivatives is recognized directly in earnings; however, no hedge ineffectiveness was recognized during the three and six months ended June 30, 2010 or June 30, 2009. The Company uses the hypothetical derivative method to assess and measure effectiveness.
A rollforward of the amounts in accumulated other comprehensive income related to interest rate swaps designated as cash flow hedges follows (dollars in thousands):
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,   June 30,   June 30,
    2010   2009   2010   2009
Unrealized loss at beginning of period
  $ (15,754 )   $ (18,796 )   $ (15,487 )   $ (20,549 )
Amount reclassified from accumulated other comprehensive income to interest expense on junior subordinated debentures
    2,199       1,800       4,392       3,402  
Amount of gain (loss) recognized in other comprehensive income
    (2,414 )     1,014       (4,874 )     1,165  
         
Unrealized loss at end of period
  $ (15,969 )   $ (15,982 )   $ (15,969 )   $ (15,982 )
         
In September 2008, the Company terminated an interest rate swap with a notional amount of $25.0 million (maturing in October 2011) that was designated in a cash flow hedge and entered into a new interest rate swap with another counterparty to effectively replace the terminated swap. The interest rate swap was terminated by the Company in accordance with the default provisions in the swap agreement. The unrealized loss on the interest rate swap at the date of termination is being amortized out of other comprehensive income to interest expense over the remaining term of the terminated swap. At June 30, 2010 accumulated other comprehensive income (loss) includes $561,000 of unrealized loss ($345,000 net of tax) related to this terminated interest rate swap.
As of June 30, 2010, the Company estimates that during the next twelve months, $8.0 million will be reclassified from accumulated other comprehensive income as an increase to interest expense.
Non-Designated Hedges
The Company does not use derivatives for speculative purposes. Derivatives not designated as hedges are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of ASC 815. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings.
Interest Rate Derivatives — The Company has interest rate derivatives, including swaps and option products, resulting from a service the Company provides to certain qualified borrowers. The Company’s banking subsidiaries execute certain derivative products (typically interest rate swaps) directly with qualified commercial borrowers to facilitate their respective risk management strategies. For example, doing so allows the Company’s commercial borrowers to effectively convert a variable rate loan to a fixed rate. In order to minimize the Company’s exposure on these transactions, the Company simultaneously executes offsetting derivatives with third parties. In most cases the offsetting derivatives have mirror-image terms, which result in the positions’ changes in fair value substantially offsetting through earnings each period. However, to the extent that the derivatives are not a mirror-image and because of differences in counterparty credit risk, changes in fair value will not completely offset resulting in some earnings impact each period. Changes in the fair value of these derivatives are included in other non-interest income. At June 30, 2010, the Company had

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approximately 94 derivative transactions (47 with customers and 47 with third parties) with an aggregate notional amount of approximately $375.9 million (all interest rate swaps) related to this program. These interest rate derivatives had maturity dates ranging from August 2010 to March 2019.
Mortgage Banking Derivatives — These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on its commitments to fund the loans as well as on its portfolio of mortgage loans held-for-sale. The Company’s mortgage banking derivatives have not been designated as being in hedge relationships. At June 30, 2010 the Company had interest rate lock commitments with an aggregate notional amount of approximately $527 million and forward commitments to sell mortgage loans with an aggregate notional amount of approximately $584 million. The fair values of these derivatives were estimated based on changes in mortgage rates from the dates of the commitments. Changes in the fair value of these mortgage banking derivatives are included in mortgage banking revenue.
Other Derivatives — Periodically, the Company will sell options to a bank or dealer for the right to purchase certain securities held within the Banks’ investment portfolios (covered call options). These option transactions are designed primarily to increase the total return associated with the investment securities portfolio. These options do not qualify as hedges pursuant to ASC 815, and, accordingly, changes in fair value of these contracts are recognized as other non-interest income. There were no covered call options outstanding as of June 30, 2010, December 31, 2009 or June 30, 2009.
Amounts included in the consolidated statement of income related to derivative instruments not designated in hedge relationships were as follows (dollars in thousands) :
                                     
        Three Months Ended   Six Months Ended
        June 30,   June 30,   June 30,   June 30,
Derivative   Location in income statement   2010   2009   2010   2009
Interest rate swaps and floors
  Other income   $ (227 )   $ (140 )   $ (303 )   $ 247  
Mortgage banking derivatives
  Mortgage banking revenue     (6,458 )     2,897       (8,601 )     2,187  
Covered call options
  Other income     169             459       1,998  
Credit Risk
Derivative instruments have inherent risks, primarily market risk and credit risk. Market risk is associated with changes in interest rates and credit risk relates to the risk that the counterparty will fail to perform according to the terms of the agreement. The amounts potentially subject to market and credit risks are the streams of interest payments under the contracts and the market value of the derivative instrument and not the notional principal amounts used to express the volume of the transactions. Market and credit risks are managed and monitored as part of the Company’s overall asset-liability management process, except that the credit risk related to derivatives entered into with certain qualified borrowers is managed through the Company’s standard loan underwriting process since these derivatives are secured through collateral provided by the loan agreements. Actual exposures are monitored against various types of credit limits established to contain risk within parameters. When deemed necessary, appropriate types and amounts of collateral are obtained to minimize credit exposure.
The Company has agreements with certain of its interest rate derivative counterparties that contain cross-default provisions, which provide that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain of its derivative counterparties that contain a provision allowing the counter party to terminate the derivative positions if the Company fails to maintain its status as a well / adequate capitalized institution, which would require the Company to settle its obligations under the agreements. As of June 30, 2010, the fair value of interest rate derivatives in a net liability position, which includes accrued interest related to these agreements, was $28.4 million. As of June 30, 2010 the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral consisting of $11.9 million of cash and $10.0 million of securities. If the Company had breached any of these provisions at June 30, 2010 it would have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.
The Company is also exposed to the credit risk of its commercial borrowers who are counterparties to interest rate derivatives with the Banks. This counterparty risk related to the commercial borrowers is managed and monitored through the Banks’ standard underwriting process applicable to loans since these derivatives are secured through collateral provided by the loan agreement. The counterparty risk associated with the mirror-image swaps executed with third parties is monitored and managed in connection with the Company’s overall asset liability management process.

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(15) Fair Values of Assets and Liabilities
Effective January 1, 2008, upon adoption of SFAS No. 157, “Fair Value Measurement”, which is now part of ASC 820, “Fair Value Measurements and Disclosures” (ASC 820), the Company began to group financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. These levels are:
    Level 1 unadjusted quoted prices in active markets for identical assets or liabilities.
 
    Level 2 inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
    Level 3 — significant unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
A financial instrument’s categorization within the above valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the assets or liabilities. Following is a description of the valuation methodologies used for the Company’s assets and liabilities measured at fair value on a recurring basis.
Available-for-sale and trading account securities — Fair values for available-for-sale and trading account securities are based on quoted market prices when available or through the use of alternative approaches, such as matrix or model pricing or indicators from market makers.
Mortgage loans held-for-sale — Mortgage loans originated by Wintrust Mortgage Company on or after January 1, 2008 are carried at fair value. The fair value of mortgage loans held-for-sale is determined by reference to investor price sheets for loan products with similar characteristics.
Mortgage servicing rights — Fair value for mortgage servicing rights is determined utilizing a third party valuation model which stratifies the servicing rights into pools based on product type and interest rate. The fair value of each servicing rights pool is calculated based on the present value of estimated future cash flows using a discount rate commensurate with the risk associated with that pool, given current market conditions. Estimates of fair value include assumptions about prepayment speeds, interest rates and other factors which are subject to change over time.
Derivative instruments — The Company’s derivative instruments include interest rate swaps, commitments to fund mortgages for sale into the secondary market (interest rate locks) and forward commitments to end investors for the sale of mortgage loans. Interest rate swaps are valued by a third party, using models that primarily use market observable inputs, such as yield curves, and are validated by comparison with valuations provided by the respective counterparties. The fair value for mortgage derivatives is based on changes in mortgage rates from the date of the commitments.
Nonqualified deferred compensation assets — The underlying assets relating to the nonqualified deferred compensation plan are included in a trust and primarily consist of non-exchange traded institutional funds which are priced based by an independent third party service.
Retained interests from the sale of premium finance receivables — The fair value of retained interests, which include servicing rights and interest only strips, from the sale of premium finance receivables are based on certain observable inputs such as interest rates and credits spreads, as well as unobservable inputs such as prepayments, late payments and estimated net charge-offs.

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The following tables present the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented.
                                 
    June 30, 2010  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3  
Available-for-sale securities
                               
U.S. Treasury
  $ 117,013     $     $ 117,013     $  
U.S. Government agencies
    796,937             796,937        
Municipal
    51,892             37,864       14,028  
Corporate notes and other
    74,995             63,643       11,352  
Mortgage-backed
    341,550             196,219       145,331  
Equity securities (1)
    35,648             8,757       26,891  
Trading account securities
    38,261       53       1,399       36,809  
Mortgage loans held-for-sale
    222,703             222,703        
Mortgage servicing rights
    5,437                   5,437  
Nonqualified deferred compensation assets
    3,135             3,135        
Derivative assets
    16,450             16,450        
 
                       
Total
  $ 1,704,021     $ 53     $ 1,464,120     $ 239,848  
 
                       
 
                               
Derivative liabilities
  $ 35,656     $     $ 35,656     $  
 
                       
                                 
    June 30, 2009  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3  
Available-for-sale securities
                               
U.S. Treasury
  $ 110,928     $     $ 110,928     $  
U.S. Government agencies
    515,232             515,232        
Municipal
    58,863             50,508       8,355  
Corporate notes and other
    62,272             57,894       4,378  
Mortgage-backed
    406,330             238,954       167,376  
Equity securities (1)
    34,633             8,952       25,681  
Trading account securities
    22,973       200       1,351       21,422  
Mortgage loans held-for-sale
    291,275             291,275        
Mortgage servicing rights
    6,278                   6,278  
Nonqualified deferred compensation assets
    2,461             2,461        
Derivative assets
    10,279             10,279        
 
                       
Total
  $ 1,521,524     $ 200     $ 1,287,834     $ 233,490  
 
                       
 
                               
Derivative liabilities
  $ 23,117     $     $ 23,117     $  
 
                       
 
(1)   Excludes the common securities issued by trusts formed by the Company in conjunction with Trust Preferred Securities offerings.
The aggregate remaining contractual principal balance outstanding as of June 30, 2010 and 2009 for mortgage loans held-for-sale measured at fair value under ASC 825 was $213.9 million and $283.5 million, respectively, while the aggregate fair value of mortgage loans held-for-sale was $222.7 million and $291.3 million, respectively, as shown in the above tables. There were no nonaccrual loans or loans past due greater than 90 days and still accruing in the mortgage loans held-for-sale portfolio measured at fair value as of June 30, 2010 and 2009.

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The changes in Level 3 available-for-sale securities measured at fair value on a recurring basis during the three months and six months ended June 30, 2010 are summarized as follows:
                                 
            Corporate              
            notes and     Mortgage-     Equity  
(Dollars in thousands)   Municipal     other debt     backed     securities  
Balance at March 31, 2010
  $ 15,134     $ 11,582     $ 154,469     $ 26,800  
Total net gains (losses) included in:
                               
Net income (1)
          (38 )            
Other comprehensive income
          (192 )     6,500        
Purchases, issuances, sales and settlements, net
    (1,106 )           (16,372 )     91  
Net transfers into/(out) of Level 3
                734        
 
                       
Balance at June 30, 2010
  $ 14,028     $ 11,352     $ 145,331     $ 26,891  
 
                       
 
                               
Balance at January 1, 2010
  $ 17,152     $ 51,194     $ 158,449     $ 26,800  
Total net gains (losses) included in:
                               
Net income (1)
          (33 )            
Other comprehensive income
          835       2,520        
Purchases, issuances, sales and settlements, net
    (3,124 )     (40,644 )     (16,372 )     91  
Net transfers into/(out) of Level 3
                734        
 
                       
Balance at June 30, 2010
  $ 14,028     $ 11,352     $ 145,331     $ 26,891  
 
                       
 
(1)   Income for Municipal and Corporate notes and other is recognized as a component of interest income on securities.
The changes in Level 3 for assets and liabilities not included in the preceding table measured at fair value on a recurring basis during the three months and six months ended June 30, 2010 are summarized as follows:
                         
    Trading     Mortgage        
    account     servicing     Retained  
(Dollars in thousands)   securities     rights     Interests  
Balance at March 31, 2010
  $ 37,895     $ 6,602     $ 43,541  
Total net gains (losses) included in:
                       
Net income (1)
    (1,086 )     (1,165 )      
Other comprehensive income
                 
Purchases, issuances sales, and settlements, net
                (43,541 )
Net transfers into/(out) of Level 3
                 
 
                 
Balance at June 30, 2010
  $ 36,809     $ 5,437     $  
 
                 
 
                       
Balance at January 1, 2010
  $ 31,924     $ 6,745     $ 43,541  
Total net gains (losses) included in:
                       
Net income (1)
    4,885       (1,308 )      
Other comprehensive income
                 
Purchases, issuances sales, and settlements, net
                (43,541 )
Net transfers into/(out) of Level 3
                 
 
                 
Balance at June 30, 2010
  $ 36,809     $ 5,437     $  
 
                 
 
(1)   Income for trading account securities is recognized as a component of trading income in non-interest income and trading account securities interest income. Changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income.

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The changes in Level 3 available-for-sale securities measured at fair value on a recurring basis during the three months and six months ended June 30, 2009 are summarized as follows:
                                         
                    Corporate              
    U.S. Govt.             notes and     Mortgage-     Equity  
(Dollars in thousands)   agencies     Municipal     other debt     backed     securities  
Balance at March 31, 2009
  $ 109     $ 17,096     $ 4,374     $ 175,475     $ 25,872  
Total net gains (losses) included in:
                                       
Net income (1)
                4              
Other comprehensive income
                      (134 )      
Purchases, issuances and settlements, net
          (6,592 )           (7,965 )      
Net transfers into/(out) of Level 3
    (109 )     (2,149 )                 (191 )
 
                             
Balance at June 30, 2009
  $     $ 8,355     $ 4,378     $ 167,376     $ 25,681  
 
                             
 
                                       
Balance at January 1, 2009
  $ 110     $ 9,373     $ 1,395     $ 4,010     $ 26,104  
Total net gains included in:
                                       
Net income (1)
                4              
Other comprehensive income
    (1 )                 (1,447 )      
Purchases, issuances and settlements, net
          1,131       2,979       164,813       35  
Net transfers into/(out) of Level 3
    (109 )     (2,149 )                 (458 )
 
                             
Balance at June 30, 2009
  $     $ 8,355     $ 4,378     $ 167,376     $ 25,681  
 
                             
 
(1)   Income for Corporate notes and other debt is recognized as a component of interest income on securities.
The changes in Level 3 for assets and liabilities not included in the preceding table measured at fair value on a recurring basis during the three months and six months ended June 30, 2009 are summarized as follows:
                         
    Trading     Mortgage        
    account     servicing     Retained  
(Dollars in thousands)   securities     rights     Interests  
Balance at March 31, 2009
  $ 12,218     $ 4,163     $ 301  
Total net gains (losses) included in:
                       
Net income (1)
    8,204       2,115        
Other comprehensive income
                 
Purchases, issuances and settlements, net
    1,000             (301 )
Net transfers into/(out) of Level 3
                 
 
                 
Balance at June 30, 2009
  $ 21,422     $ 6,278     $  
 
                 
 
                       
Balance at January 1, 2009
  $ 3,075     $ 3,990     $ 1,229  
Total net gains included in:
                       
Net income (1)
    16,301       2,288        
Other comprehensive income
                 
Purchases, issuances and settlements, net
    2,046             (1,229 )
Net transfers into/(out) of Level 3
                 
 
                 
Balance at June 30, 2009
  $ 21,422     $ 6,278     $  
 
                 
 
(1)   Income for trading account securities is recognized as a component of trading income in non-interest income and trading account securities interest income. Changes in the balance of mortgage servicing rights are recorded as a component of mortgage banking revenue in non-interest income.

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Also, the Company may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower of cost or market accounting or impairment charges of individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at the end of the period, the following table provides the carrying value of the related individual assets or portfolios at June 30, 2010.
                                                 
                                    Three Months     Six Months  
                                    Ended     Ended  
                                    June 30,     June 30,  
                                    2010     2010  
                                    Fair Value     Fair Value  
    June 30, 2010     Losses     Losses  
(Dollars in thousands)   Total     Level 1     Level 2     Level 3     Recognized     Recognized  
Impaired loans
  $ 173,797     $     $     $ 173,797     $ 5,942     $ 19,324  
Other real estate owned
    86,420                   86,420       4,446       11,976  
 
                                   
Total
  $ 260,217     $     $     $ 260,217     $ 10,388     $ 31,300  
 
                                   
Impaired loans — A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due pursuant to the contractual terms of the loan agreement. A loan restructured in a troubled debt restructuring is an impaired loan according to applicable accounting guidance. Impairment is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the fair value of the underlying collateral. Impaired loans are considered a fair value measurement where an allowance is established based on the fair value of collateral. Appraised values, which may require adjustments to market-based valuation inputs, are generally used on real estate collateral-dependant impaired loans.
Other real estate owned — Other real estate owned is comprised of real estate acquired in partial or full satisfaction of loans and is included in other assets. Other real estate owned is recorded at its estimated fair value less estimated selling costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the allowance for loan losses. Subsequent changes in value are reported as adjustments to the carrying amount and are recorded in other non-interest expense. Gains and losses upon sale, if any, are also charged to other non-interest expense. Fair value is generally based on third party appraisals and internal estimates and is therefore considered a Level 3 valuation.

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The Company is required under applicable accounting guidance to report the fair value of all financial instruments on the consolidated statement of condition, including those financial instruments carried at cost. The carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2010 and December 31, 2009 were as follows:
                                 
    At June 30, 2010   At December 31, 2009
    Carrying   Fair   Carrying   Fair
(Dollars in thousands)   Value   Value   Value   Value
Financial Assets:
                               
Cash and cash equivalents
  $ 152,376       152,376       158,616       158,616  
Interest bearing deposits with banks
    1,110,123       1,110,123       1,025,663       1,025,663  
Available-for-sale securities
    1,418,035       1,418,035       1,255,066       1,255,066  
Trading account securities
    38,261       38,261       33,774       33,774  
Brokerage customer receivables
    24,291       24,291       20,871       20,871  
Federal home Loan Bank and Federal Reserve Bank stock, at cost
    79,300       79,300       73,749       73,749  
Mortgage loans held-for-sale, at fair value
    222,703       222,703       265,786       265,786  
Loans held-for-sale, at lower of cost or market
    15,278       15,477       9,929       10,033  
Total loans
    9,599,726       9,793,173       8,411,771       8,403,305  
Mortgage servicing rights
    5,437       5,437       6,745       6,745  
Nonqualified deferred compensation assets
    3,135       3,135       2,827       2,827  
Retained interests from the sale/securitization of premium finance receivables
                43,541       43,541  
Derivative assets
    16,450       16,450       12,651       12,651  
FDIC indemnification asset
    114,102       114,102              
Accrued interest receivable and other
    133,400       133,400       129,774       129,774  
         
Total financial assets
  $ 12,932,617       13,126,263       11,450,763       11,442,401  
         
 
                               
Financial Liabilities:
                               
Non-maturity deposits
  $ 5,526,859       5,526,859       5,347,823       5,347,823  
Deposits with stated maturities
    5,097,883       5,150,018       4,569,251       4,616,658  
Notes payable
    1,000       1,000       1,000       1,000  
Federal Home Loan Bank advances
    415,571       442,639       430,987       446,663  
Subordinated notes
    55,000       55,000       60,000       60,000  
Other borrowings
    218,424       218,424       247,437       247,347  
Secured borrowings — owed to securitization investors
    600,000       600,000              
Junior subordinated debentures
    249,493       247,773       249,493       245,990  
Derivative liabilities
    35,656       35,656       25,816       25,816  
Accrued interest payable and other
    17,986       17,986       15,669       15,669  
         
Total financial liabilities
  $ 12,217,872       12,295,355       10,947,476       11,006,966  
         
The following methods and assumptions were used by the Company in estimating fair values of financial instruments that were not previously disclosed.
Cash and cash equivalents. Cash and cash equivalents include cash and demand balances from banks, Federal funds sold and securities purchased under resale agreements. The carrying value of cash and cash equivalents approximates fair value due to the short maturity of those instruments.
Interest bearing deposits with banks. The carrying value of interest bearing deposits with banks approximates fair value due to the short maturity of those instruments.
Brokerage customer receivables. The carrying value of brokerage customer receivables approximates fair value due to the relatively short period of time to repricing of variable interest rates.
Loans held-for-sale, at lower of cost or market. Fair value is based on either quoted prices for the same or similar loans, or values obtained from third parties, or is estimated for portfolios of loans with similar financial characteristics.

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Loans. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are analyzed by type such as commercial, residential real estate, etc. Each category is further segmented by interest rate type (fixed and variable) and term. For variable-rate loans that reprice frequently, estimated fair values are based on carrying values. The fair value of residential loans is based on secondary market sources for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value for other fixed rate loans is estimated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect credit and interest rate risks inherent in the loan. The primary impact of credit risk on the present value of the loan portfolio, however, was accommodated through the use of the allowance for loan losses, which is believed to represent the current fair value of probable incurred losses for purposes of the fair value calculation.
FDIC indemnification asset. The fair value of the FDIC indemnification asset is based on the discounted value of cash flows to be received from the FDIC.
Accrued interest receivable and accrued interest payable. The carrying values of accrued interest receivable and accrued interest payable approximate market values due to the relatively short period of time to expected realization.
Deposit liabilities. The fair value of deposits with no stated maturity, such as non-interest bearing deposits, savings, NOW accounts and money market accounts, is equal to the amount payable on demand as of period-end (i.e. the carrying value). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently in effect for deposits of similar remaining maturities.
Notes payable. The carrying value of notes payable approximates fair value due to the relatively short period of time to repricing of variable interest rates.
Federal Home Loan Bank advances. The fair value of Federal Home Loan Bank advances is obtained from the Federal Home Loan Bank which uses a discounted cash flow analysis based on current market rates of similar maturity debt securities to discount cash flows.
Subordinated notes. The carrying value of the subordinated notes payable approximates fair value due to the relatively short period of time to repricing of variable interest rates.
Other borrowings. Carrying value of other borrowings approximates fair value due to the relatively short period of time to maturity or repricing.
Junior subordinated debentures. The fair value of the junior subordinated debentures is based on the discounted value of contractual cash flows.
(16) Stock-Based Compensation Plans
The 2007 Stock Incentive Plan (“the 2007 Plan”), which was approved by the Company’s shareholders in January 2007, permits the grant of incentive stock options, nonqualified stock options, rights and restricted share awards, as well as the conversion of outstanding options of acquired companies to Wintrust options. The 2007 Plan initially provided for the issuance of up to 500,000 shares of common stock, and in May 2009 the Company’s shareholders approved an additional 325,000 shares of common stock that may be offered under the 2007 Plan. All grants made after 2006 were made pursuant to the 2007 Plan, and as of June 30, 2010, 181,463 shares were available for future grant. The 2007 Plan replaced the Wintrust Financial Corporation 1997 Stock Incentive Plan (“the 1997 Plan”) which had substantially similar terms. The 2007 Plan and the 1997 Plan are collectively referred to as “the Plans.” The Plans cover substantially all employees of Wintrust.
The Company typically awards stock-based compensation in the form of stock options and restricted share awards. Stock options provide the holder of the option the right to purchase shares of Wintrust’s common stock at the fair market value of the stock on the date the options are granted. Options generally vest ratably over a five-year period and expire at such time as the Compensation Committee determines at the time of grant. The 2007 Plan provides for a maximum term of seven years from the date of grant while the 1997 Plan provided for a maximum term of ten years. Restricted share awards entitle the holders to receive, at no cost, shares of the Company’s common stock. Restricted share awards generally vest over periods of one to five years from the date of grant. Holders of the restricted share awards are not entitled to vote or receive cash dividends (or cash payments equal to the cash dividends) on the underlying common shares until the awards are vested. Except in limited circumstances, these awards are canceled upon termination of employment without any payment of consideration by the Company.
Stock-based compensation cost is measured as the fair value of an award on the date of grant and is recognized on a straight-line basis over the vesting period. The fair value of restricted share awards is determined based on the average of the high and low trading prices on the grant date. The fair value of stock options is estimated at the date of grant using a Black-Scholes option-pricing model that utilizes the assumptions outlined in the following table. Option-pricing models require the input of highly subjective assumptions and are sensitive to changes in the option’s expected life and the price volatility of the underlying stock, which can materially affect the fair value estimate. Expected life is based on historical exercise and termination behavior as well as the term of the option, and expected stock price volatility is based on historical volatility of the Company’s common stock, which correlates with the expected term of the options. The risk-free interest rate is based on comparable U.S. Treasury rates. Management reviews and adjusts the assumptions used to calculate the fair value of an option on a periodic basis to better reflect expected trends.

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The following table presents the weighted average assumptions used to determine the fair value of options granted in the six months ending June 30, 2010 and 2009:
                 
    For the Six Months Ended
    June 30, 2010   June 30, 2009
Expected dividend yield
    0.5 %     2.2 %
Expected volatility
    48.2 %     44.6 %
Risk-free rate
    2.8 %     2.2 %
Expected option life (in years)
    6.2       6.0  
Stock based compensation is recognized based upon the number of awards that are ultimately expected to vest. As a result, compensation expense recognized for stock options and restricted share awards was reduced for estimated forfeitures prior to vesting. Forfeiture rates are estimated for each type of award based on historical forfeiture experience. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances.
Compensation cost charged to income for stock options was $421,000 and $862,000 in the second quarters of 2010 and 2009, respectively, and $998,000 and $1.8 million for the 2010 and 2009 year-to-date periods, respectively. Compensation cost charged to income for restricted share awards was $643,000 and $797,000 in the second quarters of 2010 and 2009, respectively, and $1.4 million and $1.7 million for the six months ended June 30, 2010 and 2009, respectively.
A summary of stock option activity under the Plans for the six months ended June 30, 2010 and June 30, 2009 is presented below:
                                 
            Weighted   Remaining   Intrinsic
    Common   Average   Contractual   Value (2)
Stock Options   Shares   Strike Price   Term (1)   ($000)
 
Outstanding at January 1, 2010
    2,156,209     $ 37.61                  
Granted
    57,865       35.05                  
Exercised
    (108,451 )     16.11                  
Forfeited or canceled
    (39,236 )     51.48                  
 
Outstanding at June 30, 2010
    2,066,387     $ 38.40       3.6     $ 9,268  
 
Exercisable at June 30, 2010
    1,789,954     $ 38.69       3.4     $ 8,566  
 
 
                               
Outstanding at January 1, 2009
    2,388,174     $ 35.61                  
Granted
    31,500       16.97                  
Exercised
    (52,090 )     11.83                  
Forfeited or canceled
    (46,989 )     29.68                  
 
Outstanding at June 30, 2009
    2,320,595     $ 36.01       4.1     $ 1,408  
 
Exercisable at June 30, 2009
    1,920,664     $ 34.39       3.8     $ 1,376  
 
 
(1)   Represents the weighted average contractual life remaining in years.
 
(2)   Aggregate intrinsic value represents the total pre-tax intrinsic value (i.e., the difference between the Company’s average of the high and low stock price on the last trading day of the quarter and the option exercise price, multiplied by the number of shares) that would have been received by the option holders if they had exercised their options on the last day of the quarter. This amount will change based on the fair market value of the Company’s stock.
The weighted average grant date fair value per share of options granted during the six months ended June 30, 2010 and 2009 was $16.65 and $6.28, respectively. The aggregate intrinsic value of options exercised during the six months ended June 30, 2010 and 2009, was $2.2 million and $218,000, respectively.

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A summary of restricted share award activity under the Plans for the six months ended June 30, 2010 and June 30, 2009 is presented below:
                                 
    Six Months Ended   Six Months Ended
    June 30, 2010   June 30, 2009
            Weighted           Weighted
            Average           Average
    Common   Grant-Date   Common   Grant-Date
Restricted Shares   Shares   Fair Value   Shares   Fair Value
 
Outstanding at January 1
    208,430     $ 43.24       262,997     $ 44.09  
Granted
    131,656       35.84       10,000       20.22  
Vested and issued
    (40,816 )     47.49       (65,944 )     41.26  
Forfeited
    (301 )     33.18       (1,085 )     28.63  
 
Outstanding at June 30
    298,969     $ 39.42       205,968     $ 44.02  
 
Vested, but not issuable at June 30
    85,000     $ 51.88           $  
 
In the third quarter of 2009, the Company began paying a portion of the base pay of certain executives in the Company’s stock. Shares issued under this arrangement are granted under the Plan. In the second quarter of 2010, 1,181 shares were granted under this arrangement at an average stock price of $37.01 per share. For the six months ended June 30, 2010, 2,462 shares were granted at an average stock price of $35.52 per share. The number of shares granted as of each payroll date is based on the average of the high and low price of the Company’s common stock on such date.
As of June 30, 2010, there was $7.6 million of total unrecognized compensation cost related to non-vested share based arrangements under the Plans. That cost is expected to be recognized over a weighted average period of approximately two years.
The Company issues new shares to satisfy option exercises, vesting of restricted shares and issuance of base pay salary shares.
(17) Shareholders’ Equity and Earnings Per Share
Common Stock Offering
In March 2010, the Company issued through a public offering a total of 6,670,000 shares of its common stock at $33.25 per share, including 870,000 shares issued at $33.25 per share pursuant to an over-allotment option granted to the underwriters of the offering. Net proceeds to the Company totaled $210.4 million.
Series A Preferred Stock
In August 2008, the Company issued and sold 50,000 shares of non-cumulative perpetual convertible preferred stock, Series A, liquidation preference $1,000 per share (the “Series A Preferred Stock”) for $50 million in a private transaction. If declared, dividends on the Series A Preferred Stock are payable quarterly in arrears at a rate of 8.00% per annum. The Series A Preferred Stock is convertible into common stock at the option of the holder at a conversion rate of 38.88 shares of common stock per share of Series A Preferred Stock. On and after August 26, 2010, the Series A Preferred Stock will be subject to mandatory conversion into common stock in connection with a fundamental transaction, or on and after August 26, 2013 if the closing price of the Company’s common stock exceeds a certain amount.
Series B Preferred Stock
Pursuant to the U.S. Department of the Treasury’s (the “U.S. Treasury”) Capital Purchase Program, on December 19, 2008, the Company issued to the U.S. Treasury, in exchange for aggregate consideration of $250 million, (i) 250,000 shares of the Company’s fixed rate cumulative perpetual preferred Stock, Series B, liquidation preference $1,000 per share (the “Series B Preferred Stock”), and (ii) a warrant to purchase 1,643,295 shares of Wintrust common stock at a per share exercise price of $22.82 and with a term of 10 years. The Series B Preferred Stock will pay a cumulative dividend at a coupon rate of 5% for the first five years and 9% thereafter. The Series B Preferred Stock can, with the approval of the Federal Reserve, be redeemed.
The relative fair values of the preferred stock and the warrant issued to the U.S. Treasury in conjunction with the Company’s participation in the Capital Purchase Program were determined through an analysis, as of the valuation date of December 19, 2008, of the fair value of the warrants and the fair value of the preferred stock, and an allocation of the relative fair value of each to the $250 million of total proceeds.

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The fair value of the warrant was determined using a binomial lattice valuation model. The assumptions used in arriving at the fair value of the warrant using that valuation method, derived as of the valuation date, were as follows:
         
Company stock price as of the valuation date
  $ 20.06  
Contractual strike price of warrant
  $ 22.82  
Expected term based on contractual term
  10 years  
Expected volatility based on 10-year historical volatility of the Company’s stock
    37 %
Expected annual dividend yield
    1 %
Risk-free rate based on 10-year U.S. Treasury strip rate
    2.72 %
Using that model, each of the 1,643,295 shares underlying the warrant was valued at $8.33 and, correspondingly, the aggregate fair value of the warrant was $13.7 million.
The fair value of the preferred stock was determined using a discounted cash flow model which discounted the contractual principal balance of $250 million and the contractual dividend payment of 5% for the first five years at a 13% discount rate. The discount rate was derived from the average and median yields on existing fixed rate preferred stock issuances of eleven different commercial banks in the central United States, which average and median results approximated 13% on the date of valuation. Using this methodology, the fair value of the preferred stock was estimated to be $181.8 million.
In relative terms, a summary of the above valuation is as follows:
                 
            Relative  
    Amount     Fair Value  
Fair value of preferred stock
  $ 181.8 million       93.0 %
Fair value of warrants
  $ 13.7 million       7.0 %
 
           
Total fair value
  $ 195.5 million       100.0 %
Applying the relative value percentages of 93% for the preferred stock and 7% for the warrants to the total proceeds of $250 million, the resulting valuation of the preferred stock and warrants at the date of issuance is as follows:
         
Proceeds allocated to Preferred Stock ($250 million multiplied by 93%)
  $ 232.5 million  
Proceeds allocated to Warrants ($250 million multiplied by 7%)
  $ 17.5 million  
For as long as any shares of Series B Preferred Stock are outstanding, the ability of the Company to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its common stock or other securities, including trust preferred securities, will be subject to restrictions. The U.S. Treasury’s consent is required for any increase in common dividends per share from the amount of the Company’s semiannual cash dividend of $0.18 per share, until the third anniversary of the purchase agreement with the U.S. Treasury unless prior to such third anniversary the Series B Preferred Stock is redeemed in whole or the U.S. Treasury has transferred all of the Series B Preferred Stock to third parties.
Earnings per Share
The following table shows the computation of basic and diluted earnings per share for the periods indicated:
                                         
            For the Three Months     For the Six Months  
            Ended June 30,     Ended June 30,  
(In thousands, except per share data)           2010     2009     2010     2009  
Net income (loss)
          $ 13,009     $ 6,549     $ 29,027     $ 12,907  
Less: Preferred stock dividends and discount accretion
            4,943       5,000       9,887       10,000  
 
                             
Net income applicable to common shares — Diluted
    (A )     8,066       1,549       19,140       2,907  
 
                             
 
                                       
Weighted average common shares outstanding
    (B )     31,074       23,964       28,522       23,910  
Effect of dilutive potential common shares
            1,267       300       1,203       269  
 
                             
Weighted average common shares and effect of dilutive potential common shares
    (C )     32,341       24,264       29,725       24,179  
 
                             
 
                                       
Net income per common share:
                                       
Basic
    (A/B )   $ 0.26     $ 0.06     $ 0.67     $ 0.12  
 
                             
Diluted
    (A/C )   $ 0.25     $ 0.06     $ 0.64     $ 0.12  
 
                             

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Potentially dilutive common shares can result from stock options, restricted stock unit awards, stock warrants (including the warrants issued to the U.S. Treasury), the Company’s convertible preferred stock and shares to be issued under the Employee Stock Purchase Plan and the Directors Deferred Fee and Stock Plan, being treated as if they had been either exercised or issued, computed by application of the treasury stock method. While potentially dilutive common shares are typically included in the computation of diluted earnings per share, potentially dilutive common shares are excluded from this computation in periods in which the effect would reduce the loss per share or increase the income per share. For diluted earnings per share, net income applicable to common shares can be affected by the conversion of the Company’s convertible preferred stock. Where the effect of this conversion would reduce the loss per share or increase the income per share, net income applicable to common shares is adjusted by the associated preferred dividends.
(18) Subsequent Events
On August, 6, 2010, the Company announced that its wholly-owned subsidiary bank, Northbrook, had acquired certain assets and liabilities and the banking operations of Ravenswood Bank (“Ravenswood”) in an FDIC-assisted transaction. Ravenswood operates one location in Chicago, Illinois and one in Mount Prospect, Illinois and had approximately $211 million in total loans and $269 million in total deposits as of June 30, 2010. Northbrook acquired approximately $190 million of assets (subject to final adjustments) at a discount of approximately 12.6% and assumed approximately $120 million of non-brokered deposits of Ravenswood at a premium of approximately 0.9%. In connection with the acquisition, Northbrook entered into a loss sharing agreement with the FDIC. Under the loss-sharing agreement, Northbrook will share in losses and the FDIC will cover 80% of the losses of certain loans and foreclosed real estate at Ravenswood.

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ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition as of June 30, 2010, compared with December 31, 2009 and June 30, 2009, and the results of operations for the six month periods ended June 30, 2010 and 2009, should be read in conjunction with the unaudited consolidated financial statements and notes contained in this report and the Risk Factors discussed under Item 1A of the Company’s 2009 Annual Report on Form 10-K and Part II, Item 1A of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties and, as such, future results could differ significantly from management’s current expectations. See the last section of this discussion for further information on forward-looking statements.
Introduction
Wintrust is a financial holding company that provides traditional community banking services, primarily in the Chicago metropolitan area and southeastern Wisconsin, and operates other financing businesses on a national basis through several non-bank subsidiaries. Additionally, Wintrust offers a full array of wealth management services primarily to customers in the Chicago metropolitan area and southeastern Wisconsin.
Overview
The Current Economic Environment
Both the U.S. economy and the Company’s local markets continue to face challenging conditions in 2010. The credit crisis that began in 2008 continues, resulting in high unemployment and depressed home values throughout the Chicago metropolitan area and southeastern Wisconsin. The stress of the existing economic environment and the depressed real estate valuations in the Company’s markets continue to impact our business in 2010. Defaults by borrowers and the decline in fair value of collateral resulted in the Company recording higher provisions for credit losses, higher net charge-offs, an increase in the Company’s allowance for loan losses and the restructuring of certain borrower loan agreements in both the three and six month periods ended June 30, 2010 as compared to the same periods in 2009. In response to these conditions, Management continues to monitor carefully the impact on the Company of the financial markets, the depressed values of real property and other assets, loan performance, default rates and other financial and macro-economic indicators in order to navigate the challenging economic environment. In particular:
    The Company created a dedicated division in 2008, the Managed Assets Division, to focus on resolving problem asset situations. Comprised of experienced lenders, the Managed Assets Division takes control of managing the Company’s more significant problem assets and also conducts ongoing reviews and evaluations of all significant problem assets, including the formulation of action plans and updates on recent developments.
 
    The Company’s provision for credit losses in the second quarter of 2010 totaled $41.3 million, an increase of $17.6 million when compared to the second quarter of 2009. The provision for credit losses in the first six months of 2010 totaled $70.3 million, an increase of $32.2 million when compared to the first six months of 2009. Net charge-offs increased to $37.9 million in the second quarter of 2010 (of which $16.7 million related to commercial and commercial real estate loans), compared to only $12.8 million for the same period in 2009 (of which $9.7 million related to commercial and commercial real estate loans). In the second quarter of 2010, fraud perpetrated against a number of premium finance companies in the industry, including the property and casualty division of our premium financing subsidiary, increased both the Company’s net charge-offs and provision for credit losses by $15.7 million. Actions have been taken by the Company to decrease the likelihood of this type of loss from recurring in this line of business for the Company. Net charge-offs increased to $64.7 million in the first six months of 2010 (of which $40.8 million related to commercial and commercial real estate loans), compared to only $22.8 million for the same period in 2009 (of which $17.4 million related to commercial and commercial real estate loans).
 
    The Company increased its allowance for loan losses to $106.5 million at June 30, 2010, reflecting an increase of $21.4 million, or 25%, when compared to the same period in 2009 and an increase of $8.3 million, or 8%, when compared to December 31, 2009. At June 30, 2010, approximately $53.2 million, or 50%, of the allowance for loan losses was associated with commercial real estate loans and another $30.7 million, or 29%, was associated with commercial loans.
 
    During the second quarter of 2010, Wintrust had significant exposure to commercial real estate. At June 30, 2010, $3.3 billion, or 36%, of our loan portfolio was commercial real estate, with more than 90% located in the greater Chicago metropolitan and southeastern Wisconsin market areas. The commercial real estate loan portfolio was comprised of $587.2 million related to land, residential and commercial construction, $535.5 million related to office buildings loans, $484.5 million related to retail loans, $472.7 million related to industrial use loans, $276.9 million related to multi-family loans and $991.0 million related to mixed use and other use types. In analyzing the commercial real estate market, the Company does

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      not rely upon the assessment of broad market statistical data, in large part because the Company’s market area is diverse and covers many communities, each of which is impacted differently by economic forces affecting the Company’s general market area. As such, the extent of the decline in real state valuations can vary meaningfully among the different types of commercial and other real estate loans made by the Company. The Company uses its multi-chartered structure and local management knowledge to analyze and manage the local market conditions at each of its banks. Despite these efforts, as of June 30, 2010, the Company had approximately $85.2 million of non-performing commercial real estate loans representing approximately 3% of the total commercial real estate loan portfolio. $43.3 million, or 51%, of the total non-performing commercial real estate loan portfolio related to the land, residential and commercial construction sector which remains under stress due to the significant oversupply of new homes in certain portions of our market area.
 
    Total non-performing loans (loans on non-accrual status and loans more than 90 days past due and still accruing interest), excluding covered loans, were $135.4 million (of which $85.2 million, or 63%, was related to commercial real estate) at June 30, 2010, a decrease of $102.8 million compared to June 30, 2009. Non-performing loans declined as a result of selling such loans to third parties, charging loans off or down to fair value, collections, and transfers to other real estate owned. These actions combined with the significant declines in real estate valuations increased net charge-offs and the aggregate other real estate owned balance and also resulted in the decline in level of non-performing loans.
 
    The Company’s other real estate owned, excluding covered other real estate owned, increased by $45.0 million, to $86.4 million during the second quarter of 2010, from $41.4 million at June 30, 2009. These changes were largely caused by the increase in properties acquired in foreclosure or received through a deed in lieu of foreclosure related to residential real estate development and commercial real estate loans. Specifically, the $86.4 million of other real estate owned as of June 30, 2010 was comprised of $27.2 million of residential real estate development property, $53.8 million of commercial real estate property and $5.4 million of residential real estate property.
During 2009, Management implemented a strategic effort to aggressively resolve problem loans through liquidation, rather than retention, of loans or real estate acquired as collateral through the foreclosure process. This strategic effort continued into the second quarter of 2010. Management believes that some financial institutions have taken a longer term view of problem loan situations, hoping to realize higher values on acquired collateral through extended marketing efforts or an improvement in market conditions. Management believes that the distressed macro-economic conditions would continue to exist in 2009 and 2010 and that the banking industry’s increase in non-performing loans would eventually lead to many properties being sold by financial institutions, thus saturating the market and possibly driving fair values of non-performing loans and foreclosed collateral further downwards. Accordingly, during 2009 and continuing through the second quarter of 2010, the Company attempted to liquidate as many non-performing loans and assets as possible. The impact of those decisions and actions included a decline in non-performing loans in the second quarter of 2010 from the same period in the prior year, an increase in the provision for credit losses and net charge-offs in the second quarter of 2010 compared to the second quarter of 2009, an increase in the overall level of the allowance for loan losses and an increase in other real estate owned as the Company acquired properties for ultimate sale through foreclosure or deeds in lieu of foreclosure. Management believes these actions will serve the Company well in the future as they protect the Company from further valuation deterioration and permit Management to spend less time on resolution of problem loans and more time on growing the Company’s core business and the evaluation of other opportunities presented by this volatile economic environment. The Company’s goal in 2009 was to finish the year in a position to take advantage of the opportunities that many times result from distressed credit markets — specifically, a dislocation of assets, banks and people in the overall market. The Company continues to take advantage of these opportunities in 2010.
Further, the level of loans past due 30 days or more and still accruing interest, excluding covered loans, totaled $136.7 million as of June 30 2010, decreasing $21.9 million compared to the balance of $158.6 million as of March 31, 2010. Management is very cognizant of the volatility in and the fragile nature of the national and local economic conditions and that some borrowers can experience severe difficulties and default suddenly even if they have never previously been delinquent in loan payments. Accordingly, Management believes that the current economic conditions will continue to apply stress to the quality of the Company’s loan portfolio. Accordingly, Management plans to continue to direct significant attention toward the prompt identification, management and resolution of problem loans.
During the second quarter of 2010, the Company restructured certain loans by providing economic concessions to borrowers to better align the terms of their loans with their current ability to pay. At June 30, 2010, approximately $64.7 million in loans had terms modified, with $53.8 million of these modified loans in accruing status. These actions helped financially stressed borrowers maintain their homes or businesses and kept these loans in an accruing status for the Company. The Company considers restructuring loans when it appears that both the borrower and the Company can benefit and preserve a solid and sustainable relationship.
An acceleration or significantly extended continuation in real estate valuation and macroeconomic deterioration could result in higher default levels, a significant increase in foreclosure activity, a material decline in the value of the Company’s assets, or any combination of more than one of these trends could have a material adverse effect on the Company’s financial condition or results of operations.

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A positive result of the economic environment was that our mortgage banking operation benefited from the low interest rate environment during 2009. Beginning in late 2008 and continuing throughout 2009, demand for mortgage loans increased due to the fall in interest rates. The interest rate environment coupled with the acquisition of additional staff and infrastructure resulted in the higher levels of loan originations and loan sales in 2009. However, loan originations have decreased in 2010 compared to 2009 which resulted in lower gains on sales of loans to the secondary market to be recorded by the Company. An increase in loss indemnification claims by purchasers of the Company’s loans also caused mortgage banking revenues to be lower in the second quarter of 2010. Mortgages originated and sold totaled $732.5 million in the second quarter of 2010 compared to $1.5 billion in the second quarter of 2009. The Company’s practice is generally not to retain long-term fixed rate mortgages on its balance sheet in order to mitigate interest rate risk and consequently sells most of such mortgages into the secondary market.
Prior to its participation in the U.S. Treasury’s Capital Purchase Program, the Company was well-capitalized and in 2009 and 2010, the Company’s capital ratios exceeded the minimum levels required for it to be considered well-capitalized. The Company’s participation in the CPP provided the Company with additional capital to expand its franchise through growth in loans and deposits. Further, to support the Company’s growth and take advantage of other opportunities, in March 2010, the Company issued through a public offering a total of 6,670,000 shares of its common stock at $33.25 per share, including 870,000 shares issued at $33.25 per share pursuant to an over-allotment option granted to the underwriters of the offering. Net proceeds to the Company totaled $210.4 million.
In total, the Company increased its loan portfolio, excluding covered loans, from $7.6 billion at June 30, 2009 to $9.6 billion at June 30, 2010. This increase was primarily as a result of the purchase of the life insurance premium finance portfolio which contributed to a $1.2 billion increase in that loan portfolio. The Company continues to make new loans, including in the commercial and commercial real estate sector, where opportunities that meet our underwriting standards exist. The withdrawal of many banks in our area from active lending combined with our strong local relationships has presented us with opportunities to make new loans to well qualified borrowers who have been displaced from other institutions. For more information regarding changes in the Company’s loan portfolio, see “Financial Condition — Interest Earning Assets” and Note 6 (“Loans”) of the Financial Statements presented under Item 1 of this report.
Management considers the maintenance of adequate liquidity to be important to the management of risk. Accordingly, during 2009, the Company continued its practice of maintaining appropriate funding capacity to provide the Company with adequate liquidity for its ongoing operations. In this regard, the Company benefited from its strong deposit base, a liquid short-term investment portfolio and its access to funding from a variety of external funding sources, including exceptional sources provided or facilitated by the federal government for the benefit of U.S. financial institutions. Among such sources was the Federal Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility (the “TALF”). In September 2009 the Company securitized a portion of its property and casualty premium finance loan portfolio of $600 million, which was facilitated by the premium finance loans being eligible collateral under the TALF. The Federal Reserve Bank of New York ceased making new loans under the TALF on June 30, 2010.
The Company also benefited from its maintenance of fifteen separate banking charters, which allow the Company to offer its MaxSafe® product. Through the MaxSafe® product, the Company offers its customers the ability to maintain a depository account at each of the Company’s banking charters and thus receive fifteen times the ordinary FDIC limit, with the Company attending to much of the administrative difficulties this would ordinarily require. While the FDIC insurance limit, formerly $100,000 per depositor at each banking charter, has been raised by the FDIC to $250,000 per depositor at each banking charter, the MaxSafe® product has allowed the Company to attract large amounts of high quality deposits as financial distress has affected a number of banking institutions. At June 30, 2010, the Company had over $1 billion in overnight liquid funds and interest-bearing deposits with banks. Redeploying a portion of liquid assets into higher yielding assets while continuing to maintain adequate liquidity remains a key priority for 2010.
Community Banking
As of June 30, 2010, our community banking franchise consisted of 15 community banks (the “banks”) with 85 locations. Through these banks, we provide banking and financial services primarily to individuals, small to mid-sized businesses, local governmental units and institutional clients residing primarily in the banks’ local service areas. These services include traditional deposit products such as demand, NOW, money market, savings and time deposit accounts, as well as a number of unique deposit products targeted to specific market segments. The banks also offer home equity, home mortgage, consumer, real estate and commercial loans, safe deposit facilities, ATMs, internet banking and other innovative and traditional services specially tailored to meet the needs of customers in their market areas. Profitability of our community banking franchise is primarily driven by our net interest income and margin, our funding mix and related costs, the level of non-performing loans and other real estate owned, the amount of mortgage banking revenue and our history of establishing de novo banks.

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Net interest income and margin. The primary source of our revenue is net interest income. Net interest income is the difference between interest income and fees on earning assets, such as loans and securities, and interest expense on liabilities to fund those assets, including deposits and other borrowings. Net interest income can change significantly from period to period based on general levels of interest rates, customer prepayment patterns, the mix of interest-earning assets and the mix of interest-bearing and non-interest bearing deposits and borrowings.
Funding mix and related costs. Our most significant source of funding is core deposits, which are comprised of non-interest bearing deposits, non-brokered interest-bearing transaction accounts, savings deposits and domestic time deposits. Our branch network is our principal source of core deposits, which generally carry lower interest rates than wholesale funds of comparable maturities. Our profitability has been bolstered in recent quarters as fixed term certificates of deposit have been renewing at lower rates given the historically low interest rate levels in place recently.
Level of non-performing loans and other real estate owned. The level of non-performing loans and other real estate owned can significantly impact our profitability as these loans and other real estate owned do not accrue any income, can be subject to charge-offs and write-downs due to deteriorating market conditions and generally result in additional legal and collections expenses. Given the current economic conditions, these costs, specifically problem loan expenses, have been at elevated levels in recent quarters.
Mortgage banking revenue. Our community banking franchise is also influenced by the level of fees generated by the origination of residential mortgages and the sale of such mortgages into the secondary market. This revenue is significantly impacted by the level of interest rates associated with home mortgages. Recently, such interest rates have been historically low and customer refinancings have been high, although not as high as in the first six months of 2009. Additionally, in December 2008, we acquired certain assets and assumed certain liabilities of the mortgage banking business of Professional Mortgage Partners (“PMP”). As a result of the acquisition, we significantly increased the capacity of our mortgage-origination operations, primarily in the Chicago metropolitan market. The PMP transaction also changed the mix of our mortgage origination business in the Chicago market, resulting in a relatively greater portion of that business being retail, rather than wholesale, oriented. The primary risk of the PMP acquisition transaction relates to the integration of a significant number of locations and staff members into our existing mortgage operation during a period of increased mortgage refinancing activity. Costs in the mortgage business are variable as they primarily relate to commissions paid to originators.
Establishment of de novo operations. Our historical financial performance has been affected by costs associated with growing market share in deposits and loans, establishing and acquiring banks, opening new branch facilities and building an experienced management team. Our financial performance generally reflects the improved profitability of our banking subsidiaries as they mature, offset by the costs of establishing and acquiring banks and opening new branch facilities. From our experience, it generally takes over 13 months for new banks to achieve operational profitability depending on the number and timing of branch facilities added.
In determining the timing of the formation of de novo banks, the opening of additional branches of existing banks, and the acquisition of additional banks, we consider many factors, particularly our perceived ability to obtain an adequate return on our invested capital driven largely by the then existing cost of funds and lending margins, the general economic climate and the level of competition in a given market. We began to slow the rate of growth of new locations in 2007 due to tightening net interest margins on new business which, in the opinion of management, did not provide enough net interest spread to be able to garner a sufficient return on our invested capital. Since the second quarter of 2008, we have not established a new banking location either through a de novo opening or through an acquisition (other than FDIC-assisted transactions), due to the financial system crisis and recessionary economy and our decision to utilize our capital to support our existing franchise rather than deploy our capital for expansion through new locations which tend to operate at a loss in the early months of operation. Thus, while expansion activity during the past three years has been at a level below earlier periods in our history, we expect to resume de novo bank openings, formation of additional branches and acquisitions of additional banks when favorable market conditions return or particular expansion opportunities become available. On April 23, 2010, the Company announced that two of its wholly-owned subsidiary banks, Northbrook Bank & Trust Company and Wheaton Bank & Trust Company, in two FDIC-assisted transactions, had respectively acquired certain assets and liabilities and the banking operations of Lincoln Park Savings Bank (“Lincoln Park”) and Wheatland Bank (“Wheatland”).
In addition to the factors considered above, before we engage in expansion through de novo branches or banks we must first make a determination that the expansion fulfills our objective of enhancing shareholder value through potential future earnings growth and enhancement of the overall franchise value of the Company. Generally, we believe that, in normal market conditions, expansion through de novo growth is a better long-term investment than acquiring banks because the cost to bring a de novo location to profitability is generally substantially less than the premium paid for the acquisition of a healthy bank. Each opportunity to expand is unique from a cost and benefit perspective. Factors including the valuation of our stock, other economic market conditions, the size and scope of the particular expansion opportunity and competitive landscape all influence the decision to expand via de novo growth or through acquisition.

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Specialty Finance
Through our specialty finance segment, we offer financing of insurance premiums for businesses and individuals; accounts receivable financing, value-added, out-sourced administrative services; and other specialty finance businesses. We conduct our specialty finance businesses through indirect non-bank subsidiaries. Our wholly owned subsidiary, First Insurance Funding Corporation (“FIFC”) engages in the premium finance receivables business, our most significant specialized lending niche, including commercial insurance premium finance and life insurance premium finance.
Financing of Commercial Insurance Premiums
FIFC originated approximately $849.5 million in commercial insurance premium finance receivables in the second quarter of 2010. FIFC makes loans to businesses to finance the insurance premiums they pay on their commercial insurance policies. The loans are originated by FIFC working through independent medium and large insurance agents and brokers located throughout the United States. The insurance premiums financed are primarily for commercial customers’ purchases of liability, property and casualty and other commercial insurance. This lending involves relatively rapid turnover of the loan portfolio and high volume of loan originations. Because of the indirect nature of this lending and because the borrowers are located nationwide, this segment is more susceptible to third party fraud than relationship lending; however, management has established various control procedures to mitigate the risks associated with this lending. However, in the second quarter of 2010, fraud perpetrated against a number of premium finance companies in the industry, including the property and casualty division of our premium financing subsidiary, increased both the Company’s net charge-offs and provision for credit losses by $15.7 million. Actions have been taken by the Company to decrease the likelihood of this type of loss from recurring in this line of business for the Company. The Company has conducted a thorough review of the premium finance — commercial portfolio and found no signs of similar situations.
The majority of these loans are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments. Historically, FIFC originations that were not purchased by the banks were sold to unrelated third parties with servicing retained. However, during the third quarter of 2009, FIFC initially sold $695 million in commercial premium finance receivables to our indirect subsidiary, FIFC Premium Funding I, LLC, which in turn sold $600 million in aggregate principal amount of notes backed by such premium finance receivables in a securitization transaction sponsored by FIFC. Subsequent to December 31, 2009, this securitization transaction is accounted for as a secured borrowing and the securitization entity is treated as a consolidated subsidiary of the Company. Accordingly, beginning on January 1, 2010, all of the assets and liabilities of the securitization entity are included directly on the Company’s Consolidated Statement of Condition.
The primary driver of profitability related to the financing of commercial insurance premiums is the net interest spread that FIFC can produce between the yields on the loans generated and the cost of funds allocated to the business unit. The commercial insurance premium finance business is a competitive industry and yields on loans are influenced by the market rates offered by our competitors. We fund these loans either through the securitization facility described above or through our deposits, the cost of which is influenced by competitors in the retail banking markets in the Chicago and Milwaukee metropolitan areas.
Financing of Life Insurance Premiums
In 2007, FIFC began financing life insurance policy premiums generally for high net-worth individuals. In July 2009, FIFC expanded this niche lending business segment when it purchased a portfolio of domestic life insurance premium finance loans for an aggregate purchase price of $685.3 million. Also, as part of the purchase, an aggregate of $84.4 million of additional life insurance premium finance assets were available for future purchase by FIFC subject to the satisfaction of certain conditions. On October 2, 2009, the conditions were satisfied in relation to the majority of the additional life insurance premium finance assets and FIFC purchased $83.4 million of the $84.4 million of life insurance premium finance assets available for an aggregate purchase price of $60.5 million in cash.
FIFC originated approximately $94.8 million in life insurance premium finance receivables in the second quarter of 2010. These loans are originated directly with the borrowers with assistance from life insurance carriers, independent insurance agents, financial advisors and legal counsel. The life insurance policy is the primary form of collateral. In addition, these loans often are secured with a letter of credit, marketable securities or certificates of deposit. In some cases, FIFC may make a loan that has a partially unsecured position. Similar to the commercial insurance premium finance receivables, the majority of life insurance premium finance receivables are purchased by the banks in order to more fully utilize their lending capacity as these loans generally provide the banks with higher yields than alternative investments.
As with the commercial premium finance business, the primary driver of profitability related to the financing of life insurance premiums is the net interest spread that FIFC can produce between the yields on the loans generated and the cost of funds allocated to the business unit.
Profitability of financing both commercial and life insurance premiums is also meaningfully impacted by leveraging information technology systems, maintaining operational efficiency and increasing average loan size, each of which allows us to expand our loan volume without significant capital investment.

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Wealth Management Activities
We currently offer a full range of wealth management services through three separate subsidiaries, including trust and investment services, asset management and securities brokerage services, marketed primarily under the Wayne Hummer name.
The primary influences on the profitability of the wealth management business can be associated with the level of commission received related to the trading performed by the brokerage customers for their accounts and the amount of assets under management for which asset management and trust units receive a management fee for advisory, administrative and custodial services. As such, revenues are influenced by a rise or fall in the debt and equity markets and the resultant increase or decrease in the value of our client accounts on which our fees are based. The commissions received by the brokerage unit are not as directly influenced by the directionality of the debt and equity markets but rather the desire of our customers to engage in trading based on their particular situations and outlooks of the market or particular stocks and bonds. Profitability in the brokerage business is impacted by commissions which fluctuate over time.
Federal Government, Federal Reserve and FDIC Programs
Since October of 2008, the federal government, the Federal Reserve Bank of New York (the “New York Fed”) and the FDIC have made a number of programs available to banks and other financial institutions in an effort to ensure a well-functioning U.S. financial system. We participate in three of these programs: the CPP, administered by the Treasury, TALF, created by the New York Fed, and the Temporary Liquidity Guarantee Program (“TLGP”), created by the FDIC.
Participation in Capital Purchase Program. In October 2008, the Treasury announced that it intended to use a portion of the initial funds allocated to it pursuant to the Troubled Asset Relief Program (“TARP”), created by the Emergency Economic Stabilization Act of 2008, to invest directly in financial institutions through the newly-created CPP. At that time, U.S. Treasury Secretary Henry Paulson stated that the program was “designed to attract broad participation by healthy institutions” which “have plenty of capital to get through this period, but are not positioned to lend as widely as is necessary to support our economy.” Our management believed at the time of the CPP investment, as it does now, that Treasury’s CPP investment was not necessary for the Company’s short or long-term health. However, the CPP investment presented an opportunity for us. By providing us with a significant source of relatively inexpensive capital, the Treasury’s CPP investment allows us to accelerate our growth cycle and expand lending.
Consequently, we applied for CPP funds and our application was accepted by Treasury. As a result, on December 19, 2008, we entered into an agreement with the U.S. Department of the Treasury to participate in Treasury’s CPP, pursuant to which we issued and sold preferred stock and a warrant to Treasury in exchange for aggregate consideration of $250 million (the “CPP investment”). As a result of the CPP investment, our total risk based capital ratio as of December 31, 2008 increased from 10.3% to 13.1%. To be considered “well capitalized,” we must maintain a total risk-based capital ratio in excess of 10%. The terms of our agreement with Treasury impose significant restrictions upon us, including increased scrutiny by Treasury, banking regulators and Congress, additional corporate governance requirements, restrictions upon our ability to repurchase stock and pay dividends and, as a result of increasingly stringent regulations issued by Treasury following the closing of the CPP investment, significant restrictions upon executive compensation. Pursuant to the terms of the agreement between Treasury and us, Treasury is permitted to amend the agreement unilaterally in order to comply with any changes in applicable federal statutes.
The CPP investment provided the Company with additional capital resources which in turn permitted the expansion of the flow of credit to U.S. consumers and businesses beyond what we would have done without the CPP funding. The capital itself is not loaned to our borrowers but represents additional shareholders’ equity that has been leveraged by the Company to permit it to provide new loans to qualified borrowers and raise deposits to fund the additional lending without incurring excessive risk.
Due to the combination of our prior decisions in appropriately managing our risks, the capital support provided from the August 2008 private issuance of $50 million of convertible preferred stock and the March 2010 common stock issuance of $211 million, as well as the additional capital support from the CPP, we have been able to take advantage of opportunities when they have arisen and our banks continue to be active lenders within their communities. Without the additional funds from the CPP, our prudent management philosophy and strict underwriting standards likely would have required us to continue to restrain lending due to the need to preserve capital during these uncertain economic conditions.
For additional information on the terms of the preferred stock and the warrant, see Note 17 of the Consolidated Financial Statements.
TALF-Eligible Issuance. In September 2009, our indirect subsidiary, FIFC Premium Funding I, LLC, sold $600 million in aggregate principal amount of its Series 2009-A Premium Finance Asset Backed Notes, Class A (the “Notes”), which were issued in a securitization transaction sponsored by FIFC. FIFC Premium Funding I, LLC’s obligations under the Notes are secured by revolving loans made to buyers of property and casualty insurance policies to finance the related premiums payable by the buyers to the insurance companies for the policies. At the time of issuance, the Notes were eligible collateral under TALF and certain investors therefore received non-recourse funding from the New York Fed in order to purchase the Notes. As a result, FIFC believes it received greater proceeds at lower interest rates from the securitization than it otherwise would have received in non-TALF-eligible transactions. The Federal Reserve Bank of New York ceased making new loans under the TALF on June 30, 2010. As a result, it is possible that funding our growth will be more costly if

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we pursue similar transactions in the future. However, as is true in the case of the CPP investment, management views the TALF-eligible securitization as a funding mechanism that offered us the ability to accelerate our growth plan, rather than one essential to the maintenance of our “well capitalized” status.
Increased FDIC Insurance for Non-Interest-Bearing Transaction Accounts. In November 2008, the FDIC adopted a final rule establishing the TLGP. The TLGP provided two limited guarantee programs: One, the Debt Guarantee Program, that guaranteed newly-issued senior unsecured debt, and another, the Transaction Account Guarantee program (“TAG”) that guaranteed certain noninterest-bearing transaction accounts at insured depository institutions. All insured depository institutions that offer noninterest-bearing transaction accounts had the option to participate in either program. We did not participate in the Debt Guarantee Program. In December 2008, each of our subsidiary banks elected to participate in the TAG, which provides unlimited FDIC insurance coverage for the entire account balance in exchange for an additional insurance premium to be paid by the depository institution for accounts with balances in excess of the current FDIC insurance limit of $250,000. Although this additional insurance coverage was initially scheduled to expire on December 31, 2009, in October 2009 and April 2010, the FDIC notified depository institutions that it was extending the TAG program for additional six month periods at the option of participating banks. In each case, our subsidiary banks determined that it was in their best interest to continue participation in the TAG program and opted to participate for each additional six-month period. Unless further extended, the additional insurance coverage provided by the TAG is scheduled to expire at December 31, 2010. Upon expiration of the TAG, a provision of the Dodd-Frank Wall Street Reform Act (the “Dodd-Frank Act”), which takes effect on December 31, 2010, will provide unlimited Federal insurance of the net amount of non-interest-bearing transaction accounts at all insured depository institutions through December 31, 2013. The unlimited FDIC coverage provided under the Dodd-Frank Act applies to a more narrowly defined set of non-interest-bearing transaction accounts than the TAG. Specifically, transaction accounts that earn de minimis interest and accounts on which institutions reserve a right to require advance notice of withdrawals (e.g., NOW Accounts) are covered by the unlimited Federal deposit insurance provided under the TAG, but will not continue to be covered by unlimited Federal deposit insurance under the Dodd-Frank Act.
Acquisition of the Life Insurance Premium Finance Business
Overview
As previously described, on July 28, 2009 our subsidiary FIFC purchased the majority of the U.S. life insurance premium finance assets of subsidiaries of American International Group, Inc. Life insurance premium finance loans are generally used for estate planning purposes of high net worth borrowers, and, as described below, are collateralized by life insurance policies and their related cash surrender value and are often additionally secured by letters of credit, annuities, cash and marketable securities. Based upon an analysis of the payment patterns of the acquired life insurance premium finance loans over a seven year period, the Company believes that the average expected life of such loans is 5 to 7 years.
Credit Risk
The Company believes that its life insurance premium finance loans tend to have a lower level of risk and delinquency than the Company’s commercial and residential real estate loans because of the nature of the collateral. The life insurance policy is the primary form of collateral. If cash surrender value is not sufficient, then letters of credit, marketable securities or certificates of deposit are used to provide additional security. Since the collateral is highly liquid and generally has a value in excess of the loan amount, any defaults or delinquencies are generally cured relatively quickly by the borrower or the collateral is generally liquidated in an expeditious manner to satisfy the loan obligation. Greater than 95% of loans are fully secured. However, less than 5% of the loans are partially unsecured and in those cases, a greater risk exists for default. No loans are originated on a fully unsecured basis.
Fair Market Valuation at Date of Purchase and Allowance for Loan Losses
ASC 805, “Business Combinations” (ASC 805), requires acquired loans to be recorded at fair market value. The application of ASC 805 requires incorporation of credit related factors directly into the fair value of the loans recorded at the acquisition date, thereby eliminating separate recognition of the acquired allowance for loan losses on the acquirer’s balance sheet. Accordingly, the Company established a credit discount for each loan as part of the determination of the fair market value of such loan in accordance with those accounting principles at the date of acquisition. See Note 6 of the Financial Statements presented under Item 1 of this report for a detailed roll-forward of the aggregate credit discounts established and any activity associated with balances since the dates of acquisition. Any adverse changes in the deemed collectible nature of a loan would subsequently be provided through a charge to the income statement through a provision for credit losses and a corresponding establishment of an allowance for loan losses. There was no allowance for loan losses associated with this portfolio of loans at June 30, 2010.

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Acquisition of the Lincoln Park Bank and Wheatland Bank
On April 23, 2010, the Company acquired the banking operations of two entities in FDIC assisted transactions. Northbrook Bank & Trust Company acquired assets with a fair value of approximately $157 million and assumed liabilities with a fair value of approximately $192 million of Lincoln Park. Wheaton Bank & Trust Company acquired assets with a fair value of approximately $344 million and assumed liabilities with a fair value of approximately $416 million of Wheatland. Loans comprise the majority of the assets acquired in these transactions and are subject to loss sharing agreements with the FDIC whereby the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, other real estate owned (“OREO”), and certain other assets. The Company refers to the loans subject to these loss-sharing agreements as “covered loans.” Covered assets include covered loans, covered OREO and certain other covered assets. At the acquisition date, the Company estimated the fair value of the reimbursable losses to be approximately $113.8 million. The agreements with the FDIC require that the Company follow certain servicing procedures or risk losing the FDIC reimbursement of covered asset losses. The loans covered by the loss sharing agreements are classified and presented as covered loans and the estimated reimbursable losses are recorded as FDIC indemnification asset, both in the Consolidated Statements of Condition. The Company recorded the acquired assets and liabilities at their estimated fair values at the acquisition date. The fair value for loans reflected expected credit losses at the acquisition date, therefore the Company will only recognize a provision for credit losses and charge-offs on the acquired loans for any further credit deterioration. These transactions resulted in a bargain purchase gain of $26.5 million, $22.3 million for Wheatland and $4.2 million for Lincoln Park, and are shown as a component of non-interest income on the Company’s Consolidated Statement of Income.

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RESULTS OF OPERATIONS
Earnings Summary
The Company’s key operating measures for 2010, as compared to the same period last year, are shown below:
                         
    Three Months   Three Months   Percentage (%) or
    Ended   Ended   Basis Point (bp)
(Dollars in thousands, except per share data)   June 30 2010    June 30, 2009    Change
Net income
  $ 13,009     $ 6,549       99 %
Net income per common share — Diluted
    0.25       0.06       317  
 
                       
Net revenue (1)
    154,750       117,949       31  
Net interest income
    104,314       72,497       44  
 
                       
Core pre-tax earnings (2) (6)
    47,649       24,962       91  
 
                       
Net interest margin (2)
    3.43 %     2.91 %   52 bp
Net overhead ratio (3)
    1.26       1.41       (15 )
Efficiency ratio (2) (4)
    59.72       72.02       (1,230 )
Return on average assets
    0.39       0.24       15  
Return on average common equity
    2.98       0.79       219  
                         
    Six Months   Six Months   Percentage (%) or
    Ended   Ended   Basis Point (bp)
(Dollars in thousands, except per share data)   June 30 2010    June 30, 2009    Change
Net income
  $ 29,027     $ 12,907       125 %
Net income per common share — Diluted
    0.64       0.12       433  
 
                       
Net revenue (1)
    293,223       219,158       34  
Net interest income
    200,179       137,279       46  
 
                       
Core pre-tax earnings (2) (6)
    89,715       44,859       100  
 
                       
Net interest margin (2)
    3.41 %     2.81 %   60 bp
Net overhead ratio (3)
    1.30       1.47       (17 )
Efficiency ratio (2) (4)
    60.13       73.00       (1,287 )
Return on average assets
    0.45       0.24       21  
Return on average common equity
    3.86       0.75       311  
 
                       
At end of period
                       
Total assets
  $ 13,708,560     $ 11,359,536       21 %
Total loans
    9,599,726       7,595,476       26  
Total loans, including loans held-for-sale
    9,837,707       8,416,576       17  
Total deposits
    10,624,742       9,191,332       16  
Junior subordinated debentures
    249,493       249,493        
Total shareholders’ equity
    1,384,736       1,065,076       30  
Tangible common equity ratio (TCE) (2)
    6.0 %     4.4 %   160 bp
Book value per common share
    35.33       32.59       8 %
Market price per common share
    33.34       16.08       107  
 
                       
Excluding covered loans:
                       
Allowance for loan losses to total loans (5)
    1.14 %     1.12 %   2 bp
Allowance for credit losses to total loans (5)
    1.17       1.14     3
Non-performing loans to total loans
    1.45       3.14       (169 )
 
                       
Including covered loans:
                       
Allowance for loan losses to total loans (5)
    1.11 %     1.12 %   (1 )bp
Allowance for credit losses to total loans (5)
    1.13       1.14     (1 )
Non-performing loans to total loans
    2.50       3.14       (64 )
 
(1)   Net revenue is net interest income plus non-interest income.
 
(2)   See following section titled, “Supplementary Financial Measures/Ratios” for additional information on this performance mearue/ratio.
 
(3)   The net overhead ratio is calculated by netting total non-interest expense and total non-interest income, annualizing this amount, and dividing by that period’s total average assets. A lower ratio indicates a higher degree of efficiency.
 
(4)   The efficiency ratio is calculated by dividing total non-interest expense by tax-equivalent net revenues (less securities gains or losses). A lower ratio indicates more efficient revenue generation.
 
(5)   The allowance for credit losses includes both the allowance for loan losses and the allowance for lending-related commitments.
 
(6)   Core pre-tax earnings is adjusted to exclude the provision for credit losses and certain significant items.
Certain returns, yields, performance ratios, and quarterly growth rates are “annualized” in this presentation and throughout this report to represent an annual time period. This is done for analytical purposes to better discern for decision-making purposes underlying performance trends when compared to full-year or year-over-year amounts. For example, balance sheet growth rates are most often expressed in terms of an annual rate. As such, 5% growth during a quarter would represent an annualized growth rate of 20%.

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Supplemental Financial Measures/Ratios
The accounting and reporting polices of Wintrust conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity and core pre-tax earnings. Management believes that these measures and ratios provide users of the Company’s financial information with a more meaningful view of the performance of interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures and ratios differently.
Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses), measures how much it costs to produce one dollar of revenue. Securities gains or losses are excluded from this calculation to better match revenue from daily operations to operational expenses. Core pre-tax earnings is adjusted to exclude the provision for credit losses and certain significant items.
A reconciliation of certain non-GAAP performance measures and ratios used by the Company to evaluate and measure the Company’s performance to the most directly comparable GAAP financial measures is shown below:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(Dollars in thousands)   2010     2009     2010     2009  
(A) Interest income (GAAP)
  $ 149,248     $ 127,129     $ 291,743     $ 249,208  
Taxable-equivalent adjustment:
                               
– Loans
    90       110       169       267  
– Liquidity management assets
    366       450       727       902  
– Other earning assets
    5       10       10       21  
 
                       
Interest income — FTE
  $ 149,709     $ 127,699     $ 292,649     $ 250,398  
(B) Interest expense (GAAP)
    44,934       54,632       91,564       111,929  
 
                       
Net interest income — FTE
  $ 104,775     $ 73,067     $ 201,085     $ 138,469  
 
                       
(C) Net interest income (GAAP) (A minus B)
  $ 104,314     $ 72,497     $ 200,179     $ 137,279  
 
                               
(D) Net interest margin (GAAP)
    3.42 %     2.88 %     3.39 %     2.79 %
Net interest margin — FTE
    3.43 %     2.91 %     3.41 %     2.81 %
 
                               
(E) Efficiency ratio (GAAP)
    59.90 %     72.37 %     60.32 %     73.39 %
Efficiency ratio — FTE
    59.72 %     72.02 %     60.13 %     73.00 %
 
                               
Calculation of Tangible Common Equity ratio (at period end)
                               
Total shareholders’ equity
  $ 1,384,736     $ 1,065,076                  
Less: Preferred stock
    (286,460 )     (283,518 )                
Less: Intangible assets
    (291,300 )     (289,769 )                
                     
(F) Total tangible shareholders’ equity
  $ 806,976     $ 491,789                  
                     
 
                               
Total assets
    13,708,560       11,359,536                  
Less: Intangible assets
    (291,300 )     (289,769 )                
                     
(G) Total tangible assets
  $ 13,417,260     $ 11,069,767                  
                     
 
                               
Tangible common equity ratio (F/G)
    6.0 %     4.4 %                
 
                               
Income before taxes
  $ 20,790     $ 10,041     $ 46,280     $ 19,815  
Add: Provision for credit losses
    41,297       23,663       70,342       38,136  
Add: OREO expenses, net
    5,843       1,072       7,181       3,428  
Add: Recourse obligations on loans sold
    4,721             8,173        
Less: Gain on bargain purchases
    (26,494 )           (37,388 )      
Less: Trading (gains) losses
    1,538       (8,274 )     (4,435 )     (17,018 )
Less: (Gains) losses on available-for-sale securities, net
    (46 )     (1,540 )     (438 )     498  
     
Core pre-tax earnings
  $ 47,649     $ 24,962     $ 89,715     $ 44,859  
     

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Critical Accounting Policies
The Company’s Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States and prevailing practices of the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Certain policies and accounting principles inherently have a greater reliance on the use of estimates, assumptions and judgments, and as such have a greater possibility that changes in those estimates and assumptions could produce financial results that are materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event, are based on information available as of the date of the financial statements; accordingly, as information changes, the financial statements could reflect different estimates and assumptions. Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views critical accounting policies to include the determination of the allowance for loan losses and the allowance for losses on lending-related commitments, estimations of fair value, the valuations required for impairment testing of goodwill, the valuation and accounting for derivative instruments and income taxes as the accounting areas that require the most subjective and complex judgments, and as such could be most subject to revision as new information becomes available. For a more detailed discussion on these critical accounting policies, see “Summary of Critical Accounting Policies” beginning on page 39 of the Company’s 2009 Form 10-K.
Net Income
Net income for the quarter ended June 30, 2010 totaled $13.0 million, an increase of $6.5 million, or 100%, compared to the second quarter of 2009, and a decrease of approximately $3.0 million, or 19%, compared to the first quarter of 2010. On a per share basis, net income for the second quarter of 2010 totaled $0.25 per diluted common share, an increase of $0.19 per share as compared to the 2009 second quarter total of $0.06 per diluted common share. Compared to the first quarter of 2010, net income per diluted common share in the second quarter of 2010 decreased $0.16, or 39%. As a result of the Company’s issuance of 6.67 million common shares for net proceeds of $210.4 million in the first quarter of 2010 and favorable market pricing in the Company’s shares in the second quarter of 2010, average common shares and dilutive common shares in the second quarter of 2010 increased by approximately eight million shares, or 34%, compared to the same period in 2009.
The most significant factors affecting net income for the second quarter of 2010 as compared to the same period in the prior year include an increase in net interest income and a gain on bargain purchase as a result of the acquisition of the Lincoln Park and Wheatland, partially offset by an increase in the provision for credit losses, lower mortgage banking revenues and trading losses. The return on average common equity for the second quarter of 2010 was 2.98%, compared to 0.79% for the prior year second quarter and 4.93% for the first quarter of 2010.
Net income for the first six months of 2010 totaled $29.0 million, an increase of $16.1 million, or 125%, compared to $12.9 million for the same period in 2009. On a per share basis, net income per diluted common share was $0.64 for the first six months of 2010, an increase of $0.52 per share compared to $0.12 for the first six months of 2009. Return on average common equity for the first six months of 2010 was 3.86% versus 0.75% for the same period of 2009.

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Net Interest Income
Net interest income, which represents the difference between interest income and fees on earning assets and interest expense on deposits and borrowings, is the major source of earnings for the Company. Interest rate fluctuations and the volume and mix of interest-earning assets and interest-bearing liabilities impact net interest income. Net interest margin represents tax-equivalent net interest income as a percentage of the average earning assets during the period.
Quarter Ended June 30, 2010 compared to the Quarter Ended June 30, 2009
The following table presents a summary of the Company’s net interest income and related net interest margin, calculated on a fully taxable equivalent basis, for the second quarter of 2010 as compared to the second quarter of 2009 (linked quarters):
                                                 
    For the Three Months Ended     For the Three Months Ended  
    June 30, 2010     June 30, 2009  
(Dollars in thousands)   Average     Interest     Rate     Average     Interest     Rate  
Liquidity management assets (1) (2) (7)
  $ 2,613,179     $ 13,305       2.04 %   $ 1,851,179     $ 17,102       3.71 %
Other earning assets (2) (3) (7)
    62,874       515       3.28       22,694       185       3.27  
Loans, net of unearned income (2) (4) (7)
    9,356,033       133,207       5.71       8,212,572       110,412       5.39  
Covered loans
    210,030       2,682       5.12                    
         
Total earning assets (7)
  $ 12,242,116     $ 149,709       4.91 %   $ 10,086,445     $ 127,699       5.08 %
         
Allowance for loan losses
    (108,764 )                     (72,990 )                
Cash and due from banks
    137,531                       118,402                  
Other assets
    1,119,654                       905,611                  
 
                                           
Total assets
  $ 13,390,537                     $ 11,037,468                  
 
                                           
 
                                               
Interest-bearing deposits
  $ 9,348,541     $ 31,626       1.36 %   $ 8,097,096     $ 43,502       2.15 %
Federal Home Loan Bank advances
    417,835       4,094       3.93       435,983       4,503       4.14  
Notes payable and other borrowings
    217,751       1,439       2.65       249,123       1,752       2.82  
Secured borrowings — owed to securitization investors
    600,000       3,115       2.08                    
Subordinated notes
    57,198       256       1.77       66,648       428       2.54  
Junior subordinated debentures
    249,493       4,404       6.98       249,494       4,447       7.05  
         
Total interest-bearing liabilities
  $ 10,890,818     $ 44,934       1.65 %   $ 9,098,344     $ 54,632       2.41 %
         
Non-interest bearing deposits
    932,046                       754,479                  
Other liabilities
    195,984                       117,250                  
Equity
    1,371,689                       1,067,395                  
 
                                           
Total liabilities and shareholders’ equity
  $ 13,390,537                     $ 11,037,468                  
 
                                           
 
                                               
Interest rate spread (5) (7)
                    3.26 %                     2.67 %
Net free funds/contribution (6)
  $ 1,351,298               0.17     $ 988,101               0.24  
 
                                       
Net interest income/Net interest margin (7)
          $ 104,775       3.43 %           $ 73,067       2.91 %
                         
 
(1)   Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 
(2)   Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended June 30, 2010 and 2009 were $461,000 and $570,000.
 
(3)   Other earning assets include brokerage customer receivables and trading account securities.
 
(4)   Loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 
(5)   Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
 
(6)   Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
 
(7)   See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.

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The higher level of net interest income recorded in the second quarter of 2010 compared to the second quarter of 2009 was primarily attributable to the impact of the acquisition of the life insurance premium finance assets in the second half of 2009 and lower retail deposit costs. Approximately $1.1 billion of the increase in average total loans is attributable to life insurance premium finance loans including those purchased in the transaction or originated by the Company.
In the second quarter of 2010, the yield on earning assets decreased 17 basis points as the yield on liquidity management assets declined by 167 basis points and the rate on interest-bearing liabilities decreased 76 basis points compared to the second quarter of 2009. Retail deposit re-pricing opportunities over the past 12 months, due to a sustained low interest rate environment and more stable financial markets, contributed to the majority of this decreased cost. The rate paid on interest-bearing deposits decreased 79 basis points when compared to the second quarter of 2009.
Quarter Ended June 30, 2010 compared to the Quarter Ended March 31, 2010
The following table presents a summary of the Company’s net interest income and related net interest margin, calculated on a fully taxable equivalent basis, for the second quarter of 2010 as compared to the first quarter of 2010 (sequential quarters):
                                                 
    For the Three Months Ended     For the Three Months Ended  
    June 30, 2010     March 31, 2010  
(Dollars in thousands)   Average     Interest     Rate     Average     Interest     Rate  
Liquidity management assets (1) (2) (7)
  $ 2,613,179     $ 13,305       2.04 %   $ 2,384,122     $ 13,155       2.24 %
Other earning assets (2) (3) (7)
    62,874       515       3.28       26,269       164       2.53  
Loans, net of unearned income (2) (4) (7)
    9,356,033       133,207       5.71       9,150,078       129,623       5.75  
Covered loans
    210,030       2,682       5.12                    
         
Total earning assets (7)
  $ 12,242,116     $ 149,709       4.91 %   $ 11,560,469     $ 142,942       5.01 %
         
Allowance for loan losses
    (108,764 )                     (107,257 )                
Cash and due from banks
    137,531                       113,514                  
Other assets
    1,119,654                       1,024,091                  
 
                                           
Total assets
  $ 13,390,537                     $ 12,590,817                  
 
                                           
Interest-bearing deposits
  $ 9,348,541     $ 31,626       1.36 %   $ 8,818,012     $ 33,212       1.53 %
Federal Home Loan Bank advances
    417,835       4,094       3.93       429,195       4,346       4.11  
Notes payable and other borrowings
    217,751       1,439       2.65       225,919       1,462       2.63  
Secured borrowings — owed to securitization investors
    600,000       3,115       2.08       600,000       2,995       2.02  
Subordinated notes
    57,198       256       1.77       60,000       241       1.60  
Junior subordinated debentures
    249,493       4,404       6.98       249,493       4,375       7.01  
         
Total interest-bearing liabilities
  $ 10,890,818     $ 44,934       1.65 %   $ 10,382,619     $ 46,631       1.82 %
         
Non-interest bearing deposits
    932,046                       858,875                  
Other liabilities
    195,984                       153,132                  
Equity
    1,371,689                       1,196,191                  
 
                                           
Total liabilities and shareholders’ equity
  $ 13,390,537                     $ 12,590,817                  
 
                                           
Interest rate spread (5) (7)
                    3.26 %                     3.19 %
Net free funds/contribution (6)
  $ 1,351,298               0.17     $ 1,177,850               0.19  
 
                                       
Net interest income/Net interest margin (7)
          $ 104,775       3.43 %           $ 96,311       3.38 %
                         
 
(1)   Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 
(2)   Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the three months ended June 30, 2010 was $461,000 and for the three months ended March 31, 2010 was $446,000.
 
(3)   Other earning assets include brokerage customer receivables and trading account securities.
 
(4)   Loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 
(5)   Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
 
(6)   Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
 
(7)   See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.

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In the second quarter of 2010, the yield on loans decreased 4 basis points and the rate on interest-bearing deposits decreased 17 basis points compared to the first quarter of 2010. Opportunities exist for further net interest margin expansion if the Company can re-deploy low yielding liquidity management assets into higher yielding outstanding loan balances and continue to lower the re-pricing of maturing retail certificates of deposit.
Six months Ended June 30, 2010 compared to the Six months Ended June 30, 2010
The following table presents a summary of the Company’s net interest income and related net interest margin, calculated on a fully taxable equivalent basis, for the first six months of 2010 as compared to the first six months of 2009:
                                                 
    For the Six Months Ended     For the Six Months Ended  
    June 30, 2010     June 30, 2009  
(Dollars in thousands)   Average     Interest     Rate     Average     Interest     Rate  
Liquidity management assets (1) (2) (7)
  $ 2,485,713     $ 26,459       2.15 %   $ 1,845,283     $ 32,602       3.56 %
Other earning assets (2) (3) (7)
    58,291       679       2.35       22,412       340       3.06  
Loans, net of unearned income (2) (4) (7)
    9,253,693       262,829       5.73       8,065,058       217,456       5.44  
Covered loans
    105,595       2,682       5.12                    
         
Total earning assets (7)
  $ 11,903,292     $ 292,649       4.96 %   $ 9,932,753     $ 250,398       5.08 %
         
Allowance for loan losses
    (108,019 )                     (72,537 )                
Cash and due from banks
    125,589                       117,615                  
Other assets
    1,072,194                       903,694                  
 
                                           
Total assets
  $ 12,993,056                     $ 10,881,525                  
 
                                           
Interest-bearing deposits
  $ 9,084,587     $ 64,838       1.44 %   $ 7,921,810     $ 89,455       2.28 %
Federal Home Loan Bank advances
    423,484       8,440       4.02       435,983       8,956       4.14  
Notes payable and other borrowings
    221,812       2,901       2.64       276,893       3,622       2.64  
Secured borrowings — owed to securitization investors
    600,000       6,110       2.05                    
Subordinated notes
    58,591       496       1.69       68,315       1,008       2.93  
Junior subordinated debentures
    249,493       8,779       7.00       249,500       8,888       7.09  
         
Total interest-bearing liabilities
  $ 10,637,967     $ 91,564       1.73 %   $ 8,952,501     $ 111,929       2.52 %
         
Non-interest bearing deposits
    895,650                       744,251                  
Other liabilities
    174,979                       120,185                  
Equity
    1,284,460                       1,064,588                  
 
                                           
Total liabilities and shareholders’ equity
  $ 12,993,056                     $ 10,881,525                  
 
                                           
Interest rate spread (5) (7)
                    3.23 %                     2.56 %
Net free funds/contribution (6)
  $ 1,265,325               0.18     $ 980,252               0.25  
 
                                       
Net interest income/Net interest margin (7)
          $ 201,085       3.41 %           $ 138,469       2.81 %
                         
 
(1)   Liquidity management assets include available-for-sale securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements.
 
(2)   Interest income on tax-advantaged loans, trading account securities and securities reflects a tax-equivalent adjustment based on a marginal federal corporate tax rate of 35%. The total adjustments for the six months ended June 30, 2010 was $906,000 and for the six months ended June 30, 2009 was $1.2 million.
 
(3)   Other earning assets include brokerage customer receivables and trading account securities.
 
(4)   Loans, net of unearned income, include loans held-for-sale and non-accrual loans.
 
(5)   Interest rate spread is the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities.
 
(6)   Net free funds are the difference between total average earning assets and total average interest-bearing liabilities. The estimated contribution to net interest margin from net free funds is calculated using the rate paid for total interest-bearing liabilities.
 
(7)   See “Supplemental Financial Measures/Ratios” for additional information on this performance measure/ratio.

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Tax-equivalent net interest income for the first six months of 2010 totaled $201.1 million, an increase of $62.6 million, or 45%, as compared to the $138.5 million recorded in the first six months of 2009. The higher level of net interest income recorded was primarily attributable to the impact of the acquisition of the life insurance premium finance assets in the second half of 2009 and lower retail deposit costs. Approximately $1.1 billion of the increase in average total loans is attributable to life insurance premium finance loans including those purchased in the transaction or originated by the Company.
In the first six months of 2010, the yield on earning assets decreased 12 basis points as the yield on liquidity management assets declined by 141 basis points and the rate on interest-bearing liabilities decreased 79 basis points compared to the first six months of 2009. Retail deposit re-pricing opportunities over the past 12 months, due to a sustained low interest rate environment and more stable financial markets, contributed to the majority of this decreased cost. The rate paid on interest-bearing deposits decreased 84 basis points when compared to the first six months of 2009.
Analysis of Changes in Tax-equivalent Net Interest Income
The following table presents an analysis of the changes in the Company’s tax-equivalent net interest income comparing the three-month periods ended June 30, 2010 and March 31, 2010, the six-month periods ended June 30, 2010 and June 30, 2009 and the three-month periods ended June 30, 2010 and June 30, 2009. The reconciliations set forth the changes in the tax-equivalent net interest income as a result of changes in volumes, changes in rates and differing number of days in each period:
                         
    Second Quarter     First Six Months     Second Quarter  
    of 2010     of 2010     of 2010  
    Compared to     Compared to     Compared to  
    First Quarter     First Six Months     Second Quarter  
(Dollars in thousands)   of 2010     of 2009     of 2009  
Tax-equivalent net interest income for comparative period
  $ 96,311     $ 138,469     $ 73,067  
Change due to mix and growth of earning assets and interest-bearing liabilities (volume)
    4,154       22,848       12,225  
Change due to interest rate fluctuations (rate)
    3,253       39,768       19,483  
Change due to number of days in each period
    1,057              
 
                 
 
                       
Tax-equivalent net interest income for the period ended June 30, 2010
  $ 104,775     $ 201,085     $ 104,775  
 
                 

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Non-interest Income
For the second quarter of 2010, non-interest income totaled $50.4 million, an increase of $5.0 million, or 11%, compared to the second quarter of 2009. The increase was primarily attributable to the bargain purchase gains related to the two FDIC-assisted bank acquisitions and higher wealth management revenues, partially offset by a decrease in mortgage banking revenue and trading gains. For the first six months of 2010, non-interest income totaled $93.0 million, an increase of $11.2 million, or 14%, compared to the first six months of 2009.
The following table presents non-interest income by category for the periods presented:
                                 
    Three Months Ended              
    June 30,     $     %  
(Dollars in thousands)   2010     2009     Change     Change  
Brokerage
  $ 5,712     $ 4,280     $ 1,432       33  
Trust and asset management
    3,481       2,603       878       34  
 
                       
Total wealth management
    9,193       6,883       2,310       34  
 
                       
 
                               
Mortgage banking
    7,985       22,596       (14,611 )     (65 )
Service charges on deposit accounts
    3,371       3,183       188       6  
Gain on sales of premium finance receivables
          196       (196 )     (100 )
Gains (losses) on available-for-sale securities, net
    46       1,540       (1,494 )     (97 )
Gain on bargain purchases
    26,494             26,494     NM  
Trading gains (losses)
    (1,538 )     8,274       (9,812 )     (119 )
Other:
                               
Fees from covered call options
    169             169     NM  
Bank Owned Life Insurance
    418       565       (147 )     (26 )
Administrative services
    708       454       254       56  
Miscellaneous
    3,590       1,761       1,829       104  
 
                       
Total other
    4,885       2,780       2,105       76  
 
                       
Total non-interest income
  $ 50,436     $ 45,452     $ 4,984       11  
 
                       
                                 
    Six Months Ended              
    June 30,     $     %  
(Dollars in thousands)   2010     2009     Change     Change  
Brokerage
  $ 11,266     $ 8,099     $ 3,167       39  
Trust and asset management
    6,594       4,710       1,884       40  
 
                       
Total wealth management
    17,860       12,809       5,051       39  
 
                       
 
                               
Mortgage banking
    17,713       38,828       (21,115 )     (54 )
Service charges on deposit accounts
    6,703       6,153       550       9  
Gain on sales of premium finance receivables
          518       (518 )     (100 )
Gains (losses) on available-for-sale securities, net
    438       (498 )     936       (188 )
Gain on bargain purchases
    37,388             37,388     NM  
Trading gains
    4,435       17,018       (12,583 )     (74 )
Other:
                               
Fees from covered call options
    459       1,998       (1,539 )     (77 )
Bank Owned Life Insurance
    1,041       851       190       22  
Administrative services
    1,289       937       352       38  
Miscellaneous
    5,718       3,265       2,453       75  
 
                       
Total other
    8,507       7,051       1,456       21  
 
                       
Total non-interest income
  $ 93,044     $ 81,879       11,165       14  
 
                       
 
NM = Not Meaningful

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Wealth management revenue is comprised of the trust and asset management revenue of Wayne Hummer Trust Company and the asset management fees, brokerage commissions, trading commissions and insurance product commissions at Wayne Hummer Investments and Wayne Hummer Asset Management Company. Wealth management revenue totaled $9.2 million in the second quarter of 2010 and $6.9 million in the second quarter of 2009. Increased asset valuations due to equity market improvements have helped revenue growth from trust and asset management activities. Additionally, the improvement in the equity markets overall have led to the increase of the brokerage component of wealth management revenue as customer trading activity has increased.
Mortgage banking revenue includes revenue from activities related to originating, selling and servicing residential real estate loans for the secondary market. For the quarter ended June 30, 2010, this revenue source totaled $8.0 million, a decrease of $14.6 million when compared to the second quarter of 2009. Mortgages originated and sold totaled $732 million in the second quarter of 2010 compared to $687 million in the first quarter of 2010 and $1.5 billion in the second quarter of 2009. The decrease in mortgage banking revenue in the second quarter of 2010 as compared to the second quarter of 2009 resulted primarily from a decrease in loan originations, changes in the fair market value of mortgage servicing rights, valuation fluctuations of mortgage banking derivatives and fair value accounting for certain residential mortgage loans held for sale and an increase in loss indemnification claims by purchasers of the Company’s loans. The Company enters into residential mortgage loan sale agreements with investors in the normal course of business. These agreements provide recourse to investors through certain representations concerning credit information, loan documentation, collateral and insurability. Investors are aggressively requesting the Company to indemnify them against losses on certain loans or to repurchase loans which the investors believe do not comply with applicable representations. The increase in the velocity of the requests for loss indemnification has negatively impacted mortgage banking revenue as additional recourse expense was recorded over the past two quarters. This liability on loans expected to be repurchased from loans sold to investors is based on trends in repurchase and indemnification requests, actual loss experience, known and inherent risks in the loan, and current economic conditions.
A summary of the mortgage banking revenue components is shown below:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(Dollars in thousands)   2010     2009     2010     2009  
Mortgage loans originated and sold
  $ 732,464     $ 1,508,536     $ 1,419,144     $ 2,753,665  
 
                               
Mortgage loans serviced
    756,451       690,000                  
Fair value of mortgage servicing rights (MSRs)
    5,347       6,278                  
MSRs as a percentage of loans serviced
    0.71 %     0.91 %                
 
                               
Gain on sales of loans
  $ 17,713     $ 21,629     $ 31,191     $ 40,230  
Derivative/Fair value, net
    (3,228 )     526       (2,988 )     (184 )
Mortgage servicing rights
    (1,779 )     441       (2,317 )     (1,218 )
Recourse obligations on loans sold
    (4,721 )           (8,173 )      
 
                       
Total mortgage banking revenue
  $ 7,985     $ 22,596     $ 17,713     $ 38,828  
 
                       
Gain on sales of loans as a percentage of loans sold (1)
    1.98 %     1.47 %     1.99 %     1.45 %
 
(1)   Includes derivative/fair value, net.
All mortgage loan servicing by the Company is performed by four of its subsidiary banks. All loans originated and sold into the secondary market by its mortgage subsidiary, Wintrust Mortgage Company, have been sold with mortgage servicing rights released (sold to the investors). Mortgage servicing rights are carried on the balance sheet at fair value.
Service charges on deposit accounts totaled $3.4 million for the second quarter of 2010, an increase of $188,000, or 6%, when compared to the same quarter of 2009. On a year-to-date basis, service charges on deposit accounts totaled $6.7 million, an increase of $550,000, or 9%, when compared to the same period of 2009. The majority of deposit service charges relates to customary fees on overdrawn accounts and returned items. The level of service charges received is substantially below peer group levels, as management believes in the philosophy of providing high quality service without encumbering that service with numerous activity charges.
As a result of the new accounting requirements beginning January 1, 2010, loans transferred into the securitization facility are accounted for as collateral for a secured borrowing rather than a sale. Therefore, the Company no longer recognizes gains on sales of premium finance receivables for loans transferred into the securitization. Gains recognized in the second quarter and the first six months of 2009 relate to the clean up calls on previous sales of premium finance receivables — commercial to unrelated third parties.

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The Company recognized a $46,000 net gain on available-for-sale securities in the second quarter of 2010 compared to a net gain of $1.5 million in the prior year quarter. For the six months ended June 30, 2010 and 2009, the Company recognized net gains of $438,000 and net losses of $498,000, respectively. Net gains (losses) on available-for-sale securities include other-than-temporary impairment (“OTTI”) charges recognized in income. In the first quarter of 2009, the Company recognized $2.1 million of OTTI charges on certain corporate debt investment securities. For the quarter and six months ended June 30, 2010, the Company recognized no OTTI charges on corporate debt investment securities. See Note 5 of the Financial Statements presented under Item 1 of this report for details of OTTI charges.
The gain on bargain purchases of $26.5 million recognized in the second quarter of 2010 related to the two FDIC-assisted bank acquisitions during the period. On April 23, 2010, the Company announced that two of its wholly-owned subsidiary banks, Northbrook and Wheaton, in two FDIC-assisted transactions, had respectively acquired certain assets and liabilities and the banking operations of Lincoln Park and Wheatland. For the six months-ended June 30, 2010, the Company recognized $37.4 million of bargain purchase gains as a result of the bank acquisitions noted above as well as the acquisition of the life insurance premium finance receivable portfolio. In the first quarter of 2010, third party consents were received and all remaining funds held in escrow for the purchase of the life insurance premium finance receivable portfolio were released, resulting in recognition of the remaining deferred bargain purchase gain.
Trading losses of $1.5 million were recognized by the Company in the second quarter of 2010 compared to income of $8.3 million in the second quarter of 2009. On a year-to-date basis, trading gains totaled $4.4 million, a decrease of $12.6 million, or 74%, when compared to the same period of 2009. Lower trading income in 2010 resulted primarily from realizing larger market value increases in the prior year on certain collateralized mortgage obligations held in trading.

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Non-interest Expense
Non-interest expense for the second quarter of 2010 totaled $92.7 million and increased approximately $8.4 million, or 10%, from the second quarter 2009 total of $84.2 million. On a year-to-date basis, non-interest expense for 2010 totaled $176.6 million and increased $15.4 million, or 10%, over the same period in 2009. The following table presents non-interest expense by category for the periods presented:
                                 
    Three Months Ended              
    June 30,     $     %  
(Dollars in thousands)   2010     2009     Change     Change  
Salaries and employee benefits
  $ 50,649     $ 46,015     $ 4,634       10  
Equipment
    4,046       4,015       31       1  
Occupancy, net
    6,033       5,608       425       8  
Data processing
    3,669       3,216       453       14  
Advertising and marketing
    1,470       1,420       50       4  
Professional fees
    3,957       2,871       1,086       38  
Amortization of other intangible assets
    674       676       (2 )     (0 )
FDIC insurance
    5,005       9,121       (4,116 )     (45 )
OREO expenses, net
    5,843       1,072       4,771       445  
Other:
                               
Commissions – 3rd party brokers
    1,097       791       306       39  
Postage
    1,229       1,146       83       7  
Stationery and supplies
    761       793       (32 )     (4 )
Miscellaneous
    8,230       7,501       729       10  
 
                       
Total other
    11,317       10,231       1,086       11  
 
                       
Total non-interest expense
  $ 92,663     $ 84,245     $ 8,418       10  
 
                       
                                 
    Six Months Ended              
    June 30,     $     %  
(Dollars in thousands)   2010     2009     Change     Change  
Salaries and employee benefits
  $ 99,721     $ 90,835     $ 8,886       10  
Equipment
    7,941       7,953       (12 )     (0 )
Occupancy, net
    12,263       11,798       465       4  
Data processing
    7,076       6,352       724       11  
Advertising and marketing
    2,784       2,515       269       11  
Professional fees
    7,064       5,754       1,310       23  
Amortization of other intangible assets
    1,319       1,363       (44 )     (3 )
FDIC insurance
    8,814       12,134       (3,320 )     (27 )
OREO expenses, net
    7,181       3,428       3,753       109  
Other:
                               
Commissions – 3rd party brokers
    2,058       1,495       563       38  
Postage
    2,339       2,327       12       1  
Stationery and supplies
    1,493       1,561       (68 )     (4 )
Miscellaneous
    16,548       13,692       2,856       21  
 
                       
Total other
    22,438       19,075       3,363       18  
 
                       
Total non-interest expense
  $ 176,601     $ 161,207     $ 15,394       10  
 
                       
Salaries and employee benefits comprised 55% of total non-interest expense in the second quarter of 2010 and 2009. Salaries and employee benefits expense increased $4.6 million, or 10%, in the second quarter of 2010 compared to the second quarter of 2009 primarily as a result of the growth in the commercial lending staff throughout the Company, the salaries and benefits related to the staff associated with the life insurance premium finance portfolio acquired in the third quarter of 2009 and increases in base compensation, partially offset by lower commission and incentive compensation expenses related to mortgage banking activities as a result of lower mortgage loan origination volumes. On a year-to-date basis, salaries and employee benefits increased $8.9 million, or 10%, compared to the same period in 2009 primarily as a result of the same factors noted above in the discussion of the quarterly increase.

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Equipment expense, which includes furniture, equipment and computer software depreciation and repairs and maintenance costs, totaled $4.0 million for the second quarter of 2010 representing a 1% increase compared to the same period of 2009. On a year-to-date basis, equipment expense was $7.9 million in 2010, a decrease of $12,000, or relatively unchanged, compared to the same period of 2009.
Occupancy expense for the second quarter of 2010 was $6.0 million, an increase of $425,000, or 8%, compared to the same period of 2009. Occupancy expense includes depreciation on premises, real estate taxes, utilities, and maintenance of premises, as well as net rent expense for leased premises. On a year-to-date basis, occupancy expense was $12.3 million in 2010, an increase of $465,000, or 4%, compared to the same period of 2009.
Data processing expenses totaled $3.7 million in the second quarter of 2010, representing an increase of $453,000, or 14%, compared to the second quarter of 2009. The increase is primarily due to the overall growth of loan and deposit accounts. On a year-to-date basis, data processing expense was $7.1 million in 2010, an increase of $724,000, or 11%, compared to the same period of 2009.
Professional fees include legal, audit and tax fees, external loan review costs and normal regulatory exam assessments. Professional fees for the second quarter of 2010 were $4.0 million, an increase of $1.1 million, or 38%, compared to the same period in 2009. On a year-to-date basis, professional fees were $7.1 million in 2010, an increase of $1.3 million, or 23%, compared to the same period of 2009. These increases are primarily a result of increased legal costs related to non-performing assets and recent bank acquisitions.
FDIC insurance totaled $5.0 million in the second quarter of 2010, a decrease of $4.1 million compared to $9.1 million in the second quarter of 2009. On a year-to-date basis, FDIC insurance was $8.8 million in 2010, a decrease of $3.3 million, or 27%, compared to the same period of 2009. The reduction in FDIC insurance expense is primarily the result of the FDIC imposing an industry-wide special assessment on financial institutions in the prior year second quarter.
OREO expenses include all costs related with obtaining, maintaining and selling of other real estate owned properties. This expense in the current quarter and in the year-to-period ended June 30, 2010 increased $4.8 million and $3.8 million, respectively, compared to the same periods in the prior year. These increases in OREO expenses primarily related to higher valuation adjustments and increased maintenance costs due to the higher number of properties held in OREO in the second quarter of 2010 as compared to the second quarter and first six months of 2009.
Miscellaneous expense includes expenses such as ATM expenses, correspondent bank charges, directors’ fees, telephone, travel and entertainment, corporate insurance, dues and subscriptions, problem loan expenses and lending origination costs that are not deferred. Miscellaneous expenses in the second quarter of 2010 increased $729,000, or 10%, compared to the same period in the prior year. On a year-to-date basis, miscellaneous expense increased $2.9 million, or 21%, compared to the same period in the prior year. The increase in the second quarter of 2010 compared to the same period in the prior year is primarily attributable to a higher level of problem loan expenses and the general growth in the Company’s business.
Income Taxes
The Company recorded income tax expense of $7.8 million for the three months ended June 30, 2010, compared to $3.5 million for same period of 2009. Income tax expense was $17.3 million and $6.9 million for the six months ended June 30, 2010 and 2009, respectively. The effective tax rates were 37.4% and 34.8% for the second quarters of 2010 and 2009, respectively and 37.3% and 34.9% for the 2010 and 2009 year-to-date periods, respectively. The higher effective tax rates in the 2010 quarterly and year-to-date periods as compared to the same periods of 2009, are primarily a result of higher levels of pretax net income relative to tax-advantaged income in the periods.
Operating Segment Results
As described in Note 13 to the Consolidated Financial Statements, the Company’s operations consist of three primary segments: community banking, specialty finance and wealth management. The Company’s profitability is primarily dependent on the net interest income, provision for credit losses, non-interest income and operating expenses of its community banking segment. The net interest income of the community banking segment includes interest income and related interest costs from portfolio loans that were purchased from the specialty finance segment. For purposes of internal segment profitability analysis, management reviews the results of its specialty finance segment as if all loans originated and sold to the community banking segment were retained within that segment’s operations.
Similarly, for purposes of analyzing the contribution from the wealth management segment, management allocates a portion of the net interest income earned by the community banking segment on deposit balances of customers of the wealth management segment to the wealth management segment. (See “wealth management deposits” discussion in the Deposits section of this report for more information on these deposits.)

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The community banking segment’s net interest income for the quarter ended June 30, 2010 totaled $97.4 million as compared to $69.6 million for the same period in 2009, an increase of $27.8 million, or 40%. On a year-to-date basis, net interest income totaled $185.4 million for the first six months of 2010, an increase of $53.9 million, or 41%, as compared to the $131.5 million recorded last year. These increases are primarily attributable to the acquisition of the life insurance premium finance portfolio, the two FDIC-assisted bank acquisitions and the ability to raise interest-bearing deposits at more reasonable rates. The community banking segment’s non-interest income totaled $41.6 million in the second quarter of 2010, an increase of $13.4 million, or 48%, when compared to the second quarter of 2009 total of $28.2 million. On a year-to-date basis, the segment’s non-interest income totaled $56.8 million in the first six months of 2010, an increase of $5.1 million, or 10%, when compared to the first six months of 2009 total of $51.7 million. These increases are primarily attributable to the $26.5 million of bargain purchase gains in the second quarter of 2010 related to the two FDIC-assisted bank acquisitions partially offset by lower mortgage banking revenues. See Note 3 of the Financial Statements presented under Item 1 of this report for a discussion of the bargain purchases. The community banking segment’s net income for the quarter ended June 30, 2010 totaled $24.6 million, an increase of $19.9 million, as compared to the second quarter of 2009 net income of $4.7 million. The after-tax profit for the six months ended June 30, 2010, totaled $30.6 million, an increase of $20.0 million, or 190% as compared to the prior year total of $10.6 million.
Net interest income for the specialty finance segment totaled $15.3 million for the quarter ended June 30, 2010, compared to $19.2 million for the same period in 2009, a decrease of $3.9 million or 20%. On a year-to-date basis, net interest income totaled $29.7 million for the first six months of 2010, a decrease of $8.5 million, or 22%, as compared to the $38.2 million recorded last year. These decreases in net interest income are primarily attributable to interest expense on $600 million of secured borrowings issued by the Company’s securitization entity. Beginning on January 1, 2010, all of the assets and liabilities of the securitization entity are included directly on the Company’s Consolidated Statement of Condition. Prior to 2010, these borrowings were recorded off-balance sheet in a qualified special purpose entity. See the Other Funding Sources section of this report for more information on these secured borrowings. The specialty finance segment’s non-interest income totaled $707,000 for the quarter ended June 30, 2010, compared to $650,000 for the same period in 2009, an increase of $57,000. The non-interest income increased $10.7 million to $12.2 million in the first six months of 2010 as compared to the same period in the prior year. The increase in non-interest income is a result of the bargain purchase gain from the acquisition of the life insurance premium finance receivable portfolio. See Note 3 of the Financial Statements presented under Item 1 of this report for a discussion of the bargain purchase. The after-tax loss of the specialty finance segment for the quarter ended June 30, 2010 totaled $143,000 as compared an after-tax profit of $8.1 million for the quarter ended June 30, 2009. The specialty finance segment’s after-tax profit for the six months ended June 30, 2010 totaled $8.9 million, a decrease of $7.4 million, or 45%, as compared to the prior year total of $16.3 million. Lower net income in 2010 is a result of, in the second quarter of 2010, fraud perpetrated against a number of premium finance companies in the industry, including the property and casualty division of our premium financing subsidiary, which increased the provision for credit losses by $15.7 million. Actions have been taken by the Company to decrease the likelihood of this type of loss from recurring in this line of business for the Company. The Company has conducted a thorough review of the premium finance – commercial portfolio and found no signs of similar situations.
The wealth management segment reported net interest income of $2.4 million for the second quarter of 2010 compared to $4.5 million in the same quarter of 2009. Net interest income is comprised of the net interest earned on brokerage customer receivables at WHI and an allocation of the net interest income earned by the community banking segment on non-interest bearing and interest-bearing wealth management customer account balances on deposit at the banks (“wealth management deposits”). The allocated net interest income included in this segment’s profitability was $2.3 million ($1.4 million after tax) in the second quarter of 2010 compared to $1.2 million ($691,000 after tax) in the second quarter of 2009. This segment recorded non-interest income of $11.1 million for the second quarter of 2010 compared to $9.6 million for the second quarter of 2009. The increase asset valuations due to equity market improvements have helped revenue growth from trust and asset management activities. The wealth management segment’s net income totaled $1.3 million for the second quarter of 2010 compared to net income of $2.2 million for the second quarter of 2009. On a year-to-date basis, net interest income totaled $5.0 million for the first six months of 2010, a decrease of $2.7 million or 36%, as compared to the $7.7 million recorded last year. The allocated net interest income included in this segment’s profitability was $4.7 million ($2.9 million after tax) in the first six months of 2010 and $7.5 million ($4.6 million after tax) in the first six months of 2009. This segment’s after-tax net income for the six months ended June 30, 2010, totaled $2.4 million compared to $3.3 million for the six months ended June 30, 2009, a decrease of $917,000.

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FINANCIAL CONDITION
Total assets were $13.7 billion at June 30, 2010, representing an increase of $2.3 billion, or 21%, when compared to June 30, 2009 and approximately $868.6 million, or 27% on an annualized basis, when compared to March 31, 2010. Total funding, which includes deposits, all notes and advances, including the junior subordinated debentures, was $12.2 billion at June 30, 2010, $10.2 billion at June 30, 2009 and $11.3 billion at March 31, 2010. See Notes 5, 6, 10, 11 and 12 of the Financial Statements presented under Item 1 of this report for additional period-end detail on the Company’s interest-earning assets and funding liabilities.
Interest-Earning Assets
The following table sets forth, by category, the composition of average earning asset balances and the relative percentage of total average earning assets for the periods presented:
                                                 
    Three Months Ended  
    June 30, 2010     March 31, 2010     June 30, 2009  
(Dollars in thousands)   Balance     Percent     Balance     Percent     Balance     Percent  
Loans:
                                               
Commercial and commercial real estate
  $ 5,134,042       42 %   $ 5,014,976       43 %   $ 4,987,587       49 %
Home equity
    924,307       7       928,990       8       919,667       9  
Residential real estate (1)
    528,540       4       503,804       4       493,546       5  
Premium finance receivables (2)
    2,580,778       21       2,499,896       22       1,521,373       15  
Indirect consumer loans
    75,709       1       90,772       1       143,516       1  
Other loans
    112,657       1       111,640       1       146,883       2  
 
                                   
Total loans, net of unearned income (3) excluding covered loans
  $ 9,356,033       76 %   $ 9,150,078       79 %   $ 8,212,572       81 %
Covered loans
    210,030       2                          
 
                                   
Total average loans (3)
  $ 9,566,063       78 %   $ 9,150,078       79 %   $ 8,212,572       81 %
 
                                   
Liquidity management assets (4)
    2,613,179       21       2,384,122       21       1,851,179       19  
Other earning assets (5)
    62,874       1       26,269             22,694        
 
                                   
 
                                               
Total average earning assets
  $ 12,242,116       100 %   $ 11,560,469       100 %   $ 10,086,445       100 %
 
                                   
 
                                               
Total average assets
  $ 13,390,537             $ 12,590,817             $ 11,037,468          
 
                                         
 
                                               
Total average earning assets to total average assets
            91 %             92 %             91 %
 
                                         
 
(1)   Includes mortgage loans held-for-sale
 
(2)   Includes loans held-for-sale
 
(3)   Includes loans held-for-sale and non-accrual loans
 
(4)   Liquidity management assets include available-for-sale securities, other securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements
 
(5)   Other earning assets include brokerage customer receivables and trading account securities
Total average earning assets for the second quarter of 2010 increased $2.2 billion, or 21%, to $12.2 billion, compared to the second quarter of 2009, and increased $681.6 million, or 24% on an annualized basis, compared to the first quarter of 2010. The ratio of total average earning assets as a percent of total average assets was 91% at June 30, 2010 and 2009 and 92% at March 31, 2010.
Total average loans during the second quarter of 2010 increased $1.4 billion, or 16%, over the previous year second quarter. Approximately $1.1 billion of this increase relates to the premium finance receivables portfolio. This increase primarily relates to the purchase of a portfolio of domestic life insurance premium finance loans in the third and fourth quarters of 2009.
Indirect consumer loans are comprised primarily of automobile loans originated at Hinsdale Bank. These loans are financed from networks of unaffiliated automobile dealers located throughout the Chicago metropolitan area with which the Company had established relationships. The risks associated with the Company’s portfolios are diversified among many individual borrowers. Like other consumer loans, the indirect consumer loans are subject to the Banks’ established credit standards. Management regards substantially all of these loans as prime quality loans. In the third quarter of 2008, the Company ceased the origination of indirect automobile loans through Hinsdale Bank. This niche business served the Company well over the past twelve years in helping de novo banks quickly and profitably, grow into their physical structures. Competitive pricing pressures significantly reduced the long-term potential profitably of this niche business. Given the current economic environment, the retirement of the founder of this niche business and the Company’s belief that interest rates may rise over the longer-term, exiting the origination of this business was deemed to be in the best interest of the Company. The Company continues to service its existing portfolio during the duration of the credits.

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Other loans represent a wide variety of personal and consumer loans to individuals as well as high-yielding short-term accounts receivable financing to clients in the temporary staffing industry located throughout the United States. Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk due to the type and nature of the collateral. Additionally, short-term accounts receivable financing may also involve greater credit risks than generally associated with the loan portfolios of more traditional community banks depending on the marketability of the collateral. Lower activity from existing clients and slower growth in new customer relationships due to sluggish economic conditions have led to a decrease in short-term accounts receivable financing in the last few years.
Covered loans represent loans acquired in the Lincoln Park and Wheatland FDIC-assisted transactions in the second quarter of 2010. Loans comprised the majority of the assets acquired in these acquisitions and are subject to a loss sharing agreement with the FDIC whereby the FDIC has agreed to reimburse the Company for 80% of losses incurred on the purchased loans, foreclosed real estate, and certain other assets. See Note 3 to the financial statements of Item 1 of this report for a discussion of these acquisitions.
Liquidity management assets include available-for-sale securities, other securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements. The balances of these assets can fluctuate based on management’s ongoing effort to manage liquidity and for asset liability management purposes.
Other earning assets include brokerage customer receivables and trading account securities at WHI. Trading securities are also held at the Wintrust corporate level. In the normal course of business, WHI activities involve the execution, settlement, and financing of various securities transactions. WHI’s customer securities activities are transacted on either a cash or margin basis. In margin transactions, WHI, under an agreement with the out-sourced securities firm, extends credit to its customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in customer’s accounts. In connection with these activities, WHI executes and the out-sourced firm clears customer transactions relating to the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose WHI to off-balance-sheet risk, particularly in volatile trading markets, in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event a customer fails to satisfy its obligations, WHI under an agreement with the outsourced securities firm, may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer’s obligations. WHI seeks to control the risks associated with its customers’ activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. WHI monitors required margin levels daily and, pursuant to such guidelines, requires customers to deposit additional collateral or to reduce positions when necessary.
                                 
    Average Balances for the  
    Six Months Ended  
    June 30, 2010     June 30, 2009  
(Dollars in thousands)   Balance     Percent     Balance     Percent  
Loans:
                               
Commercial and commercial real estate
  $ 5,074,824       43 %   $ 4,907,476       49 %
Home equity
    926,636       8       914,834       9  
Residential real estate (1)
    516,275       4       467,913       5  
Premium finance receivables (2)
    2,540,608       21       1,466,447       14  
Indirect consumer loans
    83,199       1       154,270       2  
Other loans
    112,151       1       154,118       2  
 
                       
Total loans, net of unearned income (3)
excluding covered loans
  $ 9,253,693       78 %   $ 8,065,058       81 %
Covered loans
    105,595       1              
 
                       
Total average loans (3)
  $ 9,359,288       79 %   $ 8,065,058       81 %
 
                       
Liquidity management assets (4)
    2,485,713       21       1,845,283       19  
Other earning assets (5)
    58,291             22,412        
 
                       
Total average earning assets
  $ 11,903,292       100 %   $ 9,932,753       100 %
 
                       
Total average assets
  $ 12,993,056             $ 10,881,525          
 
                           
 
                               
Total average earning assets to total average assets
            92 %             91 %
 
                           
 
(1)   Includes mortgage loans held-for-sale
 
(2)   Includes loans held-for-sale
 
(3)   Includes loans held-for-sale and non-accrual loans
 
(4)   Liquidity management assets include available-for-sale securities, other securities, interest earning deposits with banks, federal funds sold and securities purchased under resale agreements
 
(5)   Other earning assets include brokerage customer receivables and trading account securities
Total average loans for the first six months of 2010 increased $1.3 billion, or 16%, over the previous year period. Similar to the quarterly discussion above, approximately $1.1 billion of this increase relates to the premium finance receivables portfolio, which is a result of the purchase of a portfolio of domestic life insurance premium finance loans in the third and fourth quarters of 2009.

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Deposits
Total deposits at June 30, 2010, were $10.6 billion and increased $1.4 billion, or 16%, compared to total deposits at June 30, 2009. See Note 10 to the financial statements of Item 1 of this report for a summary of period end deposit balances.
The following table sets forth, by category, the maturity of deposits as of June 30, 2010:
                                                 
                                            Weighted-  
    Non-                                     Average  
    Interest     Savings                             Rate of  
    Bearing     And             Time             Maturing Time  
(Dollars in   And     Money     Wealth     Certificates     Total     Certificates  
thousands)   NOW (1)     Market (1)     Mgt (1) (2)     of Deposit     Deposits     of Deposit  
1 – 3 months
  $ 2,514,547       2,317,482       600,223       1,123,944       6,556,196       1.86 %
4 – 6 months
                94,607       925,309       1,019,916       1.82  
7 – 9 months
                      712,985       712,985       1.83  
10 – 12 months
                      615,885       615,885       2.04  
13 – 18 months
                      673,741       673,741       2.03  
19 – 24 months
                      355,496       355,496       2.34  
24+ months
                      690,523       690,523       2.58  
 
                                   
Total
  $ 2,514,547       2,317,482       694,830       5,097,883       10,624,742       2.03 %
 
                                   
 
(1)   Balances of non-contractual maturity deposits are shown as maturing in the earliest time frame. These deposits do not have contractual maturities and re-price in varying degrees to changes in overall interest rates.
 
(2)   Wealth management deposit balances from unaffiliated companies are reflected in the period in which the current contractual obligation to hold these funds expires.
Brokered Deposits
While the Company obtains a portion of its total deposits through brokered deposits, the Company does so primarily as an asset-liability management tool to assist in the management of interest rate risk, and the Company does not consider brokered deposits to be a vital component of its current liquidity resources. Historically, brokered deposits have represented a small component of the Company’s total deposits outstanding, as set forth in the table below:
                                           
    June 30,     December 31,
(Dollars in thousands)   2010   2009     2009   2008   2007
Total deposits
  $ 10,624,742       9,191,332         9,917,074       8,376,750       7,471,441  
Brokered deposits (1)
    811,011       943,000         927,722       800,042       505,069  
Brokered deposits as a percentage of total deposits (1)
    7.6 %     10.3 %       9.4 %     9.6 %     6.8 %
 
(1)   Brokered Deposits include certificates of deposit obtained through deposit brokers, deposits received through the Certificate of Deposit Account Registry Program (“CDARS”), as well as wealth management deposits of brokerage customers from unaffiliated companies which have been placed into deposit accounts of the banks.
The following table sets forth, by category, the composition of average deposit balances and the relative percentage of total average deposits for the periods presented:
                                                 
    Three Months Ended  
    June 30, 2010     March 31, 2010     June 30, 2009  
(Dollars in thousands)   Balance     Percent     Balance     Percent     Balance     Percent  
Non-interest bearing
  $ 932,046       9 %   $ 858,875       9 %   $ 754,479       9 %
NOW accounts
    1,519,225       15       1,412,280       15       1,052,901       12  
Wealth management deposits
    700,883       7       793,078       8       930,855       10  
Money market accounts
    1,648,649       16       1,545,150       16       1,336,147       15  
Savings accounts
    569,870       5       553,599       6       433,859       5  
Time certificates of deposit
    4,909,914       48       4,513,904       46       4,343,334       49  
 
                                   
Total average deposits
  $ 10,280,587       100 %   $ 9,676,886       100 %   $ 8,851,575       100 %
 
                                   

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Total average deposits for the second quarter of 2010 were $10.3 billion, an increase of $1.4 billion, or 16%, from the second quarter of 2009. The average balances in each deposit category increased from their respective average balances as of March 31, 2010 and as of a year ago, except for the Wealth Management deposits. The average balance of Wealth Management deposits has decreased over the last twelve months as management has chosen not to renew certain wholesale accounts from unaffiliated companies.
Wealth management deposits are funds from the brokerage customers of Wayne Hummer Investments, the trust and asset management customers of Wayne Hummer Trust Company and brokerage customers from unaffiliated companies which have been placed into deposit accounts of the banks (“wealth management deposits” in the table above). Wealth Management deposits consist primarily of money market accounts. Consistent with reasonable interest rate risk parameters, these funds have generally been invested in loan production of the banks as well as other investments suitable for banks.
Other Funding Sources
Although deposits are the Company’s primary source of funding its interest-earning assets, the Company’s ability to manage the types and terms of deposits is somewhat limited by customer preferences and market competition. As a result, in addition to deposits and the issuance of equity securities and the retention of earnings, the Company uses several other sources to fund its asset base. These sources include short-term borrowings, notes payable, Federal Home Loan Bank advances, subordinated debt, secured borrowings and junior subordinated debentures. The Company evaluates the terms and unique characteristics of each source, as well as its asset-liability management position, in determining the use of such funding sources.
Average total interest-bearing funding, from sources other than deposits and including junior subordinated debentures, totaled $1.5 billion in the second quarter of 2010 compared to $1.0 billion in the second quarter of 2009.
The following table sets forth, by category, the composition of average other funding sources for the periods presented:
                         
    Three Months Ended  
    June 30,     March 31,     June 30,  
(Dollars in thousands)   2010     2010     2009  
Notes payable
  $ 1,000     $ 1,000     $ 1,000  
Federal Home Loan Bank advances
    417,835       429,195       435,983  
 
                       
Other borrowings:
                       
Federal funds purchased
    138       148        
Securities sold under repurchase agreements and other
    216,613       224,771       248,123  
 
                 
Total other borrowings
    216,751       224,919       248,123  
 
                 
 
                       
Secured borrowings — owed to securitization investors
    600,000       600,000        
Subordinated notes
    57,198       60,000       66,648  
Junior subordinated debentures
    249,493       249,493       249,494  
 
                 
Total other funding sources
  $ 1,542,277     $ 1,564,607     $ 1,001,248  
 
                 
Notes payable balances represent the balances on a credit agreement with an unaffiliated bank. This credit facility is available for corporate purposes such as to provide capital to fund growth at existing bank subsidiaries, possible future acquisitions and for other general corporate matters.
FHLB advances provide the banks with access to fixed rate funds which are useful in mitigating interest rate risk and achieving an acceptable interest rate spread on fixed rate loans or securities.
Securities sold under repurchase agreements represent sweep accounts for certain customers in connection with master repurchase agreements at the banks and short-term borrowings from brokers. This funding category fluctuates based on customer preferences and daily liquidity needs of the banks, their customers and the banks’ operating subsidiaries.
The $600 million average balance of secured borrowings represents the consolidation of a QSPE that was previously accounted for as an off-balance sheet securitization transaction sponsored by FIFC. Pursuant to ASC 810 and ASC 860, effective January 1, 2010, the QSPE is accounted for as a consolidated subsidiary of the Company. In connection with the securitization, premium finance receivables — commercial were transferred to FIFC Premium Funding, LLC, a qualifying special purpose entity (the “QSPE”). Instruments issued by the QSPE included $600 million Class A notes that bear an annual interest rate of LIBOR plus 1.45% (the “Notes”) and have an expected average term of 2.93 years with any unpaid balance due and payable in full on February 17, 2014. At the time of issuance, the Notes were eligible collateral under the Federal Reserve Bank of New York’s Term Asset-Backed Securities Loan Facility (“TALF”). The disclosures contained in this paragraph supersede and replace the disclosures contained in the fourth from last paragraph of Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Other Funding Sources in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.
The Company borrowed funds under three separate subordinated note agreements. Each subordinated note requires annual principal payments of $5.0 million beginning in the sixth year of the note and has a term of ten years. These notes mature in 2012, 2013, and 2015. Further, these notes qualify as Tier II regulatory capital.

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Junior subordinated debentures were issued to nine trusts by the Company and equal the amount of the preferred and common securities issued by the trusts. Junior subordinated debentures, subject to certain limitations, qualify as Tier 1 capital of the Company for regulatory purposes. The amount of junior subordinated debentures and certain other capital elements in excess of those certain limitations could be included in Tier 2 capital, subject to restrictions. Interest expense on these debentures is deductible for tax purposes, resulting in a cost-efficient form of regulatory capital.
See Notes 8, 11 and 12 of the Financial Statements presented under Item 1 o